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Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. Item No. 92937 03.2016 W531134
AUSTR ALIA
MAJOR PROJECT UPDATE
ANZ RESEARCH
APRIL 2017
anz.com
531134_ANZ RESEARCH COVER_92937.indd 1 FOLD 30/03/2016 2:24 pm
AUSTRALIA MAJOR
PROJECT UPDATE
ANZ RESEARCH
APRIL 2017
531134_ANZ RESEARCH TITLE PAGE_92937B.indd 1 30/03/2016 2:25 pmCONTENTS Summary 4 Public Infrastructure Projects 5 Major Resources Projects 8 Non-residential Building 10 Outlook by State 11 Outlook by Sector 13 AUTHORS Daniel Gradwell Economist David Plank Head of Australian Economics This report covers major infrastructure projects in Australia with an expected cost of at least AUD100 million. Publication date: 6 April 2017 Please email research@anz.com with feedback and enquiries
AUSTRALIA MAJOR PROJECT UPDATE | 4
SUMMARY However, there is plenty more positive investment
The decline in mining-related investment has been news in other parts of the economy. Publicly-funded
well documented in recent years. There are still more infrastructure spending has been increasing for
declines to come, but the drag on the economy from several years and this is expected to continue.
mining is steadily easing and other sectors are Projects such as the NBN at the nationwide level and
picking up the slack. Publicly-funded infrastructure a number of road and rail projects across New South
construction and private sector spending on non- Wales and Victoria are set to push public infrastructure
residential buildings will be key drivers of investment spending to record levels over each of the next three
activity and employment over coming years. Overall, years.
we anticipate that the pipeline of major projects is
FIGURE 2. MAJOR RESOURCES PROJECTS BY STAGE
set to remain broadly flat over the next three 80
years – a positive result given the soft mining
backdrop.
60
FIGURE 1. MAJOR PROJECTS PIPELINE BY STAGE
120
AUDbn
40
100 Pipeline of
Pipeline of projects under projects under
construction or committed construction or
committed
80
Potential
20
Potential investment
ANZ profile investment pipeline
AUDbn
60 pipeline
0
40 2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access
20
Economics, state government budget papers, ANZ Research
0
2011 2012 2013 2014 2015 2016 2017 2018 2019
And it’s not just the public sector that is likely to see
Under construction Committed Under consideration Possible solid growth. We anticipate privately funded non-
Source: BREE, company reports, Deloitte Access residential building projects (including retail, hotels and
Economics, state government budget papers, ANZ Research offices) will also support construction activity and assist
investment and employment through the last stages of
Most of the forthcoming weakness in mining the mining boom and beyond.
investment will occur in Western Australia, with
FIGURE 3. MAJOR PUBLICLY-FUNDED WORKS
the LNG sector in particular expected to post significant 22
Metronet (WA)
declines. On the other hand, the decline in investment Snowy Hydro Expansion (NSW)
20 Pacific Highway - Woolgoolga to Ballina (NSW)
is largely complete in Queensland and we believe that Airport Link (WA)
18 Melbourne Metro (VIC)
the eastern mining state is much closer to an Level Crossing Removals (VIC)
Western Distributor (VIC)
16
economic recovery than its western counterpart. Cranbourne-Pakenham Rail (VIC)
Western Harbour Tunnel (NSW)
14 Sydney Metro City and Southwest (NSW)
Badgerys Creek Airport (NSW)
AUDbn
CBD and South East Light Rail (NSW)
The outlook for resources investment has not 12
NorthConnex (NSW)
Sydney Metro Northwest (NSW)
improved despite the improvement in commodity 10 WestConnex (NSW)
NBN
prices over the past 12 months. Although prices of 8
coal, iron ore and oil have picked up by between 70% 6
and 100% over the past year, this has not translated 4
to the next round of projects getting off the ground. 2
Importantly, we do not anticipate this happening 0
for some time given our view that further growth in 2014 2015 2016 2017 2018 2019 2020
commodity prices will be constrained by supply entering Source: BREE, company reports, Deloitte Access
the market. Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 5
INFRASTRUCTURE INVESTMENT BY THE New South Wales was able to bank AUD16.2bn for
PUBLIC SECTOR the 50.4% sale of electricity operator, Ausgrid, while
We have known for some time that publicly- the sale process for 50.4% of the last poles and wires
funded infrastructure investment is embarking on operator, Endeavour Energy, is currently underway,
a significant upswing. But this theme is becoming with an estimated price of AUD4bn. The privatisation of
increasingly prevalent as the downturn in mineral- NSW’s Land and Property Information is also underway
related investment continues. In fact, we anticipate with around AUD1.5-2bn expected. This leaves New
that spending on major publicly-funded projects South Wales on track to achieve its target of AUD20bn
will essentially offset the declines in resources from asset sales, with the proceeds to be directed
investment over the next two to three years. toward infrastructure spending. Meanwhile, September
2016 saw the Victorian Government receive AUD9.7bn
FIGURE 4. MAJOR PUBLIC PROJECTS BY STATE
for the long-term lease of the Port of Melbourne, well
22
above the initial estimates of AUD5-7bn.
20
18
On the other hand, the financing options for Western
16
Australia and Queensland are more constrained given
14
the relative absence of public asset recycling.
AUDbn
12
10
State capital investment plans have also recently been
8
boosted by support from the Commonwealth.
6
4
Its capital spending budget allocation to the
2
states and territories increased by 15% from
0
2014-15 to AUD22.8bn in 2016-17. This includes
2014 2015
Nationwide
2016
New South Wales
2017
Victoria
2018 2019
Western Australia
2020
the Asset Recycling Initiative, which will allocate
AUD3.3bn to the states over the 2015-16 to 2018-
Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ Research 19 period as a bonus for state infrastructure funded
through asset sales.
