BRE Resources & Energy Quarterly (March 2012)

Resources and Energy Quarterly
March Quarter 2012
bree.gov.au
March quarter 2012

bree.gov.au
BREE 2012, Resources and Energy Quarterly, March Quarter 2012, BREE, Canberra, March 2012. Commonwealth of Australia 2012
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2 Resources and Energy Quarterly
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Foreword
Resources and Energy Quarterly is an important publication of the Bureau of Resources and Energy Economics. This issue provides an overview of the global macroeconomic situation; the most up-to-date global production, exports and values of major resources energy commodities and forecasts for 201112 until 201617; reviews of key topics and issues of relevance to the sector; and detailed statistical tables on world production, consumption, stocks and trade in key commodities as well as detailed information on Australian production and exports over several years. In the review section of Resources and Energy Quarterly there is a comparison of Australian, OECD and global energy markets; a SWOT analysis of Australias LNG industry; and a short history of uranium. BREEs forecast for the value of Australian exports of resources and energy for 201112 is about $200 billion or about a little less than a 10 per cent increase over 201011. This export growth is despite an increase in the value of the Australian dollar in the second half of 2011 and forecasted reduction in global economic growth in 2012. Over the short term overall metal prices are projected to decline by 6 per cent in 2012 relative to the average price in 2011. The key long-term projection in this issue is that future growth in Australian export earnings from minerals and energy will be generated by higher volumes and, with a few exceptions, will be not be because of rising commodity prices.
Quentin Grafton Executive Director/Chief Economist March 2012
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Contents
Foreword Acronyms and abbreviations Macroeconomic outlook and energy and minerals overview Energy outlook
Oil Gas Thermal coal Uranium
3 5 6 23
23 38 49 61
Resources outlook
Steel and steel-making raw materials Raw materials Metallurgical coal Gold Aluminium Alumina Copper Nickel Zinc
70
70 74 80 87 96 103 106 113 124
Reviews
A comparison of Australian, OECD and global energy markets Australia's LNG industry a SWOT analysis A short history of uranium
135
136 145 150
Statistical tables
159
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Acronyms and abbreviations

ABARES ABS BREE FOB GDP IEA IMF LME LNG mb/d MBtu Mt OECD OPEC PPP RBA TWI UNCTAD WTI Australian Bureau of Agricultural and Resource Economics and Science Australian Bureau of Statistics Bureau of Resources and Energy Economics free on board gross domestic product International Energy Agency International Monetary Fund London Metal Exchange liquefied natural gas millions of barrels per day million British thermal units million tonnes Organisation for Economic Co-operation and Development Organisation of the Petroleum Exporting Countries purchasing-power parity Reserve Bank of Australia trade-weighted index United Nations Conference on Trade and Development West Texas Intermediate
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Macroeconomic outlook and energy and minerals overview

Nhu Che, Pam Pham, Quentin Grafton and Roger Rose
The global economy: stalled recovery in Europe and elevated risks

The world economy has entered a challenging period with increased vulnerabilities and a moderation of global growth in 2012 relative to 2010 and 2011.The updated World Economic Outlook by the International Monetary Fund (IMF) in February 2012 projects global activity decelerating in the year ahead because of the effects of the euro zone debt crisis which have spread beyond Europe. Uncertainties associated with the sovereign debt crisis in Europe have also generated large fluctuations in financial markets and this volatility has had a negative impact on consumer and business confidence. Global economic growth in 2012 is assumed to be around 3.3 per cent (see Figure 1), which is 0.75 percentage points down from the forecast in the September 2011 World Economic Outlook (WEO) by the IMF. The expected slower growth rate is attributed largely to intensifying strains in the euro zone and economic fragilities in some other large economies. Within most of Western Europe short- to medium-term economic growth prospects have diminished. Despite a strengthening of economic activity in the US, global growth and world trade have slowed (see Table 1). Europe appears to have entered a mild recession in 2012 caused by the rise in sovereign yields in 2010 and 2011, the effects of bank deleveraging on the real economy, and the impact of on-going fiscal consolidation. The main reason for the diminished outlook in Europe is the escalating euro zone crisis. It is interacting with financial fragilities elsewhere, has sharply reduced capital flows to emerging economies, and led to substantial changes in the relative values of key currencies.
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Figure 1:
6 5 4 3 2 1 % -1
World economic growth
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Sources: BREE; ABARES.
The outlook for the large developed economies in 2012 is assumed to be weaker than in 2010 or 2011. Growth in Western Europe is expected to falter in 2012. Most advanced economies, however, are expected to avoid falling back into a recession and overall economic growth in the advanced economies is projected to average 1.5 per cent during 2012 and 2013. Emerging economies, particularly those in Asia, contribute to an already important and increasing share of world economic growth. Over the outlook period the prospects for emerging economies are much better than those for advanced economies, but are becoming less certain, especially for those countries that are highly reliant on export-led growth. Annual economic growth in emerging and developing economies is expected to average 5.75 per centa significant slowdown from the 6.75 per cent growth experienced from 2010 to 2011, and about 0.5 percentage points lower than forecast in September 2011 by the IMF. These revised growth figures reflect a less optimistic external environment in terms of trade and a slowdown in domestic demand in key emerging economies. Most of Asia and Latin America experienced robust economic growth in 2011. Growth is expected to moderate in 2012, but to regain strength in 2013 and beyond. Unlike some advanced economies for some of these emerging economies their immediate concern is rising inflation rather than lagging growth. In Asia, recent data are broadly consistent with the modest slowdown that some authorities in the region have been trying to achieve in order to contain inflationary pressures. India and China, in particular, are trying to reduce the rates of price increases and their actions are expected to moderate their previously very high rates of economic growth.
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Table 1:
Key macroeconomic assumptions for resources and energy

