While federal politicians squabble over who gets the keys to the Lodge, WA’s resources industry continues to keep the national economy motoring.
LAST month’s inconclusive federal election was a bit like the old cliché about a Chinese meal – filling during the eating but soon leaving a certain emptiness.
Though Australians nationally found it hard to split the major parties, leaving the nation still in limbo almost a fortnight later, there was no such equivocation from voters in Western Australia, which swung even further towards the coalition.
That can at least partly be attributed to the widespread perception that federal Labor viewed WA as little more than a cash cow that could be milked to prop up the broken economies of New South Wales and Victoria.
Already jaded by the state’s ever-diminishing returns from its burgeoning GST revenues, many WA voters considered Labor’s mining tax plans as just another eastern raid on WA industry.
Such distrust was compounded by estimates that more than 70 per cent of the $10.5 billion expected to be raised by Julia Gillard’s watered down iron ore and coal tax in its first three years would come from WA.
For almost half a century Western Australians have understood just how much of their fate is tied to the health of the state’s resources sector.
Now the Australian Bureau of Statistics has revealed to the rest of Australia how reliant the entire nation has become on the continued strength of the industry if it is to continue leading the developed world out of the clutches of the global financial crisis.
ABS figures released last week reveal that national business investment slumped 4 per cent to a touch over $26 billion in the June quarter, in stark contrast to the 4 per cent gain that had been forecast by most economists.
The decline resulted in total business investment slumping almost 3 per cent for the year, to $107 billion, the first full-year decline in nine years.
That decline was consistent with the results of the recent National Australia Bank business survey, which showed that business confidence collapsed from +17 points to just +3 points during the June quarter.
Research by Commonwealth Bank attributed the fall to a combination of local and international factors, notably economic turbulence in Europe, the prospect of rising interest rates in Australia and uncertainty related to the original resource super profits tax announcement.
But those figures tell only part of the story, with spending in the mining sector actually increasing 2.6 per cent in the quarter.
More significantly, however, the ABS has forecast a dramatic turnaround this financial year. The bureau expects total business investment to climb by more than 24 per cent to $123.3 billion, which if accurate will be the best result for three years.
As Commbank economist Savanth Sebastian noted, that forecast can be attributed almost solely to the performance of the resources industry.
“Over the coming year it is clear that Australia will be riding on the back of the mining sector,” Mr Sebastian said. “Of the $123 billion in expected investment, just under half the total will be spent by the mining sector while only 11 per cent will be spent by manufacturers.”
In fact, the mining sector will account for more than 45 per cent of all new investment spending next year, proving its resilience in the face of significant global and domestic challenges.
A quick glance at the list of advanced resources projects planned or under way in WA also shows just how much of that forecast investment boom hinges on events in the west.
According to the annual WA Business News survey of major resources projects, there are currently $280 billion in major resources projects either already under way or in the advanced planning stages across WA.
That spectacular pipeline of investment is the envy of all other states, including Queensland, which is largely relying on the success of still unproven technology to liquefy and export gas from underground coal seams to underwrite its future.
In WA, the twin pillars of its tried and tested conventional offshore LNG industry and powerhouse iron ore sector continue to do most of the heavy lifting as local producers seek to meet continued demand growth from China.
However, a range of smaller projects in gold, base metals, uranium, and specialty materials such as lithium, vanadium, and rare earths also promise to further diversify the state’s economic base.
This year’s survey has identified 25 major projects collectively worth $141 billion as effectively already underway in the state (see table p11).
That number includes 15 major projects worth $82.5 billion actively under construction, led by the giant $43 billion Gorgon liquefied natural gas project at Barrow Island, which was approved 12 months ago and will produce its first gas in 2014.
In addition, there are a further 10 projects worth almost $59 billion which have not yet been formally approved but are in the final pre-construction phase or have had significant pre-approval funding allocated to them.
A prime example is the $2.5 billion in spending approved by BHP Billiton in January for pre-development activities associated with its Rapid Growth Project 6 iron ore expansion in the Pilbara.
But lined up behind those projects is a further $140 billion in announced major projects that are actively undergoing advanced evaluation work.
Such longer-term investment proposals are split relatively evenly between new LNG developments, such as Woodside Petroleum’s $30 billion Browse LNG project in the Kimberley, and iron ore developments such as the $4 billion Oakajee port and iron ore railway, Fortescue Metals Group’s planned $10 billion Solomon Hub iron ore project, and Hancock Prospecting’s proposed $7.2 billion Roy Hill iron ore venture.
And all of that spending comes on top of the $8.5 billion in major projects completed in WA last year, the largest of which was BHP Billiton’s $2.6 billion RGP 4 iron ore expansion in the Pilbara.
The only real question now is the extent to which Canberra lets WA get on with the job.