The Waiting Game

Minerals Reach Turning Point as Renewables Fly

By Dale Crisp

It’s sometimes said Australia’s economy is largely comprised of a multitude of holes in the ground, spewing forth ores, oils and gases for shipment to overseas buyers.

Whatever the truth of that assertion, project logistics practitioners have reason to be grateful as the country’s mining and resources industries have been a source of really good health for more than a decade, even if there’s currently something of a lull.

According to official figures, Australia’s resources exports have doubled over the last 10 years, with A$250 billion of investment in the mining industry delivering substantial growth in minerals production and jobs in that period. New records were set in 2018-19, attributed to iron ore (A$77 billion), coal (A$69 billion), aluminum (A$15.6 billion) and copper (A$9.9 billion).

This year has also seen Australia overtake Qatar as the world’s largest liquefied natural gas, or LNG, producer, thanks to huge projects such as Shell’s Prelude and INPEX’s Ichthys coming on stream to join Chevron’s Gorgon and Wheatstone, Woodside’s Pluto and the four Gladstone, Queensland-based coal seam gas-to-LNG plants.

Most of these projects have reached completion, but unexpectedly high demand and prices for iron ore and coal – at least until the middle of this year – and new and urgent requirements for rare earths and other metals used in batteries for mobile technology, electric vehicles and energy storage are firing plans for revival, expansion and brand new developments. Gas producers are lining up the next on- and offshore fields.

The latest Australian Resources and Energy Quarterly from the Office of the Chief Economist contains a “significant change” to commodity forecasts.

“In recent years, we have predicted commodity export earnings would peak in 2018-19,” wrote Mark Cully, chief economist of the Department of Industry, Innovation and Science. “As recently as March 2019, we suggested record earnings of A$278 billion in 2018-19, before earnings fell back in the following years. Our forecast for 2018-19 looks to be largely on target but, massive as this revenue is, it is increasingly likely that the peak will now be in 2019-20. Resource and energy commodity earnings in 2019-20 have been revised up by A$12.9 billion to A$285 billion.”

Cully noted geopolitics is raising uncertainties, however, and economic turning points are hard to predict. “The prospect of one in the near future adds a significant element of uncertainty to our higher forecast. Should a turning point occur, our strength – record commodity exports – could also be our vulnerability,” Cully concluded.

Mining ‘Awash’ with Investors

It’s a case of carry on regardless for iron ore producers, however, with the big three – BHP, Rio Tinto and Fortescue Metals Group – all embarking on major mining projects. While to some extent these are to replace exhausting deposits, the opportunities for the project logistics sector are significant, and there are at least 20 more mining endeavors in train or proposed.

Speaking from the mining industry’s annual Diggers and Dealers Forum in Kalgoorlie, Western Australia, Craig McElvaney, CEO of the Melbourne-based Seaway Group of Cos., described the atmosphere as “buzzing.”

“There are a lot of smug-looking people here,” he said, “the place is awash with investors’ money looking for a home and a lot of people have been doing very nicely out of resource prices this year.”

Paul Dean, Seaway’s executive general manager of mining, construction and projects, said with iron ore and gold at near-record prices the company expects to see a resurgence in investment in new mining projects.

However, there is typically a time lag between planning and shipping, a sentiment echoed by Steven Lofaro, Agility’s vice president for project logistics, Asia-Pacific region. “Opportunities have picked up, miners are spending, especially the iron ore guys in Western Australia and potentially the coal producers in Queensland,” he said. But he remains a bit wary. The rate of expressions of interest, requests for quotations and requests for information is picking up, however too many engineering, procurement and construction companies are looking for logistics studies, but don’t want to pay up front.

Renewables Drive

One sector that has been sustaining project and breakbulk in Australia is renewable energy, principally wind and solar farms. While the fragility of materials for the latter dictates carriage in containers – much to certain project forwarders’ frustration, as they believe some componentry could be more efficiently handled as breakbulk, thereby obviating the need and cost of repositioning empty boxes – the wind turbine manufacturers and suppliers are almost wholly dependent on project cargo specialists.

According to research company Macromonitor, the A$9 billion increase in renewable energy construction in the three years to and including 2019-20 exceeded the growth in road, rail and other infrastructure.

“The extraordinary boom in the renewables sector is currently the largest contributor to overall growth in construction in Australia,” Macromonitor economist Natalie Keogh said in a statement. “Solar projects, in particular, combined with wind and storage projects, are driving solid growth in overall utilities sector construction, despite falling levels of work on the National Broadband Network and weak activity in water, gas and the non-renewable segments of electricity.

“New renewables projects continue to be committed, even though we already have enough capacity in train to more than meet the 2020 renewable energy target,” Keogh said. “This means projects are now being driven by their own commercial viability, with some additional stimulus coming from state government schemes.”

However, she doesn’t expect this phase to last, anticipating a sharp downturn after this financial year: “Renewable energy investment will be permanently higher than in the past, but it will experience investment cycles just like most other asset types,” Keogh said. Macromonitor expects the next boom will be in energy storage in the middle of the next decade.

Nevertheless, according to the Clean Energy Council, or CEC, of Australia, the renewables sector is seeing “unprecedented activity.” The CEC lists just 12 energy projects completed in 2017, rising to 38 in 2018.
According to the council’s July 2019 update, 13 projects have been completed so far this year, of which eight were solar, four were wind and one was hybrid. The largest was Edify Energy’s 150-megawatt solar farm in Queensland, followed by APA Power Holdings’ 147.5-megawatt hybrid wind and solar farm in Western Australia.