2010 2011 2012 a 2013 a 2014 a 2015 a 2016 a 2017 a 1.4 1.8 0.9 1.5 3.1 1.6 0.9 0.4 3.9 2.0 6.5 8.0 5.3 9.2 5.4 4.3 7.4 4.6 3.1 4.1 4.2 5.1 3.8 1.1 1.8 1.7 0.3 0.3 0.2 0.6 2.2 4.4 3.8 6.0 7.5 5.6 8.2 5.1 3.4 7.0 3.6 3.2 3.3 4.3 1.1 3.3 1.8 2.2 1.6 0.9 1.5 1.0 2.0 1 4.3 3.2 6.4 7.9 5.8 8.8 5.0 4.2 7.3 3.9 3.6 3.5 4.0 2.4 3.9 2.0 2.7 1.6 1.2 1.4 1.1 2.2 0.5 3.4 2.6 6.4 7.9 6.0 8.8 4.2 4.2 7.3 3.8 4.2 3.5 3.8 2.1 4.1 2.0 3.0 1.2 1.1 1.2 1.1 2.2 0.7 3.4 2.3 6.4 7.9 6.0 8.8 4.2 4.1 7.3 3.7 4.3 3.4 3.6 2.1 4.1 2.0 3.0 1.1 1.2 1.2 1.1 2.3 0.8 3.4 2.2 6.4 7.9 6.0 8.8 4.2 4.0 7.3 3.7 4.4 3.3 3.6 2.2 4.1 2.0 3.0 1.1 1.2 1.2 1.1 2.3 0.8 3.4 2.2 6.4 7.9 6.0 8.8 4.2 4.0 7.3 3.7 4.4 3.3 3.6 2.2 4.1
Economic growth b c OECD United States Japan Western Europe Germany France United Kingdom Italy Republic of Korea New Zealand Emerging countries Non-OECD Asia South East Asia d China e Chinese Taipei Singapore India Latin America Middle East Russian Federation Ukraine Eastern Europe World c Industrial production b OECD Japan China Inflation rate b United States Interest rates US prime rate g
% % % % % % % % % % % % % % % % % % % % % % %
3.0 3.0 4.0 1.8 3.7 1.5 1.4 1.3 6.2 1.7 7.8 9.6 6.9 10.3 10.9 14.5 9.0 6.1 3.8 4.0 4.2 4.2 5.0
% % %
7.9 16.0 15.7
2.8 3.5 9.9
3.0 7.1 8.8
4.2 6.7 9.5
4.6 6.5 9.4
4.6 4.8 9.5
4.5 4.4 9.5
4.5 4.4 9.5
1.6
3.4
2.3
2.3
2.3
2.3
2.3
2.3
% pa
3.3
3.3
3.3
3.3
3.4
3.5
3.5
3.5
a BREE assumption. b Change from previous period. c Weighted using 2011 purchasing power parity (PPP) valuation of country gross domestic product by the IMF. d Indonesia, Malaysia, the Philippines, Thailand and Vietnam. e Excludes Hong Kong. g Commercial bank lending rates to prime borrowers in the US. Sources: BREE; ABS; IMF; OECD; RBA.
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Economic prospects in Australias major mining export markets

Non-OECD economies
The Chinese economy continues to record strong growth, although this is projected to moderate in 2012. In part, this expected easing in economic growth is due to domestic economic policies to combat inflation, including the continuing unwinding of the 200809 fiscal stimulus, tighter monetary policy and measures to contain price increases in its property market. Additionally, spillovers from problems in the broader global economy and some high internal risks facing the Chinese economy could threaten and slow economic growth. Internally, socioeconomic factors, such as the structural effect of the so-called middle income trap, if not well managed, and rising inequality could slow economic growth. Despite some moderation in economic growth, domestic demand remains strong. Retail sales continue to expand and passenger vehicle sales are just below their late 2010 peak level. Although there has been relatively weaker export demand, manufacturing investment continues to grow. Industrial production growth remains robust, but slightly below 2011 levels, and both power generation and automobile production are growing strongly. As a result, over the outlook period China is expected to continue its major role as a growth engine for the world economy. In 2012, gross domestic product (GDP) growth for the Chinese economy is assumed to be lower than in 2011, although remaining at a robust level of 8.2 per cent. This is 0.8 per cent below that assumed by BREE in December 2011. An annual rate of economic growth of 8.8 per cent (based on purchasing power parity terms (PPP) valuation of GDP) is assumed over the medium term (see Figure 2). Over the past decade rapid economic growth, growing urbanisation, and structural change within manufacturing have combined to make China the worlds largest energy user, outstripping the US in 2010 although, on a per capita basis, the US still consumes much more energy than China. For Australia, China is the most important market for mining. Over the medium term, China is expected to remain the most important mining export market for Australia, given a strong trend of continued growth in industrialisation and urbanisation, both of which are resourceintensive.
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The rapid expansion of industrial production in China is expected to support growth in energy and minerals consumption over the medium term. The expansion of resource intensive industries such as electricity generation and steel, pig iron and cement production is expected to remain strong. Over the longer term Chinas growing technological prowess could drive rapid change in its industrial structure. These changes should create new areas of dynamic comparative advantage. For instance, Chinas construction industry is becoming a global leader in international construction projects. In 1978, less than a fifth of Chinas population resided in cities; by 2009, urban residents made up close to half the population; and by 2030, the share is expected to swell to near two-thirds. Most urban growth in the future is expected to result from the expansion of existing cities through migration from rural areas. Chinas strong growth of per capita income and an expanding middle class over the medium term outlook will also increase demand for resourceintensive consumer durables, such as motor vehicles and electronics. Figure 2:
12 10 8 6 4 2 % -2 Japan 2010 China 2011 Republic of Korea 2012 f United States 2013-17 z
Economic growth in Australias major resource and energy export markets
f BREE forecast. z BREE projection. Source: BREE
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Box 1: Fiscal consolidation: Implications for economic growth and demand

