Australian infrastructure

10 October 2012

Australian infrastructure construction 2012 Q2: Commencements: $20.2bn, Work done: $31.9bn, Work pipeline: $132bn
• The Australian infrastructure construction sector
Infrastructure: commencements
60 50 40 30 20 10 0 Jun-01 $bn
Sources: ABS, Westpac Economics
updated: Oct ’12

continued to show strength in the middle of 2012. There were a number of notable features apparent in the June quarter update.

$bn
Oil & gas Mining, ex oil & gas Private, non-mining Public

60 50 40 30 20 10 0

1. Commencements were broadly stable, at a high level, underpinned by projects outside of oil and gas. 2. Construction activity accelerated further. 3. Some progress was made in reducing the sizeable pipeline of work outstanding.

• Projects starting construction in the June quarter were • While the wave of investment in oil and gas projects

valued at $20.2bn. This was all but unchanged from the $21.0bn figure for the March quarter. boosted commencements in 2009, 2010 and 2011, the official figures report that this was not the case over the first half of 2012. Though, we note that two major gas projects, Wheatstone and Ichthys, which have been given the go ahead, are yet to be included in the numbers. stable over the last five quarters, averaging $19.2bn. The June quarter result was right on this $19.2bn average and follows $20.2bn for March. public projects; $1.1bn of oil & gas projects; $4.7bn of other mining projects; and $6.6bn of private non-mining projects. to $6.2bn from $4.8bn for March, ticked lower in WA, to $4.7bn from $6.1bn, and were relatively stable elsewhere. strengthened significantly since the second half of 2009, with the value of work rising to $31.9bn for the June quarter. This is up 35% from $23.6bn for the June quarter 2011 and up 23% from $19.2bn for the June quarter 2010. pipeline of work outstanding. The ABS estimates that the value of work yet to be done on projects currently under construction declined from $138.7bn for the March quarter to $132.3bn for the June quarter. This was the first decline since June quarter 2010. (Note, “variations” to projects under construction can impact estimates of the work pipeline.)

Jun-03

Jun-05

Jun-07

Jun-09

Jun-11
1

Infrastructure commencements
40 35 30 25 20 15 10 5 0 Jun-02
Sources: ABS, Westpac Economics

$bn
Private, non-mining Oil & gas projects Public Mining, other

$bn

16 14 12 10 8 6 4 2 0

• Excluding oil and gas, commencements have been broadly

• The split of commencements for June was: $7.8bn of

• On a state basis, commencements ticked higher in NSW, • Construction activity in the infrastructure sector has

Jun-06

Jun-10

Jun-02

Jun-06

Jun-10
2

Infrastructure: commencements & activity
150 125 100 75 50 25 0 Jun-01 $bn
Mining
Sources: ABS, Westpac Economics
updated: Oct ’12

$bn

150 125 100

• Some progress was made in reducing the sizeable

Private, non-mining Public Work done Pipeline of work outstanding
Work done

75 50 25 0

Commencements Projects with a combined value of $20.2bn began construction during the June quarter. This is in line with the previous two quarters, but below the average of $32bn for the four quarters to September 2011, which included a boost from the start of a few major gas projects.

Jun-03

Jun-05

Jun-07

Jun-09

Jun-11

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

1

Australian infrastructure
10 October 2012
By state, the mining states of Qld and WA dominate. Over the last year, Qld accounted for 35% of total commencements, while WA accounted for 24%. NSW followed with 22%, but this is well below the states national output share of 32%. Private mining project commencements were valued at $5.8bn, matching the average of the two previous quarters. Of the $5.8bn for the June quarter, $5.3bn was split evenly across the states of WA, Qld and NSW. By industry, mining project commencements for the June quarter were: oil and gas, $1.1bn; coal, $2.7bn; “other minerals” - largely iron ore, $1.6bn; and other - including “heavy industries”, $0.4bn. Notably, investment in the coal sector has strengthened, with $11.4bn of commencements for the four quarters to June 2012, up from $6.8bn for the previous year. By contrast, commencements of “other minerals” projects moderated to $4.9bn for the year, down from $13.2bn for the year prior. Private non-mining project commencements were valued at $6.6bn for the June quarter, in line with the average for the four quarters to June of $6.5bn. Transport accounted for almost 40% of these projects, while almost 50% was accounted for by “utilities” (electricity, pipelines, telecommunications, water). There was a slight uptick of investment in electricity projects during the first half of 2012, a development evident in WA, NSW and Victoria. By state, Western Australia is “over represented” in this segment, with projects worth $1.7bn starting up in the period. The mining investment upswing is generating the need for additional transport infrastructure (roads, bridges, railways and ports), as well as pipelines and electricity generation. Public project commencements have been broadly stable since mid-2010 at about $8bn per quarter. The June 2012 outcome was in line with this, at $7.8bn. Over the last year, transport accounted for a little over half of public works, utilities 44% and other 4%. Road projects eased a little from the 2010/11 period, offset by upticks for electricity generation, telecommunications, and rail. By state, NSW is a little over represented, with commencements over the last four quarters accounting for 37% of the total (vs 32% share of national GDP), while Victoria is a little under represented, at 15% of commencements (vs 23% of national output). Activity Infrastructure construction activity accelerated over the last couple of years. Prior to this, activity was broadly stable, in nominal terms, from the second half of 2008 through to the first half of 2010. The value of work undertaken by the public and private sectors combined increased from $19.2bn for the June quarter 2010 to $23.6bn for the June quarter 2011, a rise of 23%. Work in the June quarter 2012 was $31.9bn, an increase of 35% on a year earlier. In real terms, growth in the year to June 2011 was 20%, accelerating to a 32% increase for the year to June 2012, directly adding 2.2ppts to annual domestic demand growth. Work pipeline declines Some progress was made in reducing the sizeable pipeline of work outstanding, with construction activity accelerating to $31.9bn in the June quarter 2012 and with commencements broadly stable at $20.2bn.

