Major players in some sectors of the WA economy are asking the question – what downturn?
ECONOMISTS were overwhelmingly surprised last week when the Australian Bureau of Statistics handed down its June quarter review, revealing that Australia had racked up growth of 0.6 per cent for first half of the year.
The better-than-expected growth numbers spurred Treasurer Wayne Swan to declare that Australia was the fastest growing advanced economy in the world last year, and the only advanced economy not to have fallen into technical recession.
As WA Business News' annual survey of major projects shows, it has largely been Western Australia - with a bit of help from Queensland - dragging the rest of the country out of the global economic quagmire.
According to the survey, there are currently around 22 major resources developments under way in WA worth a combined $42 billion.
While that is well below $78 billion in projects under way at the same time last year, reflecting the impact of the global downturn, the number is also a little deceptive, for a number of reasons.
For a start, it does not include the $9 billion in projects that were formally completed in the year to September.
More significantly, it fails to account for the elephant in the room - the massive Gorgon LNG project at Barrow Island - which, barring a catastrophe, is expected to win final development approval in the next few weeks.
Once the $50 billion cost of Gorgon is factored in, the value of projects under way in WA suddenly soars to more than $93 billion.
Not bad numbers for the middle of a global recession. No wonder the project has been termed a 'self-contained economic stimulus package' in its own right
Speaking at the Energy in Western Australia conference earlier this month, Chamber of Commerce and Industry WA chief executive James Pearson summed up the situation succinctly.
"In recent years, the WA has been described the V8 economy of the nation. We have been running a little low on fuel over the past year. Nevertheless, it remains a powerful machine that, with fine tuning, will once again lead the way," he said.
Australia's single biggest project investment ever, Gorgon has been 30 years in the making, but finally cleared all government and environmental hurdles during the past month. The only item still outstanding is the final sign-off from Chevron and its joint venture partners Shell and ExxonMobil.
Construction is now expected to begin by Christmas.
On top of Gorgon, another $40 billion can arguably added to the tally for projects under development if Woodside Petroleum's proposed expansion of its Pluto LNG project and Chevron's rival Wheatstone LNG project are also factored in.
Though final investment decisions on both projects are at least 12 months away, the signs are good. Woodside and Chevron have each formally committed to the costly front-end engineering and design phase for the projects, which is likely to run to hundreds of millions of dollars at each site.
Woodside's Pluto proposal looks especially robust, given it involves the relatively simple addition of two extra LNG production trains at the existing Pluto facilities being constructed on Burrup Peninsula.
The rapidity of Pluto's development is in itself astonishing, with first gas production expected late next year, barely five years after the Pluto gasfield was discovered. Incredibly, Pluto's third LNG train is scheduled to start production in 2014 - the same year Gorgon produces its first gas.
Even more astonishing is the full list of prospective oil and gas projects proposed off WA's coastline, which totals a staggering $195 billion, mostly involving large scale LNG development.
While it would be unwise to count too many chickens before they have hatched, it is clear that WA is heading toward a long boom in oil and gas development that has been many years in the making and is only just beginning.
By necessity, given the vast investment involved, these projects are predicated on long-term demand and commodity price projections rather than short-term changes in market conditions.
Fundamentally, the long-term demand outlook for energy has not changed, particularly in the core Asia Pacific region, where Australia has pole position for the race to become the region's premier energy supplier.
The same strong market fundamentals also remain in place for other key commodities, most notably iron ore, coal and uranium.
That is not to say WA has not suffered through the downturn.
Official figures from the state Department of Mines and Petroleum show the number of people directly employed in the sector declined by 9,663, or 12 per cent, between October last year and the end of June to about 67,865 workers.
That decline reflected a number of mine closures and cutbacks, particularly in the nickel sector.
BHP Billiton led the way, closing its $3 billion Ravensthorpe nickel mine and announcing major lay-offs at its Mt Keith and Perseverance nickel operations, while at least a further 10 smaller nickel mines were closed in the Kambalda, Kalgoorlie and Lake Johnston regions.
Numbers were also cut in the Pilbara, most notably among contractors working on iron ore expansion projects for Rio Tinto and Fortescue Metals Group
But since the start of the June quarter, world markets have stabilised and underlying demand for raw materials, particularly from China, has gathered renewed strength.
That has, in turn, had an immediate impact on WA, again led by the iron ore sector.
BHP Billiton, which remained at full capacity throughout the trough, continues to pump billions into the expansion of its Pilbara iron ore operations, while its aspiring joint venture partner Rio Tinto has turned the heat back up to full at its own Pilbara operations.
Meanwhile, Fortescue Metals Group is seeking up to $6 billion in funding for China to double output from its Cloud Break and Chichester Range mines, and Gindalbie Metals expects to start construction of its $1.8 billion Karara magnetite project in the Mid West by the end of the year.
At the same time, Colin Barnett's election win has been the catalyst for revived development plans in the WA uranium sector, with five major projects - Yeelirrie (BHP), Kintyre (Mitsubishi), Lake Maitland (Mega Uranium), Lake Way-Centipede (Toro Energy) and Mulga Rock (Energy & Minerals Australia) all vying to become the state's first uranium mine.
A string of new gold mine developments is on the drawing board, while a steady recovery in nickel prices has led Western Areas to commit to the $62 million Spotted Quoll open pit mine at its rich Flying Fox nickel mine at Forrestania.
Similarly, Galaxy Resources has given some hope to the hard-hit Ravensthorpe region by proceeding with its $70 million Mt Cattlin lithium mine.
According to studies by the WA Chamber of Minerals and Energy, the state is again staring down the barrel of widespread skilled labour shortages, due to the imminent boom in the LNG sector and recovery within the minerals sector.
According to chamber estimates, even accounting for the worst imaginable slowdown, WA will still need to find another 26,000 workers in 2012, rising to 27,000 by 2014.
If growth is only curtailed modestly, as now appears more likely, an extra 10,000 workers will be needed next year, 19,000 in 2011, and 37,000 in 2012, when LNG construction is likely to be at its peak.
At that time, the chamber estimates that the total number of new workers needed both directly and indirectly to support the resources sector will total over 87,000.
"I don't know where we are going to find those 37,000 people, they are not here," CME chairman Kim Horne said at a human resources function earlier this month.
Hence the announcement of fresh initiatives by the state and federal governments to boost training opportunities, and renewed support for eased restrictions on imported labour where there is an insufficient pool of appropriately skilled local workers.
Regardless of whether WA performs in line with its most pessimistic projection, the chamber expects the need for labour due to investment in new resources project to fall back in line with pre-crisis curve by 2014.
What all that suggests is that history will look back on the events of 2008 and 2009 as a little more than a lull in a long boom.