Global economic growth is vulnerable to spillovers associated with the European sovereign debt crisis and fiscal consolidation in Western Europe. Too rapid fiscal consolidation during 2012 could exacerbate downside risks. Ideally, fiscal consolidation should occur at a pace that supports adequate growth and employment. From Australias perspective too rapid fiscal consolidation in major export markets could have a short-term negative effect on both the price and volume of key resource commodities. The global financial crisis resulted in a sharp deterioration in the fiscal health of many advanced economies. For example, Spain moved from a budget surplus of 2 per cent of its GDP in 2007 to a deficit of 11 per cent in 2009. For the US and the UK, the budget deficit increased by 10 and 8 percentage points of GDP, respectively. Government fiscal stimulus packages in response to sharp falls in consumer demand during the global financial crisis were primary causes of those increasing deficits. While the stimulus spending has decreased since 200910, budget deficits persist and in many countries debt-to-GDP ratios have continued to rise. In the medium term, lower budget deficits and fiscal consolidation should support economic growth by reducing real interest rates, lowering tax burdens and encouraging increased private sector investment. In the short term, however, fiscal consolidation will likely slow economic activity. This is especially the case for some countries in southern Europe that are already in recession and have an exchange rate determined by economic conditions for the euro zone as a whole, rather than by country-specific conditions. Should there be widespread and rapid fiscal consolidation, this could have a short-run moderating effect on prices of resource commodities used in industrial production. The IMF assumes that, for the global economy as a whole, fiscal consolidation equivalent to 3 percentage points of GDP will occur in 2013. Over the next two years fiscal consolidation is projected at around 4.6 per cent of GDP for advanced economies. In the euro zone, the IMF projects that fiscal consolidation will be around 3 per cent of GDP in 2012 and 2013. Fiscal consolidation in the US is estimated to represent about 1 per cent of GDP in 2011, and projected to be between 2 to 4 per cent of GDP over the next two years. Japan is projected to be the only large advanced economy to implement a fiscal expansion in 2012 reflecting, in part, reconstruction costs related to the natural disaster of March 2011. Its fiscal deficit is estimated to have increased by around 0.8 per cent in 2011 and projected to remain at that level in 2012, but to fall by 0.5 per cent of GDP in 2013. Total reconstruction costs are budgeted at about 4 per cent of GDP over 2011 to 2013 and are expected to be financed, on the first instance, via bond sales. In China, the budget deficit was around 2.5 per cent of GDP in 2010, and 3.1 per cent in 2009. In 2012 an improvement of Chinas budget condition is expected with its deficit expected to be around US$126 billion, down from U$142 billion in 2011.
Sources: IMF; RBA; NBS China.
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Economic growth in India has moderated due to policies intended to combat rising inflationary pressures. Economic growth is projected to be 7 per cent in 2012, 0.5 percentage points lower than assumed by BREE in December 2011. The slowing in growth follows a significant tightening in monetary policy. Growth in industrial production is projected to remain subdued over the medium term at around 6 per cent a year below its early 2011 peak. In addition to the effect of tighter monetary policy, industrial production has also been affected by problems at a number of coal-mines that have disrupted the fuel supply for thermal coal power stations. Furthermore, the value of merchandise exports fell in the December quarter, reflecting weaker external demand and lower commodity prices, particularly for iron ore. Despite some moderation, inflation in India still remains relatively high as the wholesale price index rose by 7.5 per cent over the year to December 2011. Near-term growth in ASEAN countries (including Indonesia, Malaysia, Philippines, Thailand, and Vietnam) is assumed to be around 5.6 per cent in 2012 due to robust investment. This investment should offset a possible slowdown in export momentum. Despite the weak global outlook for 2012, the Republic of Koreas economy is expected to grow at more than 4 per cent in 2012 and 2013, but to slow from 2014. In Asia as a whole, growth is projected to moderate in 2012. Nevertheless, even with some moderation, growth is expected to be robust at 7.5 per cent, on average, during 2012 and 2013.
OECD economies
Economic growth in OECD economies is assumed to be 1.1 per cent in 2012. The annual growth rate in Japan is assumed to be 1.7 per cent, 0.8 percentage points lower than assumed in December 2011 by BREE. The pace of growth in the 17 countries in the euro zone slowed in 2011, and is expected to deteriorate further in 2012. In Greece, Ireland, Italy, Portugal, and Spain, fiscal tightening, banking system concerns, low consumer confidence and high unemployment are all having a negative impact on domestic demand. An expected slow-down in growth in the core northern euro zone economies, such as Germany, is likely to make economic conditions in the southern economies more difficult in 2012. The German economy remains the most robust in Western Europe with strong export-led growth of 3.1 per cent in 2011. However, German industrial production has fallen by almost 5 per cent from its peak in July 2011 and growth is expected to be down to 0.3 per cent in 2012. Forward-looking indicators of equipment investment and exports, the two strongest sectors in the German recovery, have moderated. By contrast, construction activity in Germany has remained more or less unchanged in recent months. Over the medium term economic growth is expected to recover to an annual rate of 1.5 per cent by 2013, and rates of around 1.2 per cent to 1.4 per cent over the following two years. The US economy has been improving in recent months. Its unemployment rate is declining and there are tentative signs of improvement in housing construction activity. The economy is estimated to have grown at a rate of 1.8 per cent in 2011 and is assumed to continue growing at that rate in 2012. Economic growth is expected to be supported by increases in consumption and business investment, with forward-looking indicators of economic activity
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improving. Assumed very low nominal interest rates over the next two years are expected to provide stimulus to investment. In 2012, the negative spillovers from the euro zone crisis are expected to be offset by stronger underlying domestic demand. Nonetheless, economic activity may slow from the pace reached during the second half of 2011, as higher risk aversion tightens financial conditions and fiscal policy becomes less expansionary.
Commodity prices
Commodity prices which increased substantially in 2010 have moderated since mid-2011 as a result of the slowing growth in the global economy in the second half of 2011. Commodity prices were also lower in the December quarter 2011 compared with the previous quarter. Prices for some base metals and bulk commodities fell sharply in the second half of 2011 in response to weaker global demand (see Figure 3). An exception is thermal coal, with its price more or less unchanged over the last quarter of 2011 (see Figure 4). The resilience of the thermal coal spot price, relative to other bulk commodities, reflects different demand conditions. In particular, the shutdown of nuclear power generation capacity in several countries (especially Japan), and below average hydro electricity generation in China, have provided strong underlying support for thermal coal demand. Figure 3: Quarterly index of metal prices
800 700 600 500 400 300 200 100 index Dec 00=100 2001
2003 copper
2005
2007 gold
2009
2011
2013
2015 nickel
2017 zinc
aluminium
Source: BREE.
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Figure 4:
Quarterly index of bulk commodity prices