Mining sector responded to higher prices
index
private

$bn /qtr
Sources: ABS, Westpac Economics

135
Terms of trade (lhs) Mining projects ** (rhs)

8 6

115
** Commencements, mining projects (2qtr avg)
excluding mega gas projects

95 75 55 Jun-87
ToT fcs to end 2012

4 2 0

updated: Oct ’12

Jun-92

Jun-97

Jun-02

Jun-07

Jun-12
4

Work done
70 50 30 10 -10 -30 Jun-92
Historic avg: 10%

% ann
Work done, total (rhs) Work done, private (rhs)
smoothed

% ann
(real)
Jun ’12: Total +32% yr Private +48% yr

70 50 30 10 -10 -30

Sources: ABS, Westpac Economics

Jun-96

Jun-00

Jun-04

Jun-08

Jun-12
5

Infrastructure: work pipeline
70 60 50 40 30 20 10 0 Jun-02 Jun-06 Jun-10 Jun-02 Jun-06 Jun-10 $bn
Sources: ABS, Westpac Economics

$bn
Oil & gas Resources, other Non-resources, private Public

70 60 50 40 30 20 10 0

Oil & gas projects
40 $bn
Sources: ABS, Westpac Economics
updated: Oct ’12

$bn

80 70

30

Commenced Work done
Q2: Work $6bn Comm’ $1bn

Work Pipeline Work done

60 50 40 30 20 10

20

10

0 Jun-02

0 Jun-06 Jun-10 Jun-02 Jun-06 Jun-10
7

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

2

Australian infrastructure
10 October 2012
The ABS estimates that the value of work yet to be done on projects currently under construction declined from $138.7bn for the March quarter to $132.3bn for the June quarter. This was the first fall since the June quarter 2010. Note, “variations” to projects under construction can impact estimates of the work pipeline. Also to clarify, reference to the “work pipeline” in this article refers solely to projects already under construction. In some other contexts, the “work pipeline” is a broader concept, including projects that are “committed”, “under consideration” or “possible”. Inroads into the work pipeline are evident in the oil and gas industry. Work on such projects was $5.7bn in the June quarter 2012 (not seasonally adjusted), up from $3.7bn in the previous June quarter. This was sufficient to reduce the work pipeline by $4.1bn to $56.8bn. Note, that the commencement numbers are yet to include two major gas projects, Wheatstone $29bn and Ichthys $30.8bn, which have been given the go ahead. The infrastructure component of these projects is somewhat less than the total cost of construction, some of which will relate to equipment spending. Outside of oil and gas projects, the work pipeline declined by $2.4bn to $75.5bn, with reductions spread across the various segments (public, -$0.4bn to $17.5bn; mining ex oil & gas, -$0.9bn to $30.9bn; and private ex mining, -$1.1bn to $27.1bn). The States The infrastructure upswing, driven by the mining investment boom, is centred in Western Australia, Qld and to a lesser extent in NSW. Nationally, real infrastructure investment in the June quarter was $30.5bn, some $7.4bn higher than for the June quarter 2011. WA accounted for $3.8bn of this increase, Qld $2.2bn, NSW $0.9bn and the Northern Territory $0.4bn. There was little change, in dollar terms, in the three southern states of Victoria, South Australia and Tasmania. The most recent acceleration of infrastructure activity is concentrated in WA, where growth strengthened from just 2% through 2010/11 to 59% through 2011/12. This was underpinned by work advancing on the Gorgon gas project and was sufficient to reduce the pipeline of work outstanding to $57.7bn, down from a peak of $66.2bn in June 2011. Investment in three major coal seam gas projects around Gladstone has boosted infrastructure activity in Qld. Total work in the state increased by 31% through 2011/12, following a 53% jump through 2010/11. This has lifted quarterly activity to $9.4bn, just shy of the $10.4bn in WA and in excess of the $5.6bn in NSW. The work pipeline for Qld moved lower in the quarter to $53.8bn from $57.9bn, but is well up from $38.9bn a year ago. In NSW, where the resource sector is concentrated in the coal industry, infrastructure investment increased by 18% through 2010/11 and by a further 18% over the last four quarters. This directly added 0.8ppts to annual state demand growth. The upswing in NSW still has momentum. Commencements ticked higher to $6.2bn in June, up from the recent average of $5.0bn, and the work pipeline swelled to $10.6bn from $8.9bn. Moreover, the state government is looking to boost investment in the state’s network of public infrastructure, although the timeline is unclear. Andrew Hanlan, Senior Economist +61 (2) 8254 9337

