The release of the Resources and Energy Quarterly by the Chief Economist of the Department of Industry, Innovation and Science for the March quarter has again highlighted the positive outlook for Australia’s resources and energy sectors over the medium to long term.
Resources and energy play an essential role in Australia’s economy. Today the sectors account for around 10 per cent of Australia’s economy and employ more than 300,000 Australians. Despite current challenges, mining sector employment is still more than twice the size today than it was before the mining boom.
This significant contribution to Australia’s economy is set to increase as Australia’s resource and energy export earnings are projected to grow by 30 per cent to $208 billion in real terms between 2015-16 and 2020-21. Notably, Liquefied Natural Gas (LNG) export earnings are expected to increase by around 250 per cent to $42 billion. Further, iron ore export earnings are expected to increase by 29 per cent to $72 billion. At a staggering 926 million tonnes in 2021, this will account for 58 per cent of global iron ore trade.
While acknowledging that current challenges remain, the report highlights that consumption of most commodities is projected to increase, particularly as Asian economies urbanise. More broadly, an estimated 455 million people across the world, the equivalent of the combined populations of the United States and Japan, are projected to migrate to cities over the next five years fuelling demand for energy and hard commodities.
India will be central to this growth story. Currently, India’s steel demand is less than a fifth per person compared to demand from OECD countries. Further, electricity use is one third per person of the global average and 240 million Indians do not have access to electricity. This is expected to dramatically change with annual growth of 7.7 per cent over the medium term and a commitment from the Indian Government to supply all villages with 24 hour access to electricity within the next five years. This is expected to help India’s thermal coal imports increase by around six per cent and LNG imports increase by around 19 per cent respectively, each year, over the medium term.
In the face of softer commodity prices, a lot of hard work has been undertaken to increase the competitiveness of Australia’s energy and resources sectors and this should be acknowledged. Innovation plays an important role here with research and development expenditure by resources and energy companies accounting for around 15 per cent of all such expenditure in Australia. As a result, we are seeing autonomous drills, trucks, and underwater vehicles being deployed on many Australian sites. Importantly, labour productivity increased by 33 per cent for the sector over the last two financial years.
Boosting productivity has helped to ensure that Australia maintains our competitive edge through this challenging period. With commodity demand set to increase in the medium to long term, the outlook for these great Australian sectors continues to look bright.