1200 1000 800 600 400 200
index Dec-00=100 2001
2003
2005
2007
2009
2011
2013
2015
2017 Iron ore
Thermal coal
Metallurgical coal
Source: BREE.
In 2012, commodity prices are expected to continue to ease given the current lower than expected growth in the global economy. Overall, metal prices are projected to decline 6 per cent in 2012 relative to the average price in 2011. The price of crude oil is expected to average $98 per barrel in 2012, down 6 per cent from the 2011 average; while iron ore prices are expected to ease by about 8 per cent. Commodity prices are expected to remain relatively stable over the remainder of the outlook period.
Demand for resources and energy commodities

Uncertainties about future growth prospects associated with the sovereign debt crisis in Europe generated very large fluctuations in financial markets in the second half of 2011 and early 2012. This volatility is expected to depress demand growth for commodities in the shortterm as ongoing and sharp fluctuations in financial markets moderate consumer and business confidence. In Japan, industrial production and exports were severely affected following the March 2011 earthquake and tsunami, but are recovering at a greater-than-expected rate. Demand in Japan is expected to grow in response to the necessary rebuilding of infrastructure. Domestic and external demand in several central Asian countries that have significant financial and trade linkages to the euro zone have also weakened as a result of the ongoing euro crisis. In South Asia, domestic demand is expected to continue to slow in 2012. Consumption demand in large export-oriented European Union (EU) economies, such as Germany, will depend on efforts to remediate public debt and liquidity concerns in the region as a whole. Growth has slowed due to a combination of weakening domestic and external demand. Several Central European countries are particularly vulnerable to the deepening crisis in the euro zone due to close trade linkages and high levels of maturing debt.
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On a positive side, faster convergence to trend economic growth in the US is forecast to support resources and energy commodity demand in that economy. However, the size of this effect on commodity prices will depend on the scale of the recovery in the US housing and labour markets. In 2012, demand for resources and energy commodities is expected to ease in response to weaker growth in many countries. China is expected to continue its major role in maintaining both the supply and demand side of the global economy. However, a dip in its growth rate in 2012 is expected to moderate demand for some bulk commodities in 2012.
Supply of resources and energy commodities

Over the outlook period, the production of most energy and mineral commodities is projected to grow. In 2012, world refined nickel production is projected to grow by 5.6 per cent, relative to 2011, to total of 1.7 million tonnes. This growth is expected to come from increased production at new operations and an increasing use of existing spare capacity. It is forecast that, relative to 2011, there will be a production growth in 2012 for aluminium and alumina (both up 2 per cent), oil (up to 1.2 per cent), steel (up 5.4), uranium (2.8 per cent) and zinc (up 3.2 per cent). Supported by forecast high growth in steel production, primarily in China, world trade of iron ore in 2012 is forecast to increase by 3.6 per cent and metallurgical coal by 3.5 per cent, relative to 2011. By contrast, concerns about geopolitical oil supply risks have risen again. The impact of a sustained oil supply disruption in the Middle East would be substantial. Should this happen it would result in sharply higher petroleum prices as there are limited inventories and spare capacity buffers.
Australias economic prospects

Real GDP in Australia (based on a PPP valuation of GDP) is assumed to grow at annual rate of 3.8 per cent in 201112, but to moderate to around 3 per cent over the remainder of the outlook period (see Table 2). According to the ABS, economic growth in the last quarter of 2011 was half of what was expected, and lead to the slowest annual growth since 2008. However, Australia remains among the fastest growing economies in the world. Recent economic data suggest that the mining sector will continue to perform strongly in terms of both volumes of exports and growth in capital investments. Overall, Australian domestic demand continues to grow at a robust pace, although the high level of the exchange rate, and changes in household spending and borrowing behaviour continue to have a negative affect on some industries. As in many other countries, volatility in global financial markets has resulted in noticeable declines in measures of consumer and business confidence in the latter half of 2011.
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Over the remainder of the outlook period (201213 to 201617), growth in the Australian economy is expected to be supported by mining-related activities. High levels of mining investment are expected to continue. Significant expansions to iron ore and coal production capacity are also underway, and will contribute to solid growth in resource export volumes over the foreseeable future. Table 2: Australias key macroeconomic assumptions for resources and energy
2009 10 2.3 2.3 6.0 0.88 69 2010 11 1.8 3.1 6.6 0.99 74 2011 12 a 3.8 1.8 7.2 1.04 76 2012 13 a 3.0 2.8 6.7 1.05 76 2013 14 a 3.0 2.8 6.7 1.03 75 2014 15 a 3.0 2.8 6.7 1.03 75 2015 16 a 3.0 2.8 6.7 1.05 76 2016 17 a 2.9 2.8 6.7 1.06 77
Economic growth b c % Inflation rate b % Interest rates d % pa Nominal exchange rates e US$/A$ US$ Trade weighted index index for A$ g
a BREE assumption. b Change from previous period. c Weighted using 2011 purchasing power parity (PPP) valuation of country gross domestic product by IMF. d Large business weighted average variable rate on credit outstanding. e Average of daily rates. g Base: May 1970 = 100. Sources: BREE; ABS; RBA.
The Australian dollar traded in a wide range during 2011. In December, the Australian dollar traded at US102c, TWI 76. This compares with US98c and TWI 72 in September 2011, and US106c and TWI 75 in early June 2011. In mid-March 2012, the Australian dollar traded around of US105c while the trade-weighted index was around 78. The recent fall of the Australian dollar from US108c and TWI79 in late February was a result of speculation that lower economic growth in the December quarter 2011 would increase the likelihood of an interest rate cut by the Reserve Bank. There are several important drivers of the Australian exchange rate over the medium term. In the next three years factors that may cause the Australian dollar to weaken are: the effect of the expected euro zone recession in 2012; a possible reduction in demand in Europe for Chinas exports; a stall in the US economic recovery; and any decline in domestic interest rates. In the last two years of the outlook period (2016 and 2017), it is assumed that the Australian dollar will slightly increase in value due to: expected stronger economic growth in Australia; recovery in the EU economy; a rebound in demand in Europe for Chinas exports; and relatively low ongoing interest rates in the US that should dampen demand for US dollars. The demand in Asia for Australias exports, and market expectations about resources and energy commodity prices, are also factors that will influence the value of the Australian dollar over the outlook period.
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The Australian mining sector

