FEATURE ARTICLE: A CLOSER LOOK AT MINING IN ENGINEERING CONSTRUCTION


INTRODUCTION

Non-building construction activity is measured by the ABS through the quarterly Engineering Construction Survey (ECS) and released in the publication Engineering Construction Activity (cat. no. 8762.0). This collection provided the source data for the analysis presented here.

Outputs from ECS are disaggregated by sector of work and by the type of infrastructure commodity being created and focus on covering the value of all engineering construction activity within Australia.

Engineering construction activity data in this article reflects the value of work done in current prices in the year the activity was reported. They have not been adjusted with respect to price movements or other inflationary factors. The article also focusses specifically on work done by, and on behalf of, the private sector. Public owned work is excluded even where construction is undertaken by private businesses.

Each quarter the ABS releases estimates of the amount of "Heavy Industry" engineering work done. Heavy Industry is an aggregate comprising of the following commodities: Oil, gas, and other hydrocarbons infrastructure; Bauxite, alumina and aluminium infrastructure; Coal and coal handling infrastructure; infrastructure for Other minerals (primarily iron ore); and Other heavy industry. These estimates represent actual on-site construction or installation of assets in each commodity class. For example, a $100m investment involving the purchase and installation of a natural gas well is measured in the collection when the physical construction occurs on-site or when components are emplaced. Where projects include elements of both building construction and engineering construction (e.g. mine workers on-site accommodation, support buildings) every effort is taken to exclude the building component from these statistics. For further information about inclusions and exclusions in the ECS, and commodity definitions refer to the Explanatory Notes of this publication. For more information about conceptual differences in ABS publications collecting mining and resource related data refer to 'Mining Investment in ABS Publications (Feature Article)' published in Private New Capital Expenditure and Expected Expenditure, Australia (cat. no. 5625.0).

In the 25 year history of ECS there has been a substantial increase in private Heavy Industry activity both by value and as a proportion of all engineering construction activity. These increases have been most evident in WA and Qld. Time series data is included showing the increase in Heavy Industry activity and the large share of this activity from WA and Qld as well as its increasing trend. There is also an examination of the commodities comprising Heavy Industry particularly those associated with mining and mineral resource exploitation.


NATIONAL HEAVY INDUSTRY DETAIL

Annualised Heavy Industry construction growth over the 25 year history of ECS averages 15% (from $1.0b in 1986-87 to $29.4b in 2010-11). However, in the first 15 years of ECS, private work in Heavy Industry activity increased to just $1.7b in 2000-01 (average annualised increase of 3.6%), though it had been as high as $3.7bn in 1998-99. In the following ten years to 2010-11, activity increased by a net value of $27.7b, an annualised average rate of 33.0%. A rapid increase of activity has occurred in recent times, in sharp contrast to the modest growth in the first 15 years of the survey. In recent years the value of Heavy Industry as a proportion of total ECS activity has also increased, ranging from 48% in 2006-07 to a high of 54% in 2010-11. For the last six financial years Heavy Industry has comprised about half of total ECS activity.

WA and Qld comprise a major proportion of the total value of Heavy Industry, with 82% (48% in WA and 34% in Qld) of all activity in 2010-11. These two states accounted for $24.1b of a national Heavy Industry activity value of $29.4b, both record totals in survey history. This was the fifth consecutive year their combined contribution totalled at least 75% of all Heavy Industry activity in Australia.

Share of total Heavy Industry, 2001-02 to 2010-11
	Total Heavy Industry	WA		Qld		Balance of states and territories
	$b	$b	%	$b	%	$b	%
2001-02	3.5	1.1	31.8	0.6	18.4	1.7	49.8
2002-03	5.8	2.1	35.2	1.6	27.7	2.2	37.1
2003-04	5.6	2.0	35.3	1.1	19.5	2.6	45.3
2004-05	6.9	2.5	35.8	1.5	21.2	3.0	43.0
2005-06	13.1	6.6	50.7	2.6	19.8	3.9	29.4
2006-07	16.3	9.0	55.3	3.6	22.0	3.7	22.8
2007-08	19.2	11.5	59.9	4.0	20.7	3.7	19.4
2008-09	25.5	13.4	52.5	5.9	23.1	6.2	24.4
2009-10	24.7	13.3	53.7	6.4	26.0	5.0	20.3
2010-11	29.4	14.1	48.7	9.9	33.4	5.3	17.8

STATE HEAVY INDUSTRY DETAIL

In 2010-11, WA and Qld each recorded 86% of Heavy Industry activity in two commodities. The largest contributors to WA Heavy Industry activity were Oil, gas and other hydrocarbons (48% in 2010-11) and Other minerals (an additional 38%). In Qld more than half of Heavy Industry activity occurred in Coal and coal handling (52% in 2010-11) plus about one third (34%) in Oil, gas and other hydrocarbons. In 2010-11, both WA ($14.1b or 65%) and Qld ($9.9b or 65%) had Heavy Industry activity totalling about two thirds of all engineering construction activity value for their state.


Western Australia

The value of WA Heavy Industry alone has made up at least 25% of Australian ECS activity for six consecutive years. Recent WA Heavy Industry value of work growth (from 2009-10 to 2010-11) was driven by Other minerals which increased $840m in this period, resulting in a state-based activity increase from $13.3b to $14.1b. The increase in Other minerals is equal to the total activity value increase in WA Heavy Industry from 2009-10 to 2010-11. Decreased activity in Oil, gas and other hydrocarbons (-$470m) in the year offset increased Bauxite, alumina and aluminium activity (+$470m).

WA Heavy Industry construction activity reached a then record total of $6.6b in 2005-06, including $2.7b (41%) in Oil, gas and other hydrocarbons and $2.9b (43%) in Other minerals. In 2006-07 Heavy Industry activity value increased to $9.0b, driven by increases in Other minerals to $5.1b (56% of total) and in Oil, gas and other hydrocarbons to $3.2b (36%). Oil, gas and other hydrocarbons and Other minerals accounted for 93% of WA Heavy Industry activity in 2007-08 ($5.3b each).


Queensland

Qld Heavy Industry activity reached an all-time high of $9.9b in 2010-11, a 55% increase from 2009-10, and 18% of total ECS activity by value in Australia. The increase of $3.5b in 2009-10 was driven by increases in both Oil, gas and other hydrocarbons (+$2.7b) and Coal and coal handling (+$780m). For the sixth consecutive year Qld Heavy Industry alone contributed at least 10% of engineering construction activity in Australia.

Recently Oil, gas, and other hydrocarbons construction activity in Qld has increased substantially. In each year from 2002-03 to 2006-07 less than $100m of activity was reported for this asset type. Activity increased to just over $200m in 2007-08 and 2008-09 before rising to $700m in 2009-10. In 2010-11 Oil, gas and other hydrocarbons activity spiked to $3.4b, a total greater than the previous 24 years combined. Coal and coal handling activity has risen each year between 2007-08 and 2010-11 at a steadier rate, from $2.6b to $5.1b, with the smallest annual increase being $600m between 2008-09 and 2009-10.


CONCLUSION

Australia is experiencing a sharp rise in private investment in engineering construction activity to deliver an increased capacity for the production of oil, natural gas, coal, iron ore, bauxite, alumina, aluminium and other resources as part of the resources boom. There is evidence that the high level of engineering construction activity in the resources sector will continue for some time, in that the Heavy Industry Value of Work Yet to be Done reached its second highest estimate ever of $92.6b in the March 2012 quarter. This indicates that Heavy Industry will remain an important contributor to ECS in the near future and that ABS trend data in ECS activity continues to rise.