Our research suggests that the vast majority of this
strong investment pipeline is taking place across Overall, due mainly to the continued roll-out
New South Wales and Victoria, and Sydney and of the NBN and investment by the NSW and
Melbourne in particular. Victorian governments, public infrastructure
spending and investment is set to rise further
Several multi-billion dollar projects are currently under over the next three years.
construction in Sydney, including the WestConnex and
LONGER-TERM OUTLOOK IS SOFTER
NorthConnex road projects and the Metro Northwest
rail project. The outlook for infrastructure spending Further out, is it difficult to see this level of
was further boosted at the end of 2016 with the infrastructure spending continuing given future
announcement that Sydney’s second airport, at pressures on government finances, and the
Badgerys Creek, had been granted final approval, apparent lack of willingness of the states to
as well as the recent reveal of plans to expand take on substantial additional debt to fund
the Snowy Mountains power scheme. Work in infrastructure.
Melbourne is being supported by the level crossing
removal program (which was implemented in lieu of We believe the level of publicly funded
the East-West Link when the Government changed in infrastructure activity will steadily retreat beyond
2014), while pre-construction work is underway on the the 2019 peak.
mammoth Melbourne Metro.
The current round of asset sales in NSW and
It comes as little surprise that these states are Victoria cannot continue indefinitely. The Asset
the ones with the brightest public investment Recycling Initiative is also likely to have brought
outlook, given they have the healthiest finances forward some asset sales, but will soon conclude.
of all Australian states and territories. In part,
this is a result of Australia’s post-mining boom Further, state Government recurrent revenues,
economy. The major cities on the eastern seaboard are which if strong can help support capital spending,
experiencing solid house and particularly apartment are unlikely to surprise on the upside over coming
building activity and price gains, boosting the state years. The unexpected boost to iron ore royalties
government’s tax collections paid on the transfer of in Western Australia, coal royalties in Queensland
property ownership. But the large eastern states’ and transfer duty revenue in NSW and Victoria
ability to fund new infrastructure mainly reflects were lucrative for these states, but are unlikely to
the New South Wales Baird (and now Berejiklian) be continually repeated.
and Victorian Andrews state Governments’
approach to asset sales.AUSTRALIA MAJOR PROJECT UPDATE | 6
TABLE 1. CAPEX OF PUBLIC SECTOR BACKED PROJECTS
Cost
Company Project State Industry Start End
(AUDbn)
Under construction / committed
NBN Co National Broadband Network 49.0 AUST Telecoms 2012 2021
NSW Roads and Maritime Services WestConnex 16.8 NSW Road 2014 2023
VIC Dept. of Transport Melbourne Metro 10.9 VIC Rail 2017 2024
NSW State Rail Authority Sydney Metro City & Southwest 10.4 NSW Rail 2017 2024
NSW State Rail Authority Sydney Metro Northwest 8.3 NSW Rail 2014 2019
Victorian Government 50 level crossing removals 6.0 VIC Rail/Road 2016 2023
Pacific Highway - Woolgoolga
NSW Roads and Maritime Services 4.4 NSW Road 2017 2020
to Ballina
NSW Roads and Maritime Services/ NorthConnex 3.0 NSW Road 2015 2019
Transurban
Transport NSW CBD and South East Light Rail 2.1 NSW Rail 2015 2019
WA Dept. of Transport Airport Rail Link 2.0 WA Rail 2016 2020
Toowoomba Second Range
Projects Queensland 1.6 QLD Road 2016 2019
Crossing
VIC Dept. of Transport Cranbourne-Pakenham Rail 1.6 VIC Rail 2016 2019
QLD Dept. of Transport and Main Gateway North Upgrade 1.4 QLD Road 2016 2019
Roads
Under consideration
Transurban/Victorian Government Western Distributor 5.5 VIC Road 2018 2022
Western Sydney Airport Alliance/ Badgerys Creek Airport 2.9 NSW Airport 2018 2026
Australian Federal Government
Western Australian Government Metronet 2.5 WA Rail 2018 2023
NSW, Vic and Commonwealth Snowy Hydro Expansion 2.0 NSW Electricity 2018 2023
Governments
Source: BREE, company reports, Deloitte Access Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 7
With the Commonwealth’s intention for ongoing Sydney Metro City and Southwest (NSW): The
fiscal consolidation, in part motivated by second, larger, leg of Sydney’s metro project is set to
the threat of losing the AAA credit rating, enter early works this year, with major construction
the Commonwealth’s support to the states is also of tunnelling between Chatswood and Sydenham to
constrained. In other words, the Commonwealth is commence in 2018. The AUD10.4bn project is expected
unlikely to increase its contributions for capital to be complete by 2024.
expenditure to the states due to an aversion to
increasing its debt trajectory. The states also face Badgerys Creek Airport (NSW): This project was
ongoing expenditure challenges including funding the biggest mover over the past 12 months, with the
health, NDIS and education with population Commonwealth Government granting final approval in
aging. These will limit their ability to find December 2016. Sydney Airport Corporation has until
recurrent revenues to contribute to the capital April 2017 to decide whether to activate its first right
spending budget. of refusal to build the new airport. Preliminary cost
estimates suggest around AUD3bn will be required for
KEY PROJECTS
the new terminal and runway, with a further AUD2bn to
Significant public sector projects with a value above be spent on surrounding infrastructure, such as roads.
AUD2bn, which are either under construction or highly There are no provisions for a rail line under current
likely to proceed are summarised here. plans.
NBN (National): We noted in this paper a year ago Snowy Hydro Expansion (NSW): The recently-
that the risks to this project were skewed to the upside, announced, AUD2bn expansion is set to increase
and this has proven to be the case. Government the capacity of the Snowy Hydro scheme by 50%.
spending has already reached AUD29.5bn, and a Following the completion of a feasibility study in 2017,
further AUD19.5bn has been raised for completion. construction is expected to take four years.