In 201011, the mining sector contributed approximately 7 per cent of Australias total GDP. The gross value added produced from mining activities was about $100.7 billion (in 201112 dollars), of which $9.5 billion was contributed by exploration and mining support services (see Figure 5). Figure 5: Australian mining industry gross value added, chain volume measures
100 95 90 85 80 75 2011-12 A$b 1990-91 12 10 8 6 4 2 2011-12 A$b 2010-11
1994-95
1998-99
2002-03
2006-07
mining (excludes services to mining) exploration and mining support services (right axis)
Source: ABS.
Resources and energy commodity exports account for a large proportion of Australias commodity exports. In 201011, the value of energy and minerals commodity exports was about $179.2 billion, some 85 per cent of Australias total value of commodity exports. China is the main export market for Australias resources and energy exports, accounting for 26 per cent of Australian total export value of resources and energy commodities in 201011, followed by Japan (19 per cent), the Republic of Korea (9 per cent) and the US (4 per cent). Over the past decade, there has been a significant increase in the value of investment in the Australian mining sector, supported by high commodity prices and strong demand from Asia. In 201011, investment in private new capital expenditure in the mining sector was $47.2 billion. This compared with inflation-adjusted figures (in 201112 dollars) of $37.5 billion in 200910 and $7.9 billion a decade ago. The share of the mining sector as a proportion of new capital expenditure of Australias total industries has also increased significantly, rising from 12 per cent in 200001 to 39 per cent in 201011 (see Figure 6). Much of this growth is underpinned by liquefied natural gas (LNG), coal and iron ore projects.
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Figure 6:
Investment in private new capital expenditure

50 40 30 20 10 50 40 30 20 10 % 1990-91 1994-95 investment 1998-99 2002-03 2006-07 2010-11 share in total industries (right axis)
2011-12 A$b
Source: ABS.
As a capital-intensive industry, the contribution of the mining industry to total employment is low, and accounted for about 2 per cent of total employment over the past three years. In 201011, the sector employed about 205 000 people. By sub-industry, the metal ore industry employed the largest number of people (about 69 000 people), followed by the coal and oil and gas extraction industry (see Figure 7). Figure 7: Employment in the Australian mining industry
250 200 150 100 50 000 people
1990-91 coal
1994-95
1998-99
2002-03 metal ore
2006-07
2010-11
oil and gas extraction
other mining (including services)
Source: ABS.
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Australian resources and energy commodities production and exports

In 201011, the overall index of Australian mine production increased by 5 per cent compared with 200910. This includes a 13 per cent increase in metals and other minerals production that was offset by a 3 per cent decrease in the production of energy commodities, primarily coal due to flooding in Queensland (see Figure 8). Total Australian mine production is forecast to increase by 6 per cent in 201112, relative to 201011, primarily due to a 7 per cent increase in the output of energy commodities, particularly thermal and metallurgical coal. Another contributing factor to this growth will be a forecast 6 per cent increase in the production of metals and other minerals, underpinned by rising iron ore, nickel and zinc production. Figure 8: Australian mine production
140 120 100 80 60 40 20 index 2011-12=100 1991-92
1996-97
2001-02 minerals
2006-07 energy
2011-12
2016-17
Source: BREE.
Export earnings from energy and minerals commodity exports increased by 25 per cent in real terms (in 201112 dollars) between 200910 and 201011, reaching $185 billion in 201011 (see Figure 9). Of this total, export earnings from minerals commodities contributed $113 billion, accounting for about 61 per cent of the total. Export earnings from energy commodities accounted for a smaller share, 39 per cent, and contributed approximately $72 billion in real terms to the total value of Australian energy and minerals exports.
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Figure 9:
Australian energy and minerals export earnings

140 120 100 80 60 40 20 2011-12 A$b 1991-92
1996-97
2001-02
2006-07
2011-12
2016-17
Energy
Minerals
Sources: BREE; ABS.
In 201112, the total export earnings for energy and mineral commodities are forecast to increase by 8 per cent to $199 billion supported by increases in the export values for both energy and mineral commodities. Energy commodity export earnings are forecast to grow by 7 per cent to $77 billion (in 201112 dollars) as a result of strong increases in export earnings from thermal coal (up 28 per cent to $17.8 billion), LNG (up 13 per cent to $12 billon), oil (up 7 per cent to $12.6 billion), and metallurgical coal (up 4 per cent to $31 billion). Mineral commodity export earnings are forecast to increase by 8 per cent to $122 billion as a result of increases in the export values of gold (up 33 per cent to $17.3 billion), alumina (up 14 per cent to $6 billion), copper (up 7 per cent to $9 billion), and iron ore (up 2 per cent to $59.7 billion). Partially offsetting the increased export earnings for mineral commodities will be lower forecast export earnings for aluminium (down 9 per cent to $3.8 billion), and zinc (down 8 per cent to $2.2 billion). Over the medium term, the outlook for energy and minerals commodity exports remains robust (see Table 3 and Table 4). Investment in LNG production facilities will drive a surge in LNG exports over the outlook period and the commissioning of the Pluto LNG project is expected to boost exports in 2012. Based on mining, rail and port infrastructure expansions currently under way or in planning, significant growth in coal export capacity is expected over the next three years. The outlook for major energy and minerals commodities in detail is outlined in the following Resources Outlook and Energy Outlook sections.
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March quarter 2012
Table 3:
Australias resources and energy commodity exports, by selected commodities

