Investment Pipeline

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GUEST OBSERVER
The Deloitte Access Economics “Investment Monitor” provides a detailed snapshot of Australia’s investment project pipeline. The database contains details on 1,205 investment projects valued at $20mn or more, as at June 2017. Here we provide an update of the key results.
Note, the full value of a project is included in the investment pipeline until the project is either completed or deleted. This differs from official estimates of the “work pipeline”, which is work outstanding on projects under construction.
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The Investment Monitor estimates the total project pipeline to be $745bn at present. That is a $47bn decrease on March and $78bn below the level of mid-2016.
Project completions totalled $73.5bn in the quarter, dominated by the $61bn Gorgon LNG project.
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New projects added to the database were worth $24.3bn, of which $9.8bn entered at the definite stage (under construction or committed). The public sector (including PPP’s) accounted for $12.5bn of the new projects, which are mostly transport initiatives, with a combined value of $9.6bn.
Mining sector projects now account for $300bn of the investment pipeline, $82bn below a year ago. This will fall further as work on the 3 remaining mega gas projects (worth $92bn) is completed by mid-2018. The total includes $189bn of potential mining projects (those under consideration or possible). Miners appear unlikely to embark upon another round of investment despite recent higher commodity prices given rising supply and uncertain demand.
The upswing in public investment continues, centred on transport projects, led by NSW and Victoria. The overall pipeline of transport projects is $232bn, including $190bn of public projects. Definite public transport projects total $110bn currently, a $60bn increase on two years ago. This includes a $12bn rise on three months earlier. The 2017 round of annual state budgets included commitments to new initiatives, particularly in Qld. 
Mining projects
The mining sector project pipeline has moderated as a number of the major gas projects have been progressively completed.
(Note, mining-related projects can be included in other sectors, e.g. transport &amp; storage.)
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The total project pipeline for the sector is $300bn, down from $363bn at the start of the year, with the completion of the $61bn Gorgon LNG project in WA. The pipeline for the mining sector peaked at $478bn at the end of 2012.
The majority of mining projects are currently at the potential stage, at $189bn, up from $169bn at the end of 2015. The rebound in commodity prices from the lows of late 2015, early 2016 has contributed to more projects being considered for possible development. However, it is uncertain how many and how soon any of these projects will advance to the definite stage.
We are of the view that the recent run of higher commodity prices will not lead to another round of investment in mining projects, against the backdrop of rising supply and uncertain demand.
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Mining projects currently under construction or committed total $111bn. This is dominated by oil &amp; gas projects, at $94bn, of which 3 remaining large projects have a combined value of $91bn, on which work is scheduled to be progressively completed by mid-2018.
Shell’s Prelude $12bn floating LNG platform, which recently arrived in Australian waters, is expected to start production in 2018. The $34bn Wheatstone LNG project in the Pilbara WA, is facing delays, with work now expected to be completed in the June quarter 2018. The Ichthys $45bn project in the Northern Territory has also been delayed and is now expected to be finished in March 2018.
Recall that the 3 major gas projects in Qld were completed from mid-2015 through to the second half of 2016. Together the Curtis, Santos and Origin projects were valued at $66bn.
In the oil &amp; gas industry, there are $41bn worth of potential projects. This is dominated by 3 projects, each valued at more than $10bn, namely: the BHP, Exxon Mobil Scarborough floating platform; the 4th train at Gorgon; and the Greater Sunrise floating platform.
In the coal industry, the project pipeline is valued at $85bn, up from $67bn at the end of 2015. The value of coal projects under construction or at the committed stage is $10bn. It is the pipeline of potential coal projects that has grown of late, to $74bn currently, up from $54bn at the end of 2015. The largest coal project under consideration is the $22bn Adani Carmichael project in the Galilee Basin.
The metal ores industry has some $6bn worth of projects under construction or committed, while there are $71bn of potential projects, up a little from $67bn at the end of 2015. 
Non-mining
The pipeline of non-mining projects has grown over the past two years, rising to $401bn currently. This is $29bn above the level of two years ago, including a $4bn increase in the past year.
The project pipeline is evenly split between definite projects (those under construction or at the committed stage), at $198bn currently, and potential projects, at $202bn.
Notable is the progression of projects through to the definite stage. Relative to two years ago, the value of definite projects has jumped by $56bn, increasing from $143bn to $198bn, while the value of potential pipeline has declined by $27bn.
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The non-mining sectors include transport &amp; storage; services; and “other”. Services is comprised of: trade; accommodation; finance; community services; and mixed use. The “other” grouping includes: utilities; manufacturing; and agriculture.