This is likely to take total spending to AUD49bn, but
the risks are still towards even higher spending if Level Crossing Removals (Vic): The scope and value
completion is delayed beyond the current 2020 target. of this project has more than doubled over the past
year, with the Victorian Government now pledging to
Pacific Highway Duplication (NSW): Work on the remove 50 of the most dangerous level crossings by
final stage of the long-running Pacific Highway upgrade 2023. Work appears on track on the AUD6bn project.
is set to ramp up. The Woolgoolga to Ballina section is
expected to cost AUD4.4bn, and reach completion by Western Distributor (Vic): This AUD5.5bn project is
2020. the result of an unsolicited proposal from Transurban,
which is funding the build in conjunction with the
NorthConnex (NSW): This nine kilometre, AUD3bn, Victorian Government. In exchange, Transurban’s
road project is in full swing and is on track for concession to operate the CityLink toll road is being
completion in 2019. Transurban is providing the bulk extended by up to 12 years. Construction is expected to
of the construction funds (in exchange for an extended commence in 2018, for completion in 2022.
concession term on the M7), supported by contributions
from both the Commonwealth and NSW Governments. Melbourne Metro (Vic): The AUD10.9bn project is
currently undergoing preliminary works, with three
WestConnex (NSW): Work continues apace on the consortiums bidding for the construction contract. The
AUD16.8bn road project in Sydney. The project is majority of the funding is coming from the Victorian
being delivered in three stages, with the final segment Government, with the Commonwealth chipping in the
on target for completion in 2023. Funding has been remainder. Work is expected to begin in earnest around
provided through a combination of private equity and 2018-19, for completion by 2024.
the NSW and Commonwealth Governments.
Metronet (WA): The newly-elected Labor Government,
CBD and South East Light Rail (NSW): The led by Mark McGowan, made this project one of their
AUD2.1bn project, funded by the NSW Government and key election pledges. The AUD2.5bn rail project, aimed
the City of Sydney, is on track for completion in 2019. at connected the suburbs to the CBD, will need to
get approval for Commonwealth funding, before an
Sydney Metro Northwest (NSW): The AUD8.3bn rail anticipated commencement date of 2018.
project is in full swing, and on track for completion in
2019.AUSTRALIA MAJOR PROJECT UPDATE | 8
MAJOR RESOURCES PROJECTS FIGURE 7. MINING INVESTMENT SHARE OF OUTPUT
BY STATE
The sharp decline in resource-related investment
5.0
continued through 2016, with annual activity less
4.5
than half of that during the 2013 peak. Our estimated
4.0
pipeline of major projects under construction or
committed is now sitting around AUD20bn, down 3.5
from AUD75bn in 2013. As such, we anticipate that 3.0
% GDP
investment will continue to decline over coming 2.5
years, but it is now safe to say that the worst of 2.0
its impact on GDP growth is behind us. Although 1.5
commodity prices have picked up over the past 1.0
year, it is still too early for this to translate to 0.5
increased investment activity. 0.0
90 95 00 05 10 15
FIGURE 5. MAJOR RESOURCES PROJECTS Queensland Western Australia Northern Territory
80
Source: ABS, ANZ Research
In turn, we expect to see falling investment primarily
in the oil and gas (primarily LNG) sector. Work is
60
rapidly approaching completion across the Gorgon,
Prelude and Wheatstone projects, which, at a total
cost of over AUD100bn, is leaving a tremendous void
AUDbn
40
Pipeline of
projects under in activity in Western Australia. This declining level of
construction or
committed
work is also seen across CAPEX data, which show that
Potential
20
investment oil and gas investment has fallen by over 60% since
pipeline
the June 2013 peak. The backlog of oil and gas work
under construction has also been consistently falling,
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 from a peak of AUD118bn to just AUD37bn at present,
Under construction Committed Under consideration Possible
supporting our expectation that work done will continue
Source: BREE, company reports, Deloitte Access to decline.
Economics, state government budget papers, ANZ Research
FIGURE 8. LNG MAIN CAUSE OF INVESTMENT
Falling resource investment has been a significant
DECLINE
drag on the Australian economy, taking an estimated
1.8% off GDP growth in 2016. We expect this will ease 18
significantly from here, and subtract a relatively mild 16
0.7% and 0.2% in 2017 and 2018 respectively.
Nominal resources investment AUDbn
14
12
FIGURE 6. MINING SECTOR’S CONTRIBUTION TO
ECONOMY 10
2.0
8
forecasts
Contribution to quarterly GDP growth (ppts)
6
1.5
4
1.0
2
0.5 0
09 10 11 12 13 14 15 16 17
Coal Oil and gas Metal ores Other mining
0.0
Source: ABS, ANZ Research
-0.5
In all, we expect construction of major resources
-1.0 projects will fall for another three years, although the
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Mining investment rate of decline will be slow compared to what we have
Source: ABS, ANZ Research already experienced. Importantly, the recent rise in
commodity prices, which may support operation
But the mining sector is set to experience a marked expenditure, is unlikely to support new projects,
divergence across regions, with Western Australia so the longer-term outlook for construction
expected to continue to post the most significant remains subdued.
