• by: TERRY RYDER
• From: The Australian
• January 21, 2012 12:00AM
Port Hedland in WA is on the front line of the booming resources industry. Picture: Colin Murty Source: The Australian
THE economic phase Australia is entering is being described as a resources boom. I believe this is wrong.
The term boom implies a relatively short, sharp upturn to be followed by an inevitable bust.
I believe we’re seeing long-term structural change, one in which Australia is the principal source of the resources developing nations need to build and to create energy.
It’s akin to the dominant paradigm of the past 50 years: that the world runs on oil and it gets more of it from the Middle East than anywhere else.
A third of the world’s oil production happens in Middle Eastern countries, headed by Saudi Arabia, Iran, United Arab Emirates (including Dubai and Sharjah) and Kuwait. The region is also prominent in natural gas production, headed by Iran, Saudi Arabia and Qatar.
Nations such as Saudi Arabia, Kuwait, Dubai and Qatar have not had a boom; they’ve had long-term sustained demand for their products stretching back many decades.
The new paradigm features the rise of new forces in the world economy: China, India, Russia, Brazil, Malaysia, Indonesia and South Korea, to name a few. Africa is starting to emerge as a significant economic force also.
China’s growth is not a flash-in-the-pan scenario. China is on a path to becoming one of the world’s dominant economic powers; and it plans to stay there.
India is equally important in terms of demand for Australian resources. India’s economic ambitions are as driven as China’s and we’re starting to see the first big Indian investment in Australia’s resources sector, particularly in Queensland’s coal industry.
This too is not a short-term scenario. India is not just buying from us. It’s investing big time for the long term.
Individual companies are making multibillion-dollar investments in mines, rail lines and export terminals. They’re here for the long haul, with projects that have 20, 30 or 40-year horizons.
The same is true of China, Malaysia and South Korea. Many of the resources developments happening in Western Australia, South Australia and Queensland have joint-venture partners from these key Asian economies.
In August, Simon Crean, federal Minister for Regional Australia, said “Australia will become the Saudi Arabia of gas”.
He was suggesting Australia would be to gas what Saudi Arabia has been to oil: the leading supplier across the long term. I think he’s right.
The four largest liquefied natural gas projects in WA entail investment totalling $115 billion and the four big coal seam gas to LNG developments focused on Gladstone in Queensland are worth about $70bn.
Keep in mind that they all have sales contracts in place for much of the gas they will produce for decades into the future, with India, South Korea, Malaysia, China and Indonesia important customers.
In terms of their effect on the Australian economy, it’s significant that they are only in the early stages of construction, in most cases. The big impact in terms of jobs and business spending is still to come.
The same is true of the expansion programs by the big iron ore miners in WA and the growth plans of coal miners in Queensland and NSW.
In 2001, there were 26,500 employed in the mining sector in WA. Ten years later there are 101,100 jobs and plenty more still to be created as the big projects like Gorgon get under way.
The number of fly-in, fly-out workers moving through Perth Airport is already at record levels, with more growth on the way.
The creation of new or upgraded export facilities is a growth industry in itself. The various plans for Port Hedland, Geraldton and Gladstone – each a $5bn-plus undertaking – are massive. Newcastle in NSW has multibillion-dollar port facilities planned by three different entities. In Queensland, multiple new terminals costing billions are proposed near Mackay and the expansion of Port Abbot near Bowen now entails six new coal export terminals totalling $9bn.
Property investors with assets in those locations can feel some comfort that the growth forces are long term, rather than a boom.
Terry Ryder is the founder of hotspotting.com.au.
ryder@hotspotting.com.au
twitter.com/hotspotting
8 Comments
yes , good artical , very well explained , thank you
Thanks William.
Yes, I agree with your insight statement. However, there is a negative aspect you seem to have forgotten to mention – Stephen Smith, our defence minister and former foreign minister in the Labour government has openly declclared that China and India are Australia’s potential enemies in a declaration he made on a recently broadcasted ABC program. The federal government’s total compliance to Wall Street is not in the national interest. New Zealand which is also in the ANZAC alliance has been a bit more aloof.
Hi George
Thanks for your comments.
I missed that broadcast and would be interested in the context eg in relation to the location of our defence establishments?
Best Regards
Nick
Good info. BUT. Everyone is missing Inpex at 34billion in Darwin which is the tip of the iceberg for the NT as up to 10 FLNG sites come on line this decade.
Conaco Phillips is already here and has pushed Darwin to the top performing capital city in capital growth this decade in australa
Add to that the expansion of the port of Darwin to handle the ever increasing number of mines “down the track”this decade
Darwin is the base for a marine supply industry to service the burgeoning oil and gas industry in the Timor sea as well
Don’t forget why president Obama visited Darwin as well to dramatically increase our military presence in the NT as well
I could go on but I just wanted to remind everyone that Darwin is set on a Long term expansion programme that will dwarf the other Regional areas you mentioned
Remember Darwin is the ONLY capital city in the north of Australia and is the only multi dimensional economy not just based on mining which we have the lions share of at our doorstep
Just a thought to add to your research
Excellent comments Jim, thank you.
You’re right, I noticed that this has not got much media compared to, for instance the similar announcements in Gladstone last year which were front page news. (I made mention of this in the 2012 State of the Markets post). Long term Darwin should be good for the reasons you mention and it has certainly had an extremely good run. However it seemed to recently fall into a lull between infrastructure projects and its usually strong population growth slowed during 2011. The Inpex decision will save what could have been a 2012 similar to 2011, ie small declines in value.
Best Regards and thanks for adding some excellent content.
Nick
I enjoyed your article. Fortunately I bought property close to the Newcastle CBD last year, so I was very happy about reading the port upgrades.
Broome has thousands of home developments at present. A massive community just north of the main hwy to Cable Beach. Goodness knows how they will keep the home dry in the wet season.
James Price Point as you would know is about to start so Broome is also going to go ahead. The development will be massive and create plenty of employment. Having flown over that area many times I will be sorry to see its pristine beauty disappear in the name of economics.
Hi Tricia
Thanks for your comments. Yes Newcastle and the Hunter Valley are my Number One NSW picks for capital growth at the moment so you should see your investment there do well.
The infrastructure developments in the north west are staggering. $39 billion in the Kimberley, $72 billion in the Pilbara an even $25 billion in Carnarvon.
Not to mention the plans to turn Port Hedland into a major town of 50,000 people.
This is why we considered some investment opportunities there recently (The Kimberley) with fantastic returns (11% to 14%) but with at $800,000 it’s hard to justify and out of reach for most investors. To get the same return most investors would rather have two worth $400,000.
Best Regards
Nick