Is Australia Entering a China-Driven 20-Year Resources Boom? (Part 1 of 2)

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Researched by Industrial Info Resources (Sugar Land, Texas)--A senior executive of the Reserve Bank of Australia has recently predicted that Australia will enjoy a China-led resources boom that will last for the next 20 years.

Phillip Lowe, the assistant governor of the Reserve Bank, which is Australia's central bank, used a speech last month on global economic conditions to reveal that the Reserve Bank is very bullish about the Australian economy.

In particular, Lowe felt that China was becoming increasingly reliant on Australia to supply the raw materials to make steel. Steel is the key component necessary in building China's infrastructure and fuelling the country's minimum annual growth of 8%, which China's leaders believe is required to avoid internal unrest in the country.

A quick analysis of the projects that are in the planning and engineering stages in Australia seems to confirm this and highlights some interesting statistics.

Australia is a big country with a small population--only 21.8 million inhabitants. In Australia, Industrial Info is currently tracking 263 industrial projects that are in the planning or engineering stage. These projects have a staggering combined total investment value (TIV) of more than US$350 billion, bringing the average TIV of each project to US$1.33 billion.

Breaking this down by state also provides some interesting numbers:

• Western Australia accounts for 82 of Australia's projects, worth a combined US$138.4 billion. That's 31% by number but nearly 40% by value. Western Australia's population is 2.24 million.


• Queensland has 73 projects worth US$99.8 billion, or 28% by number and 28% by value. The state of Queensland has a population of 4.4 million.


• Some surprising numbers come out of the Northern Territory. The 'Territory,' as locals refer to it, has a population of only 225,000 and only 17 projects, but these 17 projects are have a TIV of $83.5 billion. This is only 6.6% by number, but a massive 24% by value from a territory that only accounts for slightly more than 1% of Australia's population.


• Australia's most populous states, New South Wales and Victoria, which between them have more than half of the country's population, have 26% of the projects by number, and a mere 5.4% by value.

Viewing these numbers from another perspective throws a different light on China's being the driving force behind Australia's expected resource boom.

Of the $350 billion-plus in projects currently in the planning or engineering stages, US$230 billion are Oil & Gas Industry projects, more specifically liquefied natural gas (LNG) projects. That's 66% of the value, although only 37 projects make up this $230 billion, demonstrating the enormous size of LNG projects.

Contracts have been signed between China and companies developing and selling Australian LNG, but China is by no means a major LNG consumer, and will not become a major consumer for many years. In terms of an energy source, China is far more interested in coal, which is cheaper and, compared to LNG, does not require expensive, sophisticated infrastructure. Coal is obviously not as clean of a fuel, but this is a country concerned about feeding 1.3 billion people, keeping them warm, and providing adequate energy and power. China will worry about the niceties much further along the economic-development curve. The upshot of this is that, while China is undeniably important to any boom Australia might be entering, the country is not the sole driver.

The small size of Australia's population, as well as the somewhat indirect relationship between state populations and project values and numbers, highlight that Australia simply does not have the required population base to build the projects that are currently planned or in engineering. The biggest single risk factor when assessing a project's viability in Australia is the availability of skilled and semi-skilled labour. This is recognised by all the major international resource companies involved in Australian projects. Unfortunately, no one has come up with a feasible solution to this problem.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.