declines in investment. Queensland has already
gone through the vast majority of its adjustment,
and appears much closer to an economic recovery
than its western counterpart.AUSTRALIA MAJOR PROJECT UPDATE | 9
PRICE OUTLOOK DOES NOT SUGGEST ANOTHER The improvement in oil prices looks similarly well
MINING BOOM IS IMMINENT founded. OPEC production cuts remain ahead of
Last year was a strong one for commodity prices, schedule, while demand has also been better
which rebounded strongly as a combination of than expected. The impact of OPEC production cuts is
better-than-expected demand and supply side issues immense, and is likely to push the market into deficit in
forced investors to re-set their expectations. 2017. Further, there is a high probability that these cuts
Iron ore, coking coal and natural gas prices now will be extended, as the market becomes impatient with
sit 40-100%, higher than a year ago. A faster than the rebalancing process. However, there are risks that
expected shutdown of Chinese steel production went a a rejuvenated US shale oil industry will add to supplies,
long way to pushing iron ore prices higher, while OPEC and keep a lid on potential price growth. Nonetheless,
announcing oil production cuts has also underpinned we believe that OPEC’s production cuts will bring
the recovery in oil and energy prices. commercial inventories back down to sustainable longer
term levels. In our view, we believe prices can be
However, the significant lead times between maintained in the USD55-70/bbl range for the
rising prices, exploration activity, and project foreseeable future.
identification and commencement means that we
do not expect a pickup in investment over the In all, while it appears that commodity prices have
near term. Exploration activity remains at subdued recovered from last year’s weakness, much stronger
levels, meaning that any flow through impact on and more sustainable improvements in prices would
investment is some time away. be required to support a significant upswing in the
investment outlook. As a result, we retain our view
FIGURE 9. EXPLORATION ACTIVITY AT LOW LEVELS
that mining investment in Australia will continue
9 to decline over coming years.
8
SIGNIFICANT UNCERTAINTY AROUND THE
7
GALILEE BASIN
6
One of the major uncertainties to this subdued
AUDbn per year
5
investment outlook are the prospects for the
4
Galilee Basin in Queensland. Our base assumption
3 is that these projects will not take off during the
2 forecast period, but their sheer scale makes them worth
1 assessing.
0
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Central to this greenfield development is Indian
Mineral Exploration Petroleum Exploration Total Exploration
conglomerate Adani’s Carmichael project, around which
Source: ABS, ANZ Research there are a number of concerns. Importantly, if the
Further ahead, we do not expect commodity prices Carmichael project proceeds it could lead to several
to return to the troughs of early 2016, nor do we other large projects. Part of the Carmichael project
see a return to the peak levels from the previous includes a 400km rail line from the Galilee Basin to the
cycle. Abbot Point Terminal, south of Townsville. The lack of
supporting infrastructure has long been a sticking point
Developments in China will continue to have the biggest for development of the Basin, and the presence of a rail
impact on bulk commodity markets, with the capacity line would increase the likelihood of the surrounding
reduction program likely to dominate price outcomes, Kevin’s Corner (AUD 4.2bn), China Stone (AUD6.7bn),
even as the country’s economic growth targets are China First (AUD8.3bn) and South Galilee (AUD4.2bn)
lowered. We expect to see Chinese authorities projects moving forward.
maintain the focus on overcapacity in several
FIGURE 10. POTENTIAL UPSIDE IN QUEENSLAND
industries, which should be supportive of steel,
FROM GALILEE BASIN
iron ore, and coal prices. 35
30
While nearly 65 million tonnes of Chinese steel capacity
closed last year, meeting their target of 140 million 25 Potential
investment pipeline
tonnes of closures will require sustained efforts in 20
AUDbn
2017. Given that much of these earlier closures were Projects under construction
or committed
15
of capacity that was already idled or unutilised, we
expect more effective steel capacity cuts in 2017, 10
which will likely buoy sentiment. At the same 5
time, we anticipate steel demand will continue to
0
nudge higher on the back of solid infrastructure 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
spending programs, which will underpin iron ore and Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access
coking coal prices. Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 10
NON-RESIDENTIAL BUILDING SUPPORTING BUSINESS INVESTMENT,
In the absence of resources-related investment, the ESPECIALLY IN BUILDINGS
drivers of construction activity continue to change. The positive outlook is manifesting in a solid
Non-residential building is rising, with offices, retail, pipeline of work, especially in the office, retail and
and hotels/resorts finding investor interest. These hotel segments. Non-residential building approvals are
projects will continue to support activity and jobs at elevated levels, suggesting there is a strong pipeline
outside the mining sector. This solid investment of work to come through. Encouragingly, this work
outlook is broadly in line with the ongoing is spread across more of the country than the
improvement in business conditions, which publicly-funded infrastructure projects.
suggest the underlying Australian economy
FIGURE 13. NON-RESIDENTIAL BUILDING
remains in good shape.
APPROVALS
THE BUSINESS ENVIRONMENT HAS BEEN 3.5
STEADILY IMPROVING
3.0
Surveys of business conditions have been sitting
around elevated levels for the past 18 months, 2.5
and in January 2017 leapt to the highest recording
AUD bn, trend
2.0
since the global financial crisis. There has since been
some pullback, but they remain at an elevated level. 1.5
Reported profitability has also been strong over the 1.0
past year, and measures of employment have been
trending higher. The business environment seems to be 0.5
an increasingly positive one.
0.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
FIGURE 11. BUSINESS CONDITIONS HAVE FINALLY Private non-residential building approvals
RETURNED TO PRE-GFC LEVELS Source: ABS, ANZ Research
25
New South Wales is still the main driver of this
20
15
construction, underpinned by the AUD6bn Barangaroo
10 development, and the forthcoming AUD2bn casino
5 complex. Victoria is also experiencing strong growth,
0 especially across the hotels segment, with construction
Index
-5
underway on several significant projects, and the
-10
-15
recent approval of the AUD1.8bn Crown Melbourne
-20 building. Solid levels of activity are also taking place
-25 across Queensland (primarily hotels), South Australia
-30 (retail), Western Australia (retail), Northern Territory
-35
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
(retail) and Australian Capital Territory (offices).
