Encouraging news on the progress of one of Australia’s biggest mining projects last week has firmed up the odds of a long-term recovery in the Western Australian construction industry.
Last week, Chevron announced that it had signed a contract with Japan’s Tokyo Electric Power Company for the sale of around $70 billion worth of liquefied natural gas from its planned development of the Wheatstone gas field in the Pilbara – the third largest contract for LNG sales on record in the country.
The sale firms up the chances of Chevron and its partners going ahead with a proposed $30 billion dollar development of the field – a final decision with regard to which is expected before the end of the year. If it proceeds, the planned development will provide an enormous boost to the state’s already booming heavy industry construction sector.
(Although Chevron and TEPCO had reached an in-principle agreement eighteen months ago, doubts about the deal going ahead surfaced in March when TEPCO was involved in Japan’s nuclear disaster. The signing of the contract removes these doubts.)
The sale further underpins expectations of a mining lead recovery in the state’s construction industry over the long term. Thanks to a huge pipeline of projects, the Construction Forecasting Council (CFC) expects the value of work done in the sector to more than double over the next few years (see below). As a result, the council expects overall construction activity in the state to increase from $38.826 billion in the twelve months to March this year to almost $55 billion ($54.874 billion) in financial year 2013/14.
More immediately, however, the industry looks set for a short term slump. At $562.2 million, the overall value of approvals in the state during May was lower than at any other time thus far either this year or last year. Approvals have now been in decline for three consecutive months, and the value over the first five months of the year ($3.228 billion) was well down on that for the same period last year ($4.118 billion). Moreover, at $8.599 billion, the overall value of buildings approved in the twelve months to May was far short of current levels of building activity ($12.270 billion), meaning that existing building work is being done almost one and a half times as fast as new building work is coming in.
As a result, the CFC expects activity to contract in the near term. In the twelve months to March next year, the forecaster expects the value of work done to come in at $36.282 billion – down from $38.826 in the year to March 2011.
Education leads the way down, mining leads the way back out
Along with water and healthcare, the public sector will lead the anticipated decline in activity over the short term as work on projects associated with the federal government’s Building Economic Revolution (BER) program winds down.
In significant sector developments, CFC forecasts indicate that:
• Activity on education facilities will drop from $1.349 billion to $721.6 million in the twelve months to March 2011 on the way to bottoming out at $497.4 million in financial year 2012/13.
• Despite an anticipated boost from work on the West Pilbara Seawater Desalination Plant ($900 million) scheduled for early next year, the value of work done on water and sewerage projects will decline following completion of the Southern Seawater Desalination Plant. In the twelve months to March, activity will drop from $1.439 billion to $841 million before bottoming out at $761.3 million in 2012/13.
• After a strong year last year as work on the $1.76 billion Fiona Stanley Hospital got into full swing, the value of work done on healthcare facilities is now expected to drop back from $658.7 million to $339.7 million in the year to March.
• Residential holds long term promise. The value of work done on new houses is set to grow steadily from $5.078 million in the year to March 2011 to $6.757 billion in financial year 2014/15. Whilst the multi-residential sector is in for a sharp drop this year followed by flat conditions the year after, activity on flats, units and townhouses is set to surge from $1.251 billion in 2012/13 to $2.489 billion in 2014/15.
• Though forecasts suggest activity in sport is expected to contract in coming years, the recent announcement of a planned new sports stadium in Perth ($1 billion) has provided a significant boost to prospects for this sector.
• In a similar vein, the landscape sector will reap significant benefits from an expected remodeling of Perth ($440 million), although with construction expected to take place over twenty years, the impact of this in any one year may be limited. Moreover, if Ermes Technologies $4 billion theme park goes ahead (the preferred location could be decided as soon as September), significant levels of growth in this sector will result.
• As mentioned above, strong mining activity will be the driving force behind overall construction growth. Engineering work on mining and resource projects is expected to grow from $16.676 billion in the year to March 2011 to a peak of $33.618 billion in 2013/14 as work on the $21 billion Scaddan Energy Joint Venture Coal Project. Prospects for the sector will improve further if Wheatstone goes ahead.