The capital intensive transport sector dominates the pipeline of non-mining investment projects, accounting for $232bn of the $401bn total. The transport project pipeline has increased by $25bn over the past two years as investment in the sector has increased. See below for a detailed discussion of transport projects.
The pipeline of “other” non-mining projects has also seen a lift over the past two years, up $7bn, centred entirely on utilities, to be $63bn currently.
For the service sectors, the past two years have been mixed. Over this period, the total project pipeline declined by $3bn to $106bn, with gains in the retail &amp; wholesale sector and in ‘mixed-use’ offset by declines in accommodation and finance.
Of the $106bn project pipeline for services, the majority is at the definite stage, $58bn currently (which is $3bn lower than two years ago), and with $47bn in potential projects (unchanged from two years ago).
In the accommodation area, including hotels and resorts, a positive story is around the advancement to the definite stage of a number of projects. Investment in the sector is increasing in response to relatively strong population growth and rapid growth in international tourism and international students. Projects under construction or committed are valued at $5.9bn currently, some $3bn above the level of two years ago. The pipeline of potential accommodation projects declined during this period, down $7bn to $13bn.
For offices, the value of projects under construction is $16.2bn, up $2bn on the previous quarter. There are $5.1bn worth of projects under consideration. Prospects are for further projects to advance to construction as office vacancy rates move lower, on positive net absorption, particularly in Sydney and Melbourne. 
Transport projects
Investment by the public sector has been trending higher over the past couple of years. This is centred on an upswing in infrastructure spending as state governments across the nation commit to new projects, particularly in transport. The fiscal pressures of earlier years have receded and some states are making better use of their balance sheets.
The pipeline of transport &amp; storage projects, across the private and public sectors, is $232bn in total. This is $25bn above the level of two years ago and is unchanged from mid-2016.
For private projects, the investment pipeline has stabilised in recent quarters at $41bn, some $5bn below two years earlier. This is down from the highs of 2012, of around $54bn, a figure boosted by mining related projects.
Transport projects are concentrated in the public sector, with a pipeline of $190bn, which is $30bn higher than two years ago and in line with the level of 12 months earlier.
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The majority of public transport projects are at the definite stage (under construction or committed). Definite projects total $110bn currently, a $60bn increase on two years ago. This includes a $12bn rise on three months earlier. The 2017 round of annual state budgets included commitments to new initiatives, particularly in Qld.
Prospects are for additional transport projects to advance to the committed stage in coming years. The pipeline of potential public transport projects is still sizeable at $80bn, albeit down from $110bn in mid-2015.
NSW has been leading the way. Some $80bn in transport projects are in the pipeline in the state, up $24bn on two years ago. Of these, $55bn are definite projects, up $21bn on two years ago, including a $4bn increase in the past year. The majority of these projects are in Sydney, as the city attempts to reduce congestion.
Victoria is also boosting investment in transport, particularly in Melbourne. The pipeline of definite projects now stands at $24bn, a rise of $3bn on a year ago and $19bn on two years earlier. This includes the $10.9bn Melbourne Metro rail project which is to begin work in 2018. The pipeline of potential project for Victoria stands at $17.4bn, including the $10bn North East Link and the $5.5bn Western Distributor project, both of which could potentially begin work in 2018.
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In Queensland, investment is also on the rise. The pipeline of definite projects is now $19bn, some $13bn above the level of two years ago, including a jump of $7bn in the past three months following the June state budget. Notably, the state government has now committed to the $5.4bn cross river rail link, with construction expected to start early in 2018. 
State by state
The investment project pipeline on a state by state basis is heavily influenced by the mining investment downturn (WA, Qld &amp; NT) and by the public transport upswing (NSW &amp; Vic, as well as SA).
In the mining state of WA, definite projects total $70bn, down from $129bn three months ago with the completion of Gorgon. This figure will move lower by mid-2018, with the completion of Wheatstone and Prelude, together worth $46bn.
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In Qld, definite projects are at $44bn, up from a low of $36bn at the end of last year, boosted by a lift in public investment. Still this is well down from the high of $122bn in mid-2013 which included the 3 major gas projects.
In NSW, the pipeline of definite projects has climbed to $79bn, a $22bn increase on two years ago, centred on a $21bn lift in public transport projects.
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In Victoria, the pipeline of definite projects is at $42bn, a rise of $16bn on two years ago, including a $19bn increase in public transport.
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In South Australia, the value of definite projects has risen to $12bn, a near $2bn increase on a year ago and $6bn higher than two years ago. Public transport projects account for $3.8bn of the $12bn in total definite projects, while public and PPP projects across other sectors account for a further $4.0bn. 
Andrew Hanlan is senior economist for Westpac and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/andrew-hanlan/3/222/430" target="_blank">here</a>. 
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