Volume 2010-11 2016-17 z average annual growth % 5.5 $m 21.1 $m 11.0 $m 12.0 $m 11.1 $m 7.7 $m 4.7 $m 4.9 $m 5.0 $m 5.9 $m 6.1 $m 4.6 $m 2010-11 Value b 2016-17 z average annual growth % 6.8 18.6 4.5 17.8 4.1 0.2 0.7 7.1 7.3 0.5 0.8 3.0
Oil LNG Thermal coal Uranium Iron ore Metallurgical coal Gold Alumina Aluminium Copper Nickel Zinc
ML Mt Mt t Mt Mt t kt kt kt kt kt
19 638 20 143 6 950 407 140 301 16 227 1 686 850 210 1 493
13 945 63 268 13 700 767 218 396 21 610 1 241 1 201 300 1 958
12 166 10 786 14 423 630 60 340 30 790 13 451 5 392 4 318 8 703 4 233 2 452
7 961 30 055 18 793 1 687 76 777 30 387 13 994 8 116 2 742 8 983 4 429 2 926
b In 201112 Australian dollars. z BREE projection. Sources: BREE; ABS.
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Table 4:
Medium term outlook for Australias resources and energy commodity sector
2009 10 US$A$ 0.88 2010 11 0.99 2011 12 f 1.04 2012 13 f 1.05 2013 14 z 1.03 2014 15 z 1.03 2015 16 z 1.05 2016 17 z 1.06
Commodity exports Exchange rate Value of exports Resources and energy real b Energy real b Metals and other minerals real b
A$m 139 468 179 211 199 166 208 316 223 084 234 419 249 240 258 257 A$m 148 599 185 207 199 230 202 613 211 006 215 626 222 950 224 660 A$m A$m A$m A$m 57 478 61 241 69 670 72 001 77 227 77 252 77 947 75 813 84 527 79 951 86 896 79 929 97 205 105 698 86 952 91 947
81 990 109 541 121 939 130 369 138 557 147 523 152 035 152 559 87 358 113 206 121 978 126 800 131 055 135 696 135 999 132 712
Resources and energy sector Volume of mine production c energy metals and other minerals Gross value of mine production real b index index index 89.8 96.1 84.0 94.0 93.2 94.7 100.0 100.0 100.0 105.2 104.8 105.5 114.3 113.3 115.0 119.1 117.4 120.3 124.1 124.9 123.8 127.7 132.3 125.1
A$m 133 890 172 043 191 199 199 983 214 161 225 042 239 270 247 927 A$m 142 655 177 799 191 261 194 508 202 566 207 001 214 032 215 673
b In 201112 Australian dollars. c Base 201112=100. f BREE forecast. z BREE projection. Sources: BREE; ABARES; ABS.
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March quarter 2012
Energy outlook
Oil
Nina Hitchins
The West Texas Intermediate (WTI) oil price is forecast to increase to an average of US$113 a barrel in 2013, assuming crude oil stocks in Cushing return to historic levels. The Brent oil price is forecast to increase to an average of US$119 a barrel in 2013, supported by strong demand from emerging economies. Over the medium term, further increases in oil prices are projected to be limited by higher OPEC spare production capacity and the exploitation of unconventional oil resources. In 2017, the WTI oil price and the Brent oil price are projected to average US$105 and US$104 (in 2012 dollars), respectively. World oil consumption is forecast to increase in 2012 and 2013 by 0.9 and 1.4 per cent, respectively. Stronger consumption growth in 2013 reflects assumed improvements in world economic activity. For the remainder of the outlook period, world oil consumption is projected to increase at an average annual rate of 1.1 per cent, as the intensity of oil use within non-OECD economies falls. In 2012, non-OPEC oil production is forecast to account for the majority of the increase in world oil production. Over the medium term, however, OPEC oil production is projected to constitute an increasing proportion of the world supply. The value of Australian crude oil and condensate exports is forecast to total $12.6 billion in 201112. Over the following four years, export earnings are projected to decline, reflecting lower export volumes associated with falling production from maturing fields. However, in 201617, the value of Australias crude oil and condensate exports is projected to increase to $8 billion (in 201112 dollars) supported by condensate production associated with the Prelude and Ichthys projects.
Higher oil prices over the medium term

