THE impact of falling commodity prices has contributed to a significant drop in resource investment in Australia with just three new projects receiving final approval for development in the past three months, the Bureau of Resource and Energy Economics (BREE) has reported.
According to the October 2014 edition of the Resources and Energy Major Projects, released last week, three projects worth a combined capital value of $597 million made the transition from Feasibility to the Committed Stage – the smallest increase in more than a decade.
The report showed there are 44 projects at the Committed Stage, worth $228 billion – 87% of which are LNG projects.
However, the number of projects at the Publicly Announced Stage of development is dwindling, now 19 less than was reported in April 2014, while the number at Feasibility stage is eight lower than in the same period.
The report, which tracks project development between April 2014 and October 2014, said it arrived ‘at a time when investment in Australia’s resource and energy sector has been declining in response to a general decline in commodity prices’.
The environment of lower prices has encouraged resources companies to focus on improving productivity and reducing costs of production rather than investing in additional capacity,” the report said.
“The renewed focus on reducing costs has also led project proponents to re-evaluate their plans and identify less capital intensive development options.
“This has been observed through revisions to the schedules and parameters of a number of projects, which has slowed the entry and progression of projects through the BREE development pipeline.”
Exploration expenditure also suffered a recent decline, falling by 12% to $6.9 billion in the 2013-14 financial year.
However, despite the subdued look for resource and energy investment in Australia, the latest BREE update noted there ‘are still opportunities for future investment in the sector’.
“The outlook remains positive with non-OECD emerging economies continuing to focus on economic development,” the report said.
“This development will be underpinned by access to resources and energy commodities which are the building blocks of economic growth and enhanced living standards.
The BREE report indicates that such growth may lead to greater investment in Australian resources, but regulatory delays and cost imposts pose a potential risk.
“BREE’s investment pipeline model indicates that there is an emerging bottleneck of projects at the Feasibility Stage,” the report noted.
“While the Government is implementing measures to streamline and expedite the approvals process, the current operating environment of lower prices and high costs is not conducive to project development or further investment in the sector.
“It is important to note that business investment is cyclical. While the stock of investment in the sector is declining, there remains the potential for further investment in the future. Australia has many world class mineral and energy deposits that can be developed when market conditions permit.
“The cost pressures that have affected the sector are beginning to abate in response to reduced construction activity and cost-cutting measures undertaken by companies, and looking forward, Australia will continue to compete with other resource-rich countries to secure investment to allow the development of new projects.
“To secure a share of this investment, Australia will need to remain a leading destination for attracting capital. “
To view the BREE report in full, click here.