Business conditions Business confidence
Source: NAB, ANZ Research FIGURE 14. OFFICES, RETAIL AND HOTELS
CONSTRUCTION BY STAGE
This improving business environment is fairly broad-
14.0
based. Reported conditions have been trending higher
across most industries and, as a result, the outlook for 12.0
Potential
capital values and construction activity looks positive investment
pipeline
10.0
for the offices, retail and tourism/accommodation
segments. 8.0 Pipeline of
projects under
AUDbn
construction or
committed
FIGURE 12. SURVEY CONSTRUCTION OUTLOOK 6.0
REMAINS POSITIVE FOR COMMERCIAL PROPERTY
4.0
70
12 month ahead construction activity expectations index
2.0
60
0.0
2015 2016 2017 2018 2019
50
Under construction Committed Under consideration Possible
40 Source: BREE, company reports, Deloitte Access
(net balance)
Economics, state government budget papers, ANZ
30 Research
It’s not all positive on the non-residential building
20
front. Work on hospitals is set to fall over the
10 next three years as several multi-billion dollar
projects reach completion. But the lift in privately-
0
11 12 13 14 15 16 funded offices, retail and hotels will ensure that non-
Commercial office Retail Tourism/Accommodation
residential building remains elevated for some time.
Source: ANZ-Property Council AustraliaAUSTRALIA MAJOR PROJECT UPDATE | 11
OUTLOOK BY STATE Spending on major projects fell once more in
Investment in major projects in New South Queensland in 2016, to a level nearly 80% lower
Wales has steadily increased in recent years. than the 2013 peak. Much of this decline over the
We expect to see activity ramp up further over the last year was due to the completion of the third
next two years, led by significant work across roads and final LNG plant in Gladstone. Although the
(WestConnex, NorthConnex and the Pacific Highway) completion of these projects has left a significant void,
and rail (Sydney Metro). The State Government’s the positive news is that the decline in investment
commitment to asset sales, and reinvesting the in Queensland now appears to be at an end. We
proceeds in infrastructure, is resulting in a strong expect to see investment in major projects flatline over
upswing in publicly funded construction. This will the next three years, with work supported by a broad
be important over both the near term (as an offset to mixture of public (road and rail) and private (coal and
the decline in housing construction), and longer term hotels) projects.
(as infrastructure projects support economy-wide
FIGURE 17. QUEENSLAND MAJOR PROJECTS
productivity).
BY STAGE
FIGURE 15. NEW SOUTH WALES MAJOR PROJECTS 35
BY STAGE
30
20
Potential investment 25
18
pipeline
16 20
AUDbn
Projects under
14 construction or committed
15
Potential
12 Projects under
construction or investment pipeline
AUDbn
committed 10
10
8 5
6 0
2011 2012 2013 2014 2015 2016 2017 2018 2019
4
Under construction Committed Under consideration Possible
2
Source: BREE, company reports, Deloitte Access
0 Economics, state government budget papers, ANZ Research
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
South Australia’s spending on major projects nudged
Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ Research higher in 2016, and we expect to see further growth
in coming years. While the completion of the Royal
Major project work in Victoria declined in 2016, as Adelaide Hospital is leaving a significant gap
several large road and rail projects reached in the non-residential building space, this will
completion. However, those same sectors are be more than offset by work ramping up on the
likely to underpin a solid upswing in activity in Northern Connector and South Road projects. This
coming years. Projects currently under construction positive outlook is an encouraging sign for a state that
(level crossing removal), committed (Melbourne Metro), has otherwise been struggling with the cancellation of
and likely to proceed (Western Distributor) will ensure large mining projects, last year’s closure of the Port
that the soft result of 2016 is not repeated. Augusta power plant, and the forthcoming closure of
Holden’s manufacturing plant.
FIGURE 16. VICTORIA MAJOR PROJECTS BY STAGE
12
FIGURE 18. SOUTH AUSTRALIA MAJOR PROJECTS
BY STAGE
10 3.5
Potential investment
Potential investment pipeline
pipeline 3.0
8
Projects under construction
2.5
or committed
AUDbn
Projects under construction
6 or committed
AUDbn
2.0
1.5
4
1.0
2
0.5
0 0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ Research Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 12
Investment in Western Australia continues to decline. FIGURE 21. NORTHERN TERRITORY MAJOR
PROJECTS BY STAGE
The fall in investment has been driven by a number of
12
large mining and energy projects reaching completion,
Unlike Queensland, this decline has further to 10
go. The completion of the Gorgon, Prelude and
Wheatstone projects over the next two years will 8
leave a void in activity that cannot be filled. The
AUDbn
6
public sector is contributing with several significant road Projects under construction
or committed
and rail projects. Labor’s recent election has meant the 4
cancellation of the AUD1.8bn Perth Freight Link, but
2
likely procession of the AUD2.5bn Metronet rail project.
0
FIGURE 19. WESTERN AUSTRALIA MAJOR PROJECTS 2011 2012 2013 2014 2015 2016 2017 2018 2019
BY STAGE Under construction Committed Under consideration Possible
45 Source: BREE, company reports, Deloitte Access
40
Economics, state government budget papers, ANZ Research
35 Construction in the ACT leapt in 2016 as the
30 Capital Metro light rail project reached the
25 commencement stage. This project will be a key
AUDbn
20
driver of activity in coming years, although the recent
Pipeline of projects under
construction or committed completion of the Majura Parkway road means total
15
Potential investment
pipeline
investment is likely to trend lower.
10
5 FIGURE 22. AUSTRALIAN CAPITAL TERRITORY
0
MAJOR PROJECTS BY STAGE
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible 0.5
Potential investment
pipeline
Source: BREE, company reports, Deloitte Access 0.4
Economics, state government budget papers, ANZ Research Pipeline of projects under
construction or committed
0.3
Tasmania is set to experience a strong increase in
AUDbn
major projects spending over the next two years,
0.2
driven by the Royal Hobart Hospital project.
