14/12/2011 - 11:20

Europe’s woes undermine resources plans

14/12/2011 - 11:20

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The economic clouds over Europe call into question some of the more optimistic projections for local projects.

The economic clouds over Europe call into question some of the more optimistic projections for local projects.

BROWNIE points to Colin Barnett for reminding everyone last week that when the world catches an economic cold there will be delays to the development timetables of resources projects; but would he care to say which ones?

Not likely. Putting names to bad news is not something politicians like to do. Investment bankers and academics are in the same boat, so perhaps a journalist can do it for them.

A starting point in the hunt for names included among the ‘delayed, postponed, or abandoned’ resources developments is one of the original, overly ambitious lists of projects at differing stages of planning, such as the federal government’s $492 billion estimate of future resources developments.

That list, divided into advanced project ($173 billion) and less advanced ($256 billion), was compiled by government forecasting agency ABARES and last updated in April, before the European financial crisis morphed into a potential re-run of the GFC.

It has featured prominently in government publicity about the strength of the resources boom, and as justification for levying new taxes on the coal and iron ore industries.

There is also a WA government list showing $180 billion in projects committed or under construction, and perhaps as much in uncommitted projects.

The point about those lists is that, in a mining boom they are trundled out routinely by politicians and other members of the state development cheer squad, without anyone really casting a critical eye over membership credentials.

It takes a slowdown, like now, to ask a few pointed questions, such as whether the heavily promoted Oakajee port and rail, and industrial estate project, with its $6 billion estimated cost is valid, or whether Oakajee should be quietly sidelined.

The same might be asked of the $3.5 billion Perdaman coal-to-urea plan proposed for the South West, but apparently having a few financing issues and coal supply hurdles.

Those two projects alone make a sizeable dent in the ‘gee-whiz lists’ routinely rolled out when commodity prices are rising, along with political egos.

What becomes particularly sobering, however, is to indulge in a call-of-the-card, to go through one of the project development lists line-by-line and pose the question: ‘Where now, in GFC II?”

Where, for example, is the $600 million Burrup Nitrates project proposed by a consortium that may (or may not) include the Oswal family of Burrup Fertilisers fame – and retained in a list of WA projects circulated in a government brochure at the time of the recent Commonwealth Heads of Government Meeting in Perth?

No prize for imagining that Burrup Nitrates faces a few interesting management and financing issues.

Where also are any of the five uranium projects listed by ABARES for WA with a collective capital cost estimate of more than $1 billion, despite uranium being on the nose worldwide and still a political hot potato in this country.

A negative list, which reverses what was once prominently promoted, is not what people want to read and it’s not what politicians will ever talk about; no-one wants to be associated with failure.

But reviewing the gee-whiz lists is a legitimate exercise, if only to reset the hyperbole meter, which ran into overdrive during the boom years but which now needs recalibrating to get a more accurate measure of what might, or might not, be developed.

In WA there should be more light shone on the multiple magnetite iron ore projects; despite a collective potential cost of up to $10 billion, most of these will struggle to win markets, or finance.

And that’s the point. The resources development business has received a wake-up call, not so much because of a slowdown in Asia, but because raising the necessary equity capital and debt has become much harder thanks to the crisis in Europe.

Future energy

EXXONMOBIL, which occasionally wins the title of world’s biggest company (when that gong is not held by Apple, Google or Microsoft) is not known for its subtle approach to management; but last week it scored the award for the least subtle business report of the past decade.

At the same time that delegates were wrapping up their talks at the Durban Climate Change conference, ExxonMobil unveiled its long-term outlook for global energy demand.

Written by a team of ultra-hard-headed energy experts, the document acknowledges the rise of biomass, hydro and other renewable forms of energy – and then arrives at the conclusion that natural gas will be the big winner of the next 30 years – but coal, oil and nuclear will retain leadership of the global energy equation.

Overall, the ExxonMobil team reckons total energy demand will grow by 30 per cent by 2040 as the world population expands from 7 billion to 9 billion. Natural gas use will rise by 62 per cent, and coal use will decline by 6 per cent; but the combination of oil, gas, coal and nuclear (environmentalists’ worst enemies) will still be meeting 86 per cent of total energy demand by 2040.

Boiled down, a lot might seem to be happening in the business of talking about energy use and climate change, but not much is really changing.

Please yourself

JUST to wrap up a rather gloomy outlook for the commodities world and, by association, the outlook for the WA economy, the world’s biggest privately owned commodities trader, Cargill, has started a round of job cuts.

Nothing too spectacular yet, even though the sacking of 2,000 people sounds ominous, because the greater Cargill empire employs 138,000 people in 63 countries, and 2,000 jobs is just 1.5 per cent of the payroll.

However, the signal being sent by Cargill, which trades in everything from wheat and other agricultural products to natural gas and financial services, is that it sniffs change in the air.

Unlike other big commodity dealers which are listed on stock exchanges, Cargill also has the advantage of not having to appear positive at all times. 

When you’re private you do what’s best for the company because there’s no-one outside who can criticise, and you don’t have to pretend that conditions are better than they are.

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 “It is always best to tell the truth unless, of course, you are an exceptionally good liar.” 

Jerome K Jerome


STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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