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Oil and gas account for nearly half of Australia's resource project pipeline: government

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Oil and gas account for nearly half of Australia's resource project pipeline: government

Singapore — LNG, natural gas and petroleum account for nearly half the natural resource projects in the investment pipeline in Australia worth around A$334 billion ($244 billion), the Department of Industry, Science, Energy and Resources said in a report published Nov. 23.

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Oil and gas is followed by coal, and underscores the large share of fossil fuels in Australia's economy, which is significant in the backdrop of wider conversations about decarbonization and energy transition from both governments and corporations worldwide.

Australia had a total of 335 major resource and energy development projects in the pipeline at the end of October, an increase of 19% in the past 12 months and a 4% increase in investment value over the same period, the department said in its Resources and Energy Major Projects report.

These include projects that have been publicly announced, are in the feasibility stage, have cleared final investment decision and which have been completed.

Of the total, 44 projects are in the LNG, gas and petroleum sector, worth around A$130 billion-A$152 billion, reflecting the large share of oil and gas.

"This potential investment depends heavily on the progression of just 12 'mega projects' (projects involving over A$5 billion of investment), which account for half of the value of projects in the investment pipeline," the department said in the report.

It said the largest of these mega projects is Woodside Energy's Browse to North West Shelf gas/LNG project, and others include Woodside's 'Scarborough to Pluto' project on the west coast, Arrow Energy's Surat gas project on the east coast, and the West Pilbara iron ore project.

This is followed by the coal sector with 72 projects, mostly in the feasibility stage, worth around A$77 billion-A$89 billion. Other important sectors are iron ore with projects worth up to A$51 billion, infrastructure worth up to A$23 billion and battery metals worth up to A$9.5 billion.

"Iron ore, coal and gas/LNG projects and related infrastructure — Australia's three largest export commodities — account for over 80% of projected investment," the report said, adding that LNG/gas projects are the largest of these, with the majority at the feasibility stage backfill projects that utilize existing LNG export infrastructure.

FLOW SLOWS

"While some projects have progressed, the flow of projects from the 'feasibility' to the 'committed' stage remains slow in some areas, particularly coal and gas," the report said.

"The impact of COVID-19 on oil and LNG prices has occurred against a backdrop of an existing global LNG supply glut, which has led to the deferral of FIDs for several large offshore projects that were originally expected in 2020 or 2021," the report said, referring to the 19 gas/LNG projects at the feasibility stage.

It said many of the 45 coal projects at the feasibility stage have been delayed and there is a growing preference for coal expansions over new project investments.

"There appears to be a growing reluctance to commit to greenfield coal projects, and an expanding list of lenders/investors have announced plans to no longer finance thermal coal projects. Some pension and equity funds are also divesting from, or limiting, their exposure to thermal coal, narrowing the range of investment financing options available to coal projects," the report said.

Overall, the scaling back of the size and scope of projects to reduce capital expenditure, project cancellations, and projects moving backwards in the pipeline partly reflects the impact of global uncertainties due to the pandemic, with particularly challenging market conditions for energy commodities, it said.

Australia's resources department said the bright spots were the gold and battery/electric vehicle related sectors, where projects rose by 33% and 7%, respectively, reflecting strong gold demand and expectations of strong growth for electric vehicles.