FIGURE 20. TASMANIA MAJOR PROJECTS BY STAGE 0.1
0.5
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
0.4
Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ Research
0.3
AUDbn
Projects under construction
or committed
0.2
0.1
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ Research
Activity in the Northern Territory continues to
be driven by the AUD37bn Icthys LNG project.
However, work is winding down, and first
production is being targeted for Q3 2017. Some
upside risk is present in later years if the Nolans Bore
uranium mine proceeds, but this is far from certain.AUSTRALIA MAJOR PROJECT UPDATE | 13
OUTLOOK BY SECTOR The following projects are expected to enter the
pipeline:
ROADS
• M12 Motorway – Badgerys Creek Airport to M7 link
Major roads projects are set to be one of the key (NSW, AUD1.2bn, commencement in 2020).
drivers of investment activity over the next few • Pacific Highway – Coffs Harbour bypass (NSW,
years. Work is currently being underpinned by several AUD700m, commencement in 2019).
multi-billion dollar projects across New South Wales, • Western Distributor (VIC, AUD5.5bn,
Victoria and Queensland. We anticipate further growth commencement in 2018).
over coming years as some of these projects ramp • Ipswich Motorway – Rocklea to Darra (QLD,
up, and Melbourne’s Western Distributor commences. AUD400m, commencement in 2017).
The final approval for the Badgerys Creek airport has • Logan Motorway Enhancement (QLD, AUD512m,
brought forward around AUD2bn of road projects, commencement in 2017).
enhancing the already strong growth that we forecast
FIGURE 23. MAJOR ROAD PROJECTS BY STAGE
last year.
12.0
The following projects are currently under Potential investment
pipeline
construction: 10.0
Pipeline of projects under
• Pacific Highway – various stages, (NSW, AUD6.2bn, 8.0
construction or committed
completion in 2020).
AUDbn
• WestConnex (NSW, AUD16.8bn, completion in 6.0
2023). 4.0
• NorthConnex (NSW, AUD3bn, completion in 2019).
• Badgerys Creek – Bringelly Road upgrade (NSW, 2.0
AUD500m, completion in 2020).
0.0
• Citylink upgrade (VIC, AUD1.3bn, completion in 2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
2019).
• Western Highway Duplication (VIC, AUD660m, Source: BREE, company reports, Deloitte Access
completion in 2019). Economics, state government budget papers, ANZ Research
• Gateway North upgrade (QLD, AUD1.4bn,
completion in 2019).
• Toowoomba Second Range Crossing (QLD,
AUD1.6bn, completion in 2019).
• Kingsford Smith road upgrade (QLD, AUD700m,
completion in 2019).
• Bruce Highway Alignment (QLD, AUD500m,
completion in 2018).
• South Road upgrade (SA, AUD900m, completion in
2019).
• Northern Connector (SA, AUD1bn, completion in
2020).
• North-South Corridor upgrade (SA, AUD620m,
completion in 2018).
• NorthLink WA (WA, AUD1.1bn, completion in
2019).
• Midland Highway upgrade (TAS, AUD500m,
completion in 2024).AUSTRALIA MAJOR PROJECT UPDATE | 14
RAIL MINING
The outlook for rail construction is heavily We expect to see the decline in major mining-
dominated by developments in New South Wales related projects continue through 2017, and
and Victoria. Work on the Sydney Metro (two stages) remain around very low levels over subsequent
and Melbourne Metro are set to drive a significant years. Remaining activity will be supported by several
upswing in rail investment, although other states large projects in Queensland, primarily coal. But
and territories are also experiencing strong levels of the near-absence of new projects reaching the
work at present. The majority of these projects are commencement stage means that activity will
publicly funded, while there is some longer-term up- remain subdued for some time to come. The
side potential from the private sector in Queensland, biggest risk (up-side) to the profile is the Carmichael
depending on the progress of the Carmichael coal coal mine in the Galilee Basin in Queensland, which
project in the Galilee Basin. remains on the cards despite significant opposition
on environmental grounds, and concern over financial
The following projects are currently under
construction: feasibility. However, we place a low probability on this,
and subsequent projects in the Basin, occurring.
• Sydney Metro Northwest (NSW, AUD8.3bn,
The following projects are currently under
completion in 2019). construction:
• CBD and South East Light Rail (NSW, AUD2.1bn,
completion in 2019). • Byerwen coal (QLD, AUD1.8bn, completion in
• Level Crossing Removal program (VIC, AUD6bn, 2018).
completion in 2023). • Eagle Downs coal (QLD, AUD1.3bn, completion in
• Cranbourne-Pakenham Rail Corridor - SkyRail (VIC, 2017).
AUD1.6bn, completion in 2019). • Dugald River zinc, lead and gold (QLD, AUD1.9bn,
• Forrestfield Airport Rail Link (WA, AUD2bn, completion in 2018).
completion in 2020). • Carrapateena copper (SA, AUD1bn, completion in
• Perth City Link (WA, AUD600m, completion in 2020).
2017). • Nova nickel and copper (WA, AUD440m, completion
• Capital Metro Light Rail (ACT, AUD700m, in 2017).
completion in 2019). • Silvergrass iron (WA, AUD440m, completion in
2017).
The following projects are expected to enter the • Tanami gold expansion (NT, AUD120m, completion
pipeline:
in 2017).
• Sydney Metro City and Southwest (NSW,
AUD10.4bn, commencement in 2018). The following projects are expected to enter the
pipeline:
• Moorebank Freight Terminal (NSW, AUD1.9bn,
commencement in 2017). • Amrun bauxite (QLD, AUD2.6bn, commencement in
• Melbourne Metro (VIC, AUD10.9bn, commencement 2017).
in 2018). • Koolyanobbing iron extension (WA, AUD520m,
• Goodwood and Torrens Rail Junction – Stage 2 commencement in 2018).
