Australia predicts increased resource sector investment

Market: Coal, Coking coal, Crude oil, Electricity, Metals, Natural gas
26/10/22

The Australian federal government forecasts investment in upstream and mining projects to rise by 4pc in the 2022-23 fiscal year to 30 June from 2021-22, which would be the highest rate of growth since 2015-16. It predicts a further increase of 5.5pc in 2023-24 as supply chain constraints ease.

Although commodity prices are currently elevated, the pick-up in resource investment is still expected to be modest compared with the large increase during the previous mining boom around a decade ago, the Australian treasury said in its 2022-23 budget papers.

Feedback from businesses suggests resource firms are only looking to invest to maintain their current production capacity, outside of a small number of significant LNG projects such as the Scarborough gas field and the accompanying Pluto train 2 developments by Australian independent Woodside Energy.

Australia's resource capital expenditure rose to its highest level in six years in 2021-22, driven largely by higher spending on metal projects.

Resource exports are expected to contribute to growth as producers take advantage of firm global demand for LNG, coal and non-ferrous metals used in low emissions technologies, the budget papers said. Total energy and metal export receipts were up by almost 32pc to A$254.68bn ($163bn) during January-August from the same period in 2021. Elevated coal, iron ore, metals and other ore prices are assumed to unwind by the end of the January-March 2023 quarter to levels consistent with long-term fundamentals.

But Russia's continuing invasion of Ukraine provides substantial upside risk to the thermal coal and LNG price assumptions, while China's weakening growth outlook presents a downside risk for commodity prices, particularly as around 80pc of Australia's iron ore exports are shipped to China.

Receipts from Australia's profit-based tax the Petroleum Resource Rent tax (PRRT) on upstream producers from offshore oil and gas fields are forecast to further increase in 2022–23 because of a higher average Australian dollar, oil and east coast gas prices. But PRRT receipts are expected to then fall as production in maturing fields, including in the Bass strait, falls and the prices of oil and gas stabilise.

PRRT liabilities will be further weighed down by the cost of decommissioning parts of the Bass strait fields offshore Victoria as decommissioning work starts in the coming years.

The budget papers showed spending of almost A$25bn over the period to 2029-30 on climate change issues with the bulk of it related to its A$20bn Powering Australia fund to build new transmission links from planned new renewable energy zones to the existing power grid. There was A$71.9mn allocated for hydrogen projects in the budget spending period.

By Kevin Morrison

Australia petroleum tax projection					(A$mn)
	2021-22	2022-23	2023-24	2024-25	2025-26

PRRT	1,638	2,600	2,450	2,100	2,000
Gasoline excise	5,015	5,600	6,850	7,400	7,650
Diesel excise	11,744	13,170	15,620	16,770	17,320
Source: 2022-23 budget papers

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