Mining projects, ex oil & gas
15 12 9 6 3 0 Jun-02 $bn
Sources: ABS, Westpac Economics
updated: Oct ’12

$bn
Q2: Work $9bn Comm’ $5bn

35 30

Work Pipeline Work done

25 20 15 10 5 0

Commenced Work done

Jun-06

Jun-10 Jun-02

Jun-06

Jun-10
8

Non-mining projects
30 25 20 15 10 5 0 Jun-02 $bn Private: non-mining
updated: Oct ’12

Public
Commencements Work pipeline Work done

$bn

Sources: ABS, Westpac Economics

30 25 20 15 10 5 0

Commencements Work pipeline Work done (nsa)

Jun-06

Jun-10 Jun-02

Jun-06

Jun-10

Work done by state (total infrastructure)
12 10 8 6 4 2 0 Jun-02 $bn
Sources: ABS, Westpac Economics

$bn
(s.a. real)

12 10 8 6 4 2 0

NSW: +18%yr Vic: –1%yr SA: –13%yr

Qld: +31%yr WA: +58%yr other: +80%yr

Jun-06

Jun-10

Jun-02

Jun-06

Jun-10
10

Work pipeline by state (total infrastructure)
15 12 9 6 3 0 Jun-02 $bn
Sources: ABS, Westpac Economics

$bn
NSW Vic SA WA other

70 60 50 40 30 20 10 0

Qld

Jun-06

Jun-10 Jun-02

Jun-06

Jun-10
11

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

3

Australian infrastructure
10 October 2012
Non-resource projects, work pipeline (priv. & public)
15 12 9 6 3 0 Jun-02 $bn
WA + Qld
Sources: ABS, Westpac Economics

Infrastructure: WA
50 40 30 20 10 0 Jun-01 $bn
Resources Non-resources Public Work done Pipeline (rhs)
Sources: ABS, Westpac Economics

Australia, ex Qld & WA

$bn

Bridges, rail, harbours Electricity, pipelines Roads, water, other
Jun ’12: Total $29bn

Roads + bridges, rail, harbours Electricity, pipelines Water & sewerage Other
Jun ’12: Total $16bn
Peaks Dec ’10 Dec ’09

15 12 9 6 3 0

$bn
updated: Oct ’12

80 70 60 50

Work done

40 30 20 10 0

Jun-06

Jun-10 Jun-02

Jun-06

Jun-10

Jun-03

Jun-05

Jun-07

Jun-09

Jun-11

Infrastructure: Qld
30 25 20 15 10 5 0 Jun-01 $bn
Resources Non-resources Public Work done Pipeline (rhs)
Sources: ABS, Westpac Economics
updated: Oct ’12

Infrastructure: NSW
$bn 70 60
3 coal-seam gas projects commence

10 8 6 4 2

$bn
Resources Non-resources Public Work done Pipeline (rhs)
Sources: ABS, Westpac Economics
updated: Oct ’12

$bn

12 10

50 40 30 20 10 0

Work done

8 6 4 2 0

Jun-03

Jun-05

Jun-07

Jun-09

Jun-11

0 Jun-01

Jun-03

Jun-05

Jun-07

Jun-09

Jun-11

Infrastructure: Vic
10 8 6 4 2 0 Jun-01 $bn
Resources Non-resources Public Work done Pipeline (rhs)
Sources: ABS, Westpac Economics

Infrastructure: SA
$bn
updated: Oct ’12

10 8

3

$bn
Resources Non-resources Public Work done Pipeline (rhs)
Sources: ABS, Westpac Economics

$bn
updated: Oct ’12

3

Work done

6 4 2 0

2

2
Work done

1

1

Jun-03

Jun-05

Jun-07

Jun-09

Jun-11

0 Jun-01

0 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

4

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