The WTI crude oil price averaged US$95 a barrel in 2011, an increase of 20 per cent from 2010. As explained in Box 1: The Brent-WTI price differential (REQ December 2011, pp. 2021) increases in the WTI price were constrained by higher stocks of crude oil in Cushing. Meanwhile, the Brent price averaged US$110 in 2011, an increase of 39 per cent from 2010. Higher prices reflected supply disruptions in both OPEC and non-OPEC regions and strong consumption growth in non-OECD economies. Price increases were amplified by low OPEC spare production capacity and lower OECD stocks.
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Figure 1:
160 140 120 100 80 60 40 20 US$/bbl
Weekly WTI oil price
Tension between Iran and Israel Lower production from Venezuela and Russia Tensions between Turkey and Iraq Re nery re in Texas
Global nancial crisis US credit rating downgrade Cold northern hemisphere winter Exports from Iraq reaches highest level since the US led invasion Record oil imports from China Russia Start of European increases debt crisis output Outbreak of civil war in Libya IEA oil reserve release Earthquakes and tsuanmi in Japan Iran threatens to block the Strait of Hormuz
Hurricane Ike and Gustav
OPEC announces production cut
Outlook for world economy improves
July 2007 January 2008 July 2008 January 2009 July 2009 January 2010 July 2010 January 2011 July 2011 January 2012
Source: BREE.
OECD oil stocks declined during 2011, and are estimated to have averaged 2 per cent lower than stocks recorded in 2010. Lower stocks reflected the IEAs decision in June 2011 that member countries would collectively release 60 million barrels over 30 days to replace lost Libyan production. OPEC spare production capacity is estimated to have fallen to an average of 4.4 million barrels a day in 2011, from an average of 6.1 million barrels a day in 2010. The reduction in OPEC spare capacity reflected production shut-ins in Libya during the civil war, which prompted other OPEC members to use a greater proportion of their capacity. In 2012, OPEC spare production capacity is forecast to increase as Libyan oil production approaches pre-war output. This excess capacity and growth in non-OPEC oil production are forecast to limit increases in the Brent oil price over the short term. The Brent price is forecast to average US$119 in 2013, supported stronger growth in world oil consumption. The WTI price is forecast to converge to the Brent price, assuming pipeline constraints in the US are resolved and stocks in Cushing decrease (see Figure 2). There are two significant risks to the short term outlook for oil prices. The first risk relates to potential escalations of tensions in the Middle East that could cause production disruptions, and put upward pressure on oil prices. The second risk is weaker than assumed world economic growth over the next 12 to 18 months, which may put downward pressure on oil prices.
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March quarter 2012
Figure 2:
WTI and Brent oil prices

140 120 100 80 60 40 20
2012 US$/bbl 1997
1999
2001
2003
2005 Brent
2007
2009
2011 WTI
2013
2015
2017
Source: BREE.
For the remainder of the outlook period (2013 to 2017), OPEC spare capacity is projected to average 5.4 million barrels a day, supported by growing capacity in Iraq, the United Arab Emirates (UAE) and Angola. An increase in OPEC spare capacity is expected to limit the rise in oil prices over the medium term, as unexpected increases in demand will be met by increased utilisation of capacity. Between 2014 and 2017, the Brent and WTI oil prices are projected to average US$108 (in 2012 dollars), in line with moderating world oil consumption growth, and the increased viability of exploiting unconventional resources. By the end of the outlook period, the traditional WTI-Brent price relationship, typically characterised by US$1-3 dollar a premium of WTI above Brent, is projected to reappear.
Exploration and development activity at a 27 year high

Movements in oil prices over the medium term will depend on discoveries that expand economic demonstrated reserves, and ultimately world production. Investment in oil exploration, as measured by the Baker Hughes worldwide drilling rig count, reached 3751 in January 2012, the highest count recorded since 1985.
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Figure 3:
4000 3500 3000 2500 2000 1500 1000 500 number
Worldwide drilling count and the WTI oil price

140 120 100 80 60 40 20 US$/bbl 2006 2007 2008 2009 2010 WTI price 2011 2012 worldwide drilling rig count
2005
Sources: BREE; Baker Hughes.
High oil prices over 2012 and 2013 are expected to encourage exploration activity and increase the economic viability of extraction from new oil fields. The majority of new oil field developments, particularly in non-OPEC regions, have higher development and production costs compared with existing fields. New offshore fields are generally further below the seabed and a greater distance from shore, while onshore oil fields increasingly exploit unconventional resources. As the technology and industry knowledge used to develop new oil fields improves and becomes more readily available, development and extraction costs of these oil fields are likely to fall, potentially limiting significant increases in oil prices over the medium term.
Moderate growth in world oil consumption over the medium term

In 2011, world oil consumption averaged 89.1 million barrels a day, an increase of 0.8 per cent relative to 2010. Consumption growth in 2011 reflected robust consumption growth in non-OECD economies that was offset by lower consumption in the OECD. Demand for oil decreased in the US and Europe in 2011, reflecting weak economic growth and decreases in oil intensity of economic growth. World oil consumption is forecast to increase marginally in 2012, reflecting an assumed weak world economic outlook. Beyond 2012, world economic growth is assumed to strengthen. In 2013, world oil consumption is forecast to increase by 1.4 per cent, with oil consumption in non-OECD economies surpassing consumption in the OECD (see Figure 4). Over the remainder of the outlook period (2014 to 2017), world oil consumption is projected to increase at an average rate of 1.1 per cent a year, to reach 95.4 million barrels a day in 2017. Increases in world consumption are projected to be characterised by moderating oil consumption growth in non-OECD economies and continuing falls in OECD consumption.
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March quarter 2012
Figure 4:
Oil consumption in OECD and non-OECD economies

60 50 40 30 20 10 mb/d 1997 1999 2001 2003 OECD 2005 2007 2009 2011 2013 2015 2017 non-OECD
Sources: BREE; IEA.
Robust consumption growth in non-OECD economies

