After seven years of declines or zero growth, investment in Australia’s resource projects has turned the corner over the past year, driven by record gold oil prices and accelerating battery technology uptake in the energy transition.
The value of committed projects—those where a final investment decision (FID) was taken—in Australia’s resource and energy sector jumped by 30 percent between November 2019 and October 2020, marking a turning point in the cycle and a change in investment style, the Australian Government said in the latest edition of its Resources and Energy Major Projects report published on Monday.
After the completion of large liquefied natural gas (LNG) projects in the early 2010s, the value of resource investment in Australia had dropped for six consecutive years before leveling out in 2018-2019.
Over the year through October 2020, the value rose by 30 percent to US$28.5 billion (AUS$39 billion), and while natural gas and LNG projects still accounted for the largest share of committed projects by value, they were mostly projects to sustain production at existing LNG facilities.
The growth in investments came from two key factors—record high gold prices and constantly growing global demand for the so-called ‘battery commodities,’ according to Australia’s report.
Related: Oil Prices Leap Higher On Fresh Vaccine Hopes The rising gold prices over the past months have led to a surge in the number of reactivated gold mines, and a lot more gold investments could be coming in the next few years. If all potential projects—not only those with FID reached but also all those in the feasibility stage—are realized, Australia’s gold production could jump by one-third, the report found.
Investment and mining activity continues to grow in battery commodities such as nickel, cobalt, rare earths, and lithium resources amid expectations of significant uptake of electric vehicles (EVs) in the coming years.
Some 20 percent of Australia’s commodity projects in the feasibility stage are driven by demand for commodities used in batteries, while more than 10 percent of the feasibility projects are in gold, incentivized by rising gold prices.
Over the past year, the value of gold and battery-related projects rose by 33 percent and 7 percent, respectively, reflecting strong gold demand and expectations of strong growth for electric vehicles, Australia’s government said.
The country now has 32 projects publicly announced or feasible in battery commodities, with a combined value of US$12.4 billion (AUS$15 billion).
While investment and the number of projects in gold and battery commodities are surging, investment in coal and gas has slowed due to the growing reluctance of investors to commit to new coal projects and the LNG glut and reduced consumption because of the pandemic. COVID-19 and the oversupply have led to the deferral of FIDs for several large offshore projects that were originally expected in 2020 or 2021, the report said.
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Australia’s total commodity investment is unlikely to return to the levels seen last decade, but the growth in gold and battery metals mining development points to significant opportunities emerging for Australia’s resources and energy sector, the government said.
“It is now clear that commodity investment has turned a corner, with a new investment cycle emerging amidst a surge in technological change and shifts in the global economy,” the government noted.
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The growing demand for clean energy and transport electrification will need as much as US$1 trillion in investment in lithium, nickel, cobalt, copper, and aluminum by 2035, according to Wood Mackenzie. In other words, the world will need nearly twice as much investment in critical energy-transition minerals over the next 15 years as it has invested over the past 15 years.
Australia’s investment binge on LNG may be a thing of the past, but the energy transition is triggering renewed growth in commodity investment in one of the richest resource countries in the world.
By Tsvetana Paraskova for Oilprice.com
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