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Gas and Other Heavy Industry to Lead Next Resources Construction Upturn
Resources construction poised for robust recovery over the next 3 years
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Australia’s resources construction sector experienced a double-digit decline in 2021/22, after recording a modest growth rate of 5% in the previous year. If we exclude oil & gas, however, the downturn has been quite substantial, with the overall sector impacted by a robust recovery in gas/LNG investment.
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The country’s resource construction is forecasted to reach $33 billion in 2022/23, surpassing last year’s record of $23 billion, registering an annual growth of 44%. The rise in activity is then expected to simmer down, as world supply responds to a soft demand backdrop.
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The outlook for some key segments, such as other minerals and coal, is quite weak. But this weakness will be offset by large increases in segments such as LNG and critical minerals, such that overall resources construction will rise solidly, reaching peak levels in 2025.
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Gas and Other Heavy Industry- dominant drivers of growth
The 2020/21 dip in the value of work done in oil & gas sector was exacerbated by the OPEC+ oil price war in 2021 and the uncertainty around oil production levels, leading to the delay of several final investment decisions for key construction projects.
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However, oil prices have since rebounded, prompting a recovery in construction activity. The value of work done in the oil & gas sector rose 46% in 2021/22, entering a period of strong increase. We estimate growth to accelerate to almost 90% in oil & gas work done in 2022/23, to an annual value of $11.1 billion.
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Apart from oil & gas, other heavy industry is poised to become an important driver of the projected upturn in the resources construction sector. Value of work done is expected to rise by 136% in 2023/23 over the previous year, driven by the commencements of various major projects around Australia- some of these projects include the $3.1 billion Karratha Urea Plant (WA), the $2.6 billion H2 – HubTM Gladstone Facility (QLD), and the $1.6 billion Agripower Amorphous Silica - Stage 2 Development Project (QLD).
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Hydrogen - wild card
The Australian Government and state governments are seeking to develop an infrastructure plan to reduce carbon emissions and identify opportunities for investment in the future low carbon economy, particularly through development of a hydrogen production industry in the country.
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For instance, ENGIE will build one of the world’s first industrial-scale renewable hydrogen projects in the Pilbara region of Western Australia. Once completed, the $87 million electrolyser will be the largest in Australia. Our project database includes over fifteen large hydrogen-related projects, none of which are currently included in our forecasts at present, due to uncertainty regarding timing and viability. These projects represent $13 billion worth of work, but most are in the early development stages. We currently expect these projects to begin boosting construction work during the 2030s, but the pace of development of these technologies is hard to predict and, consequently, the hydrogen sector represents a large potential upside for growth in resource construction in Australia.
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Coal - dim outlook
Coal and coal handling construction fell by 10% in 2020/21 and by 15% in 2021/22. Floods in NSW and Queensland, coupled with a rise in COVID-19 cases, disrupted construction work done during Q1 2022. Production growth, meanwhile, will be supported by the Adani Group’s Carmichael mine in Queensland, which started production in 2021.
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A recovery in coal construction is set to begin in 2023/24, which will be mainly driven by the commencement of metallurgical coal projects such as Spur Hill Coal Project ($800 million) and Saraji East ($1.8 billion). In the long term, the case for new coal mines is undermined by increasing international climate ambition and continuing declines in the price of renewable energy. Furthermore, the new government has set a 2030 emissions reduction target of 43% versus 2005 levels, which is more aggressive than the previous government’s target of 26% to 28%.
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Our most recent reports:
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Australian Construction Cost Trends
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This report examines the outlook for construction costs, in detail be sector and type of input.
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Australian Construction Projects Database
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This latest list of projects corresponds with our fully revised set of forecasts published in November 2023.
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Australian Regional Construction Outlook
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Our latest regional forecasts for residential building and construction have just been released.
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Australian Construction Materials Forecasts
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Our latest forecasts assess the implications for construction materials demand of the current outlook for building and construction.
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Australian Road and Bridge Works
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This report examines the strength and composition of the current upturn, and determines the likely timing of the peak, and subsequent decline.
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