In 2012, oil consumption within non-OECD economies is expected to grow 2.7 per cent, relative to 2011, to average 44.6 million barrels a day. From 2013, stronger assumed economic growth in most non-OECD economies is forecast to support robust growth in industrial production, transport fleets and, therefore, oil demand. In 2013, non-OECD oil consumption is forecast to increase by a further 3.3 per cent to average 46.1 million barrels a day. Over the remainder of the outlook period (2014 to 2017), oil consumption growth in non-OECD economies is projected to average 2.9 per cent a year, as oil use intensity falls with projected persistent high prices. Non-OECD Asia is projected to account for the majority of total non-OECD consumption growth over the outlook period, with economic growth in Asia assumed to rise faster than elsewhere. Chinas oil consumption averaged 9.5 million barrels a day in 2011, an increase of 5 per cent from 2010. In February 2012, Chinas National Development and Reform Commission increased the ceiling on Chinas petrol and diesel prices for the first time in ten months, by 3 and 4 per cent, respectively. Nevertheless, the price of petroleum products remains low by international standards. In 2012 and 2013, Chinas oil consumption growth is forecast to grow by 4 per cent and 5 per cent, respectively, to reach 10.4 million barrels a day in 2013. Consumption is expected to be supported by domestic price controls, strengthening economic growth and demand for Chinas exports.
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Chinas oil consumption is projected to increase at an average annual rate of 4 per cent from 2014 to total 12.3 million barrels a day in 2017. Despite being the worlds second largest oil consumer, Chinas per capita consumption of oil is around half of the world average. Strong assumed economic growth in China over the medium term is projected to result in rising income per capita, an expansion of both ground and air transportation fleets and a growing petrochemical sector. However, Chinas economic growth is expected to become progressively less oil intensive, as high oil prices encourage energy efficiency and the substitution of residual fuel oil for natural gas in electricity generation. Under its current five year plan (20112015), China has targeted a 16 per cent reduction in the energy intensity of its economy that may even result in a decline in per capita oil consumption. Oil consumption in India is projected to increase by an average annual rate of 3 per cent to be 4.2 million barrels a day by 2017. Projected growth in oil consumption is underpinned by a young population demographic and a growing middle class. Over the medium term, Indias working age population is expected to expand by an average of 1.6 per cent a year and support demand for consumption of petroleum fuels for transport. Sustained economic growth in the Middle East is expected to support increases in the regions oil consumption. The expansion of electricity generation capacity to support increases in economic activity, combined with limited availability of natural gas, is likely to continue to underpin consumption growth of residual fuel oil in power plants. Widespread end-user fuel subsidies are also unlikely to be dismantled during the outlook period and are expected to insulate consumers from high oil prices. In 2012, oil consumption in the Middle East is forecast to increase by 3 per cent, relative to 2011, to reach 8.2 million barrels a day. Over the remainder of the outlook period (2013 to 2017), oil consumption growth is projected to average 3 per cent a year to reach 9.7 million barrels a day in 2017.
OECD oil consumption to fall over the medium term

OECD oil consumption is forecast to contact 0.9 per cent to average 45.2 million barrels a day in 2012. Lower consumption in the US and Europe will be partially offset by increased consumption in the Pacific region (Japan, Republic of Korea, Australia and New Zealand). In 2013, oil consumption is forecast to fall marginally in all three OECD regions. For the remainder of the outlook period, OECD oil consumption is projected to decrease at an average annual rate of 0.7 per cent to average 43.8 million barrels a day by 2017. Oil consumption in Europe has declined steadily since 2006, reflecting weak economic growth since the global financial crisis, continued efficiency gains in the transport sector and declining use of oil in electricity generation and heating. The declining trend is projected to continue over the outlook period. Short term falls in consumption are expected to be magnified by weak economic growth following market concerns related to sovereign debt. In 2012, European oil consumption is forecast to contract by 2.4 per cent to 13.9 million barrels a day. Between 2013 and 2017, oil consumption is projected to decrease at an average annual rate of around 1 per cent, falling to 13.3 million barrels a day by 2017.
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North American oil consumption fell 1.1 per cent in 2011, relative to 2010, to average 23.5 million barrels a day, due to lower gasoline consumption in the US. In 2012, as economic growth remains weak, North American oil consumption is forecast to contract by a further 0.5 per cent to 23.4 million barrels a day. Over the medium term, North American oil consumption is projected to decline at an average annual rate of 0.5 per cent to reach 22.8 million barrels by 2017. Declines are projected to be underpinned by structural changes in the transport sector, including more stringent fuel economy standards, increasing sales of electric vehicles, and a growing share of flex-fuel vehicles, which will reduce oil-based gasoline demand and increase ethanol consumption. Figure 5: US motor gasoline and ethanol consumption
9.5 9.0 8.5 8.0 7.5 7.0 6.5 mb/d 2001 2003 2005 gasoline 2007 2009 2011 2013 2015 2017 ethanol (energy content adjusted)
Sources: BREE; IEA.
Oil consumption in the Pacific region is projected to increase in the short term and decline over the medium term. Changes in oil consumption are expected to largely reflect developments in Japan, the largest oil consuming country in the Pacific region. In 2011, Japans oil consumption increased by 0.9 per cent to 4.5 million barrels a day, underpinned by increased use of residual fuel oil for electricity generation following the loss of earthquake damaged nuclear power generation capacity. Japans oil consumption is forecast to increase by an additional 0.8 per cent in 2012 supported by the continued use of oil-fired capacity as nuclear facilities remain shut for maintenance and stress tests, and industrial production increases associated with post-earthquake reconstruction. From 2013 to 2017, oil consumption in Japan is projected to contract at an average annual rate of 0.6 per cent due to vehicle fuel efficiency increases and as a result of natural gas, coal or nuclear replacing high cost oil-fired electricity generation. Similarly, oil consumption in the Republic of Korea is projected to fall by around 1 per cent a year in line with efficiency gains and declining use of kerosene for heating. Oil consumption in the Pacific region is projected to fall from 7.9 million barrels a day in 2011 to 7.7 million barrels a day in 2017.
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World oil supply growth to be underpinned by OPEC production beyond 2012

World oil production increased by 1.2 per cent in 2011, to average 88.5 million barrels a day. In 2012, production is forecast to increase by an additional 1.5 per cent to average 89.8 million barrels a day, with non-OPEC output accounting for around two thirds of incremental increases in production. Oil production growth in non-OPEC economies is forecast to stall in 2013, while OPEC production is forecast to increase by 4 per cent to average 37.5 million barrels a day. World oil production in 2013 is forecast to increase by 1.4 per cent to 91.1 million barrels a day. For the reminder of the outlook period, world oil production is projected to increase at an average annual rate of 1.1 per cent to reach 95.4 million barrels a day in 2017. Non-OPEC production is projected to increase marginally, while OPEC production is projected to increase at an average annual rate of 1.8 per cent to reach 40.3 million barrels a day in 2017. Capacity increases in Iraq, Angola and the UAE are expected to support OPEC production growth.
Strong growth in non-OPEC production during 2012

Non-OPEC production remained relatively stagnant in 2011 as a result of increased production in North America that was offset by lower than expected output due to maintenance and unplanned outages in the North Sea, Canada and the Middle East. Non-OPