Infrastructure – Getting Australia there
What is the future of the mining industry in Australia?
Will it be a constant riding of the boom and bust cycles that bring in millions and see the industry’s value skyrocket, just for it to plummet a few years down the track, only to play out over and over again?
Is this a new golden age where the nation rides in the wake of growth from developing nations such as China and India, hitching our coal wagon to South East Asia and supporting the growth of emerging countries such as Vietnam, which is now becoming hungry for thermal coal?
Can we even supply enough coking and thermal coal to satisfy these seemingly hungrier and hungrier countries’ energy and industrial demands?
What if it is a strange mix of the two, as Australia ties itself closer economically to the Asian giants?
The predictions of our growth and future and how we develop and utilise our resources as a Western nation in the heart of Asia Pacific are varied to say the least.
But Australia’s future, despite all predictions, is not yet written because of one very simple fact – what ever we do in the future, we need to start building the infrastructure now to actually achieve any of it.
The demand for our commodities or lack thereof, is essentially inconsequential if we can not even get it to where we need it.
With the vast distances that Australian mining companies have to cover to get their resource to port, which are unmatched for most other mining nations, combined with an ageing rail and road system that is already operating at stressed levels, developing competent infrastructure is crucial.
Australian Mining has spoken to a number of sources who all point to this infrastructure fact, and project a massive ramp up in rail, port and roadways that will be taking place in the next few years to service the surging mining industry.
An infrastructure disconnect
This lack of infrastructure is affecting the miners in the Mid West region of Western Australia and the ‘new frontier’ of the Surat and Galilee Basins in Queensland, while congested lines hamper the coal production of the Hunter Valley and Queensland’s Bowen Basin.
Recently, Siemens released one of the largest industry based meta-research studies in the country’s history – which cited Australia’s degrading infrastructure as our major obstacle in harnessing mining’s continual rise.
Speaking to Siemens senior research Matt Sunberg, he told Australian Mining that our infrastructure is something that has been ignored for some time and is going to need a cash injection of "$60 billion if we want to get it up to scratch."
From pit to port to point of loading, he outlined wide spread congestion and a general disconnect.
This is why Sunberg believes "there needs to be a collaborative approach from the beginning, as there is already a capacity constraint at the ports, which only amplifies as it goes down the supply chain, putting further pressure on rail and road.
"To illustrate this, at one point there were 42 ships waiting to be loaded with coal at Dalrymple Bay, which slowed up the rest of the logistics chain which had to wait to unload at the port as well, so production was being constrained by poor infrastructure," Sunberg added.
On top of this, there exists a disconnect between the states and territories that further hampers transport infrastructure around the country.
The classic example of this is trying to move anything between New South Wales and Victoria, where the rail gauge changes size between the states.
Added to this are the various state and territory rail, road and transport authorities with different rules and regulations.
For instance, in Germany there is a single regulator for all infrastructure across the entire country, and despite the country being much smaller it has a population nearly four times that of Australia.
"This is where the Council of Australian Governments (COAG) and Infrastructure Australia’s role needs to be more important and they need to take greater control, even just the standardisation in rail gauges cross the country would vastly improve infrastructure and productivity," Sunberg told Australian Mining.
Interstate collaboration has taken a step forward however, as WorkCover is working towards the institution of new national health and safety laws under the new Model Work Health and Safety (WHS) Act, which is to be enacted from 1 January next year.
This will harmonise all the health and safety laws across Australia, and hopefully be an initiator for the transport industry to do the same and integrate the disparate ports and transport systems.
Head of productivity research at Siemens, Matthew Rait explained that "integrating our ports with a transport network to support rail will not only increase our productivity but also decrease our road transport inefficiencies.
"For instance, most goods in New South Wales are moved by trucks, but material capacity of one freight train is the same as 150 trucks.
"We need a multi-model approach that looks at both road and rail where it is most efficient."
Sunberg explained that there needs to be strong modernisation and investment, Albert Goller, managing director of Siemens adding that "for our industries to become more productive we need to model our infrastructure around the like of India and China who are now entering a new era of high speed connectivity."
However, Australian infrastructure is hamstrung to a degree by our small population and massive land size.
This is why freight transport costs so much and is one of the highest in Asia.
Planning for the future
What’s needed is an infrastructure boom in line with the mining boom.
