Resources and energy exports are projected to earn more than $2 trillion for Australia over the next six years
The March 2023 edition of the Resources and energy quarterly (REQ) was released today by the Department of Industry, Science and Resources. Each March edition includes an extended 5-year outlook which highlights the medium-term prospects for the resources industry.
Disruptions to supply have recently had a strong impact on Australia’s resources and energy sectors. Short-term effects include flooding of mines and transport routes, and the fallout from the Russian invasion of Ukraine and a subsequent spike in energy prices, which are expected to boost resources and energy exports to a record $464 billion in 2022–23. Longer-term effects include the global energy transition currently underway and growing international adoption of renewable and LNG energy, and batteries.
The spike in energy commodity prices in that started in 2022 has now been largely unwound. Prices remain higher than before the war in Ukraine, and sensitive to ongoing developments. Russia – a leading global energy exporter – remains locked out of large parts of the global market, with ongoing impacts expected for global thermal coal and LNG supply. Northern Hemisphere nations have built large inventories of coal and LNG, which should lower the tendency for prices to surge. However, a strong recovery in Chinese economic activity could re-tighten world commodity markets over the next year or two.
Over the longer term, the global energy transition should support steady growth in demand for copper, nickel, and critical minerals. Lithium faces a particularly strong outlook, with earnings expected to surge from $5 billion in 2021–22 to $19 billion in 2022–23 and remain at $19 billion (in real terms) in 2027–28 as the impact of falling prices is offset by rising production volumes. LNG, which is often used to firm up and support renewable energy, also has a solid outlook. Exports of LNG are expected to rise to $91 billion in 2022–23, before easing to $47 billion by 2027–28 as prices drift down further from the recent peak and volumes hold steady.
Global demand for thermal coal demand has passed its peak, with most proposed thermal coal-fired power plants now cancelled around the world. Falling prices are expected to reduce thermal coal earnings from $65 billion in 2022–23 to $19 billion by 2027–28. Metallurgical coal prices rose as supply was impacted by flooding in Australia and sanctions on Russian exports, but a return to more typical prices is projected to drive a decline in export earnings from $63 billion in 2022–23 to $30 billion by 2027–28.
Among metals, iron ore earnings are expected to drop from $121 billion in 2022–23 to $74 billion by 2027–28 as prices decline. Earnings for base metals including zinc, aluminum and alumina face a more modest decline, with export volumes expected to remain strong across the board.
The long-term structural picture for Australian commodities remains promising, with earnings projected to be just shy of $289 billion (in real terms) by 2027–28. Australia has resources that are central to the global energy transition. The outlook remains subject to significant uncertainties, linked to geopolitics, war, the global energy transition and weather events.