(SA, AUD360m, commencement in 2018). • Greenbushes lithium (WA, AUD400m,
• Metronet (WA, AUD2.5bn, commencement in commencement in 2017).
2018). • Pilgangoora lithium (WA, AUD200m,
commencement in 2018).
FIGURE 24. MAJOR RAIL PROJECTS BY STAGE
• Project Maverick iron (WA, AUD300m,
12.0 commencement in 2018).
Potential investment
pipeline
10.0 FIGURE 25. MAJOR MINING PROJECTS BY STAGE
20.0
8.0
Pipeline of projects under 18.0
construction or committed
AUDbn
6.0 16.0
Pipeline of projects under
construction or committed
14.0
4.0
12.0
AUDbn
2.0 10.0
8.0
Potential investment
0.0 pipeline
6.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible 4.0
Source: BREE, company reports, Deloitte Access 2.0
Economics, state government budget papers, ANZ Research 0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 15
ENERGY ELECTRICITY
Our outlook for investment in the energy sector is The outlook for the electricity sector has been
little changed from a year ago, as the remaining boosted by recent announcements from the
projects have either reached, or continue to South Australian (Gas Plant and Battery Storage)
approach, completion. The past 12 months saw the and Commonwealth (Snowy Hydro expansion)
completion of the third and final major LNG project in Governments. There are also a large number of
Gladstone (Australia Pacific LNG, AUD25bn), meaning privately-funded projects (primarily wind farms)
that Queensland’s decline in energy investment is which are looking to get off the ground. But the
largely complete. On the other hand, work is rapidly recent experience in South Australia may weigh on
drying up on several projects across Western enthusiasm for wind projects, due to concerns around
Australia and Northern Territory, which will leave the stability of electricity supply. The ongoing debate
a significant void once they reach completion over the around renewables is also likely to persist for some
next year or two. The pipeline of new projects remains time, meaning that it is inevitable that not all slated
minimal, meaning that total investment will stay soft in projects are able to proceed. Nonetheless, the number
coming years. of projects that have been proposed make it likely
that the next few years will see significant growth
The following projects are currently under
construction: in electricity investment.
The following projects are currently under
• Charlie – drilling near QCLNG (QLD, AUD1.7bn, construction:
completion in 2018).
• Gorgon (WA, AUD56bn, completion in 2017). • Longford Gas Plant upgrade (VIC, AUD1bn,
• Prelude (WA, AUD12.6bn, completion in 2017). completion in 2017).
• Wheatstone (WA, AUD34bn, completion in 2018). • Ararat Wind Farm (VIC, AUD450m, completion in
Cost has increased from previous estimate of 2017).
AUD29bn. • Mount Emerald Wind Farm (QLD, AUD360m,
• Icthys (NT, AUD37bn, completion in 2017). completion in 2018).
• Hornsdale Wind farm (SA, AUD750m, completion in
The following projects are expected to enter the
pipeline: 2019).
• South Hedland Power Project (WA, AUD570m,
• Greater Western Flank Project – phase 2 (WA, completion in 2017).
AUD2bn, commencement in 2017).
• Greater Enfield (WA, AUD2.5bn, commencement in The following projects are expected to enter the
pipeline:
2018).
• Sole gas (VIC, AUD750, commencement in 2017). • Snowy Hydro Expansion (NSW, AUD2bn,
commencement in 2018).
FIGURE 26. MAJOR ENERGY PROJECTS BY STAGE
• Silverton/Broken Hill Wind Farm (NSW, AUD460m,
60 commencement in 2017).
• SA Government Gas Plant and Battery Storage (SA,
50
AUD550m, commencement in 2018).
40
• Kwinana Waste-to-Energy Plant (WA, AUD400m,
commencement in 2017).
AUDbn
30
Projects under construction FIGURE 27. MAJOR ELECTRICITY PROJECTS
20
or committed
BY STAGE
Potential investment 5.0
pipeline
10
4.5
Potential investment
pipeline
4.0
0 Projects under construction
2011 2012 2013 2014 2015 2016 2017 2018 2019 3.5 or committed
Under construction Committed Under consideration Possible
3.0
Source: BREE, company reports, Deloitte Access
AUDbn
2.5
Economics, state government budget papers, ANZ Research
2.0
1.5
1.0
0.5
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 16
HOSPITALS RETAIL
Work on major hospitals is set to steadily decline Construction of retail buildings is expected to remain
over the next three years, as several major relatively flat through 2017, as work continues on
projects reach completion. Construction has been several major shopping centre developments around
driven by a number of large projects across almost all the country. Further ahead, there are a significant
states and territories. While there are still a significant number of projects that are waiting for the final go-
number of projects that will support activity in coming ahead. The prospect of many of these projects
years, they are not of the same scale as those they are proceeding is likely to depend on the household
replacing. spending environment, where we expect ongoing
moderate growth.
The following projects are currently under
construction: The following projects are currently under
construction:
• Blacktown/Mount Druitt Hospitals expansion, stages
1 and 2 (NSW, AUD660m, completion in 2020). • Stockland Green Hills redevelopment (NSW,
• Northern Beaches Hospital (NSW, AUD600m, AUD377m, completion in 2018).
completion in 2019). • Chadstone expansion (VIC, AUD660m, completion
• Westmead Hospital Redevelopment (NSW, in 2017).
AUD750m, completion in 2021). • Werribee Plaza redevelopment (VIC, AUD400m,
• Bendigo Hospital, stage 1 (VIC, AUD630m, completion in 2017).
completion in 2017). • Sunshine Plaza expansion (QLD, AUD400m,
• Sunshine Coast Hospital (QLD, AUD1.9bn, completion in 2018).
completion in 2018). • Westfield Marion redevelopment (QLD, AUD350m,
• Royal Adelaide Hospital (SA, AUD2.3bn, completion completion in 2017).
in 2017). Cost has increased from previous • Mandurah Forum Expansion (WA, AUD350m,
estimate of AUD1.7bn. completion in 2018).