According to the senior manager for infrastructure and mining at BIS Shrapnel, Adrian Hart, this boom in rail and port infrastructure is already set in motion.
Speaking to Australian Mining, Hart said there is currently a very strong pipeline of infrastructure work that has been approved.
In mining, and that is just the mines and not harbours, infrastructure work between 2009 and 2010 came in at approximately $27 billion.
Hart said that by 2014, the industry can expect to see it hit around $50 billion with growth rates of between 16% to 20% per year.
"It’s going to be a phenomenal increase."
He said that despite the mining cycle typically being a fairly rough one "the sheer demand from China and India means that we are likely to ride the top of the resources cycle for longer, but due to current infrastructure constraints we are actually struggling to keep up.
"Part of this was down to the Global Financial Crisis, which saw a lot of projects being delayed, but the outlook for the next three to four years will see double digit growth for infrastructure," Hart said.
Infrastructure construction struggled at the start of this decade as there was a slowness in growth tied to a lack of demand, especially after the ‘Asian tigers’ imploded, as well as a general downturn in Australia coupled with the tech bubble bursting which generally cut investor confidence.
However, Hart said that while the nation is now well placed overall, there are still some problems ahead.
He explained that while infrastructure in Western Australia can and is capatilising on the iron ore boom, issues on the east coast are still leading to inefficiencies on the logistics chain.
But the future does look brighter, as there are a number of infrastructure projects that are either working through or have already passed the approvals stage.
Working on the back of strong exports and increased demand following the Queensland floods, coal handling facilities are set to expand.
The largest coal handling operator in Newcastle, Port Waratah Coal Services, plans to increase its annual capacity to 145 million tonnes by the end of 2012, pushing this up again to 200 million tonnes by 2015 as a new terminal is constructed.
The second main operator, the Newcastle Coal Infrastructure Group, currently has plans underway to grow its capacity to around 53 million tonnes.
On top of this Queensland, despite the flood damage, has a strong infrastructure pipeline ahead.
The Wiggin Island coal terminal is moving ahead, as is the southern ‘missing link’ which will connect the Surat Basin by rail to the port of Gladstone.
Siemens Matthew Sunberg said part of this development is looking directly at the automation process, stating there "is a huge scope for this at ports, which will aid in efficiency as it will remove the complexities of handling cranes with large loads by using driver assist systems."
As previously reported in this issue of Australian Mining, Siemens has installed an automated rail freight system in the Pilbara which aided in increasing throughput for the miner and EBIT, as well as reducing the miner’s carbon foot print.
Too much too soon?
Sunberg went on to say that the installation of an automated container handling system at the Port of Brisbane has increased its capability.
Hart also pointed to a massive growth phase ahead in LNG infrastructure in the sunshine state.
However, this is set to bring about a number of problems for the planned developments across the country.
According to Hart, this may be a case of too much at once as the demand for materials and skilled professionals rises, which may overwhelm our stretched resources.
He said "Australia typically has a poor record of delivering infrastructure on time and on budget.
"So we have to be asking ourselves, will projects be delayed, and will there be cost blowouts?"
This LNG growth in QLD will actually "be a threat to strong growth in other states such as Western Australia, due to the activity levels, as it will be harder to source skilled people as they will be drawn to these gas projects," Hart said.
"Companies are already recognising this dire need for a highly trained workforce, and in the future a lot of them will be using specialised labour from overseas, as we can only do so much with our existing workforce in so much time unless there is a greater push to actively train people now," he stated.
"However, due to these upcoming strains, some projects are already at risk of being deferred or cancelled altogether due to a tight workforce and its costs as well as access to materials," he told Australian Mining.
Hart predicted that by 2014, however, the growth in infrastructure work will have climaxed.
"This development in coal, iron ore and LNG should hit its peak in the middle of the decade as commodity prices weaken due to their increased availability, so this massive growth will be stymied and we will see activity slowing for 2015 and then falling to a weaker level by 2020, where we expect it to stabilise around the $30 billion range," he told Australian Mining.
There is a dire need for infrastructure in Australia to service the resources industry, and to fully harness the opportunities that this mining boom now.
While the wheels have already been set in motion, and growth is predicted to go into the double digits we’re just facing a new problem – who will we get to build it?
Will it simply be a case of too much at once?