There are more than 90 projects under construction or due to start soon, spread across Queensland (20), New South Wales (25), Victoria (18), Tasmania (two), South Australia (13), Western Australia (nine) and the Northern Territory (three): 24 are wind, seven are hybrid, one is bio and the rest are solar. As well as Australia, investors/developers come from the People’s Republic of China, South Korea, Japan, Spain, France, The Netherlands, Canada, New Zealand, Singapore and India.

Across the Tasman, the New Zealand Wind Energy Association noted no new projects have been commissioned since 2016, but there are 12 with planning consent on which construction is yet to commence.
Seven more are under investigation, with renewed interest likely in view of New Zealand’s ban on new oil and gas exploration licenses in its territorial waters.

Wind in the Sails

Frank Mueller, AAL Shipping’s general manager Australia/Oceania, is more than grateful for the wind farm frenzy. The company operates two breakbulk liner services from Asia to Australia, one to the West Coast using two of its 19,000-deadweight-tonne S class ships and one to the East Coast with three 31,000 dwt A class ships, one of which is chartered by service partner Swire Shipping. All have 700-tonne lift capacity, which is put to good use.

Although the liner sailings do service wind farm contracts, they are underpinned by typical inbound cargoes of steel, machinery, port equipment, boats and mining gear and usually load logs and semi-bulk outbound. “I’m pleased to say we haven’t had an empty ship northbound, but competition can be a pain in the butt because it drives the backload rates down,” Mueller said.

Outside the scheduled liner services, AAL has been busy covering various Australasian contracts, including for tunnel-boring machines for urban infrastructure projects in Melbourne and Sydney, rolling stock for Australian and New Zealand customers and, of course, wind farms. Mueller said that as turbine towers have grown taller and blades longer, AAL’s A-class in particular have come into their own, with shippers attracted to their ability to move more per shipment. At times over the past 12 months AAL has had up to a dozen ships in Australian waters at once and at time of writing there were at least three in local ports and six en route.

Mueller identifies the company’s long history in Australia – it originated as AustralAsia Line – as a key strength, along with its willingness to accept parcel cargoes and change port rotations to suit. “Parceling is too much hard work for many project carriers,” he said, “anything less than 5,000-6,000 tonnes is not worth their while.”

There’s also the tyranny of distance: carriers are loathe to sail further south than the “activity areas” of northwest Western Australia and northern Queensland. “It’s a long way to go for a backload; they’d rather discharge and get back to Asia in search of the next [paying] cargo.”

Mueller is also amused by a number of operators claiming to offer shippers regular services to Australia: “It depends on your definition of ‘regular,’” he quipped. “For some, once a year is regular!”

Nonetheless, the decline from the crazy boom years is quietly welcomed by the constants in the Australasian market who, apart from AAL, include BBC, Thorco Projects, Swire Shipping, Spliethoff and, increasingly Zeamarine, which has just been awarded the prize ocean freight contract for BHP’s A$4.8 billion South Flank iron ore mine, by Schenker Australia.

As one broker commented, desiring anonymity, it was not uncommon to see names in the market like Lucky Elephant Shipping, or Golden Dawn Maritime, and discover they had different personnel, market offerings and websites but, curiously, the same contact details. “You booked with them at your risk,” he said. “There was a lot of phantom tonnage around and a lot of advertised sailings never took place.”

Government Investment Support

The project business has been bolstered in Australia by considerable investment, mostly by state governments, in infrastructure such as multibillion-dollar extensions to the underground and surface public transport systems in Melbourne and Sydney. As well as headline-grabbing big lifts, such as tunnel-boring machines and associated equipment, AAL, BBC and others have been shipping in large quantities of construction and structural steel demand for which Australian manufacturers were unable to meet, despite governments incorporating local content clauses in contracts. This activity looks likely to continue with a mid-August audit by federal government advisory body Infrastructure Australia suggesting a A$500 billion major projects pipeline over the next five years must be replicated on an ongoing basis for the next 15 if living standards are not to decline.

In Papua New Guinea, an Agility stronghold for more than 30 years, Lofaro is watching what moves the new Marape government will make. It has already reduced the number of ex-pats in key positions and is undertaking an inquiry into the financial arrangements of the previous government’s loss-making investment in the Total/ExxonMobil/Oil Search Papua LNG project. As yet the partners have not established a procurement team; Papua LNG will likely tie back to ExxonMobil’s PNG LNG near Port Moresby.

Meanwhile, Lofaro has set up a team “dedicated to hunting projects. We have good, long-running resupply and replacement contracts that provide bread-and-butter. But projects are the cream,” he said.
For all the players it’s a matter of waiting patiently.

Seaway’s Dean expects a slight improvement in the project market over the next 12-24 months, with continued “good opportunities” in mining and renewables work. “Infrastructure projects are typically more difficult to predict, as the local input versus overseas input can vary greatly across projects,” Dean said. “Our book is already building so we are quietly confident, despite a highly competitive market.”

Perhaps the last word should go to AAL’s Mueller who is optimistic, with caveats: “Mostly at the moment it’s a lot of talk … but I do think there’s going to be an upturn later this year. I’ve never been one to say ‘next year, next year things will be better,’ but there are definitely things happening in this market. We just have to ignore Trump versus Xi, Brexit, Iran, Japan v South Korea...”  

Dale Crisp is a Melbourne-based specialist maritime photojournalist.

Image credit: Seaway