• Perth Children’s Hospital (WA, AUD1.2bn, • Karrinyup Shopping Centre expansion (WA,
completion in 2017). AUD600m, completion in 2019).
• Royal Hobart Hospital Redevelopment (TAS, • Gateway Shopping Centre (NT, AUD320m,
AUD690m, completion in 2019). completion in 2017).
• Palmerston Regional Hospital (NT, AUD170m,
completion in 2019). The following projects are expected to enter the
pipeline:
• University of Canberra Hospital (ACT, AUD212m,
completion in 2018). • Castle Towers Shopping Centre expansion (NSW,
AUD900m, commencement in 2019).
The following projects are expected to enter the • Howard Smith Wharves precinct redevelopment
pipeline:
(QLD, AUD100m, commencement in 2018).
• Nepean Hospital (NSW, AUD550m, commencement • Dunreath Drive DFO (WA, AUD145m,
in 2018). commencement in 2017).
• Victorian Heart Hospital – Clayton (VIC, AUD200m,
FIGURE 29. MAJOR RETAIL PROJECTS BY STAGE
commencement in 2018).
• Goulburn Valley Health Redevelopment (VIC, AUD 5.0
Potential
investment
168m, commencement in 2017). 4.5
pipeline
• Casey Hospital Expansion (VIC, AUD106m, 4.0
commencement in 2018). 3.5 Pipeline of
projects under
3.0 construction or
committed
FIGURE 28. MAJOR HOSPITAL PROJECTS BY STAGE
AUDbn
2.5
4.0
2.0
3.5 1.5
Projects under construction
or committed
3.0 1.0
0.5
2.5
Potential investment
AUDbn
pipeline 0.0
2.0 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
1.5
Source: BREE, company reports, Deloitte Access
1.0 Economics, state government budget papers, ANZ Research
0.5
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 17
HOTELS OFFICES
The outlook for the hotel segment is particularly The offices segment is experiencing solid levels of
bright, driven by the impending construction of activity at present, led by the Barangaroo development
several mega projects across New South Wales, in Sydney. Similar to the hotels segment, a number of
Victoria and Queensland. These projects are mixed- large projects either under construction, or set to enter
use, and consist of a significant hotels component, the work pipeline, are for mixed use with a significant
which will underpin work through to the end of the commercial office component. Many of these
decade. In addition, a number of smaller projects are projects are occurring across New South Wales
also likely to be built across the country, with Australia’s and Victoria, in line with the strong business
tourism sector booming in response to the lower AUD, conditions and employment growth in those states.
and the rapidly emerging Chinese middle class.
The following projects are currently under
The following projects are currently under construction:
construction:
• Barangaroo (NSW, AUD6bn, completion in 2020).
• ICC Sydney Hotel (NSW, AUD500m, completion in • Victoria Harbour Mixed Development (NSW,
2017). AUD4.5bn, completion in 2021).
• Collins Arch (VIC, AUD250m, completion in 2019). • Parramatta Square Master Plan (NSW, AUD2bn,
• Ritz-Carlton hotel, Elizabeth Quay (WA, AUD350m, completion in 2019).
completion in 2018). • Collins Square (VIC, AUD2.5bn, completion in
• Musselroe Bay Ecotourism Development (TAS, 2017).
AUD185m, completion in 2020). • 80 Collins Street (VIC, AUD550m, completion in
2017).
The following projects are expected to enter the
pipeline: The following projects are expected to enter the
pipeline:
• Barangaroo Casino and Hotel (NSW, AUD2bn,
commencement in 2018). • Melbourne Quarter – Batman’s Hill Development
• Crown Melbourne (VIC, AUD1.8bn, commencement (VIC, AUD1.9bn, commencement in 2018).
in 2017). • 405 Bourke Street (VIC, AUD600m,
• Queens Wharf Brisbane Integrated Resort commencement in 2017).
Development (QLD, AUD3bn, commencement in • Fortitude Valley Train Station Redevelopment (QLD,
2017). AUD500m, commencement in 2017).
• Broadbeach Tower – Jupiter Casino Upgrade (QLD, • Adelaide GPO Precinct Development (SA,
AUD850m, commencement in 2017). AUD235m, commencement in 2017).
FIGURE 30. MAJOR HOTEL PROJECTS BY STAGE FIGURE 31. MAJOR OFFICE PROJECTS BY STAGE
4.0 4.0 Potential
investment
pipeline
3.5 3.5
Potential
investment
pipeline
3.0 3.0
Pipeline of
projects under
2.5 2.5 construction or
committed
AUDbn
AUDbn
2.0 2.0
Pipeline of
1.5 projects under 1.5
construction or
committed
1.0 1.0
0.5 0.5
0.0 0.0
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Under construction Committed Under consideration Possible Under construction Committed Under consideration Possible
Source: BREE, company reports, Deloitte Access Source: BREE, company reports, Deloitte Access
Economics, state government budget papers, ANZ Research Economics, state government budget papers, ANZ ResearchAUSTRALIA MAJOR PROJECT UPDATE | 18 IMPORTANT NOTICE The distribution of this document or streaming of this video broadcast (as applicable, “publication”) may be restricted by law in certain jurisdictions. Persons who receive this publication must inform themselves about and observe all relevant restrictions. Disclaimer for all jurisdictions: Except if otherwise specified below, this publication is issued and distributed in your country/region by Australia and New Zealand Banking Group Limited (ABN 11 005 357 522) (“ANZ”), on the basis that it is only for the information of the specified recipient or permitted user of the relevant website (collectively, “recipient”). This publication is confidential and may not be reproduced, distributed or published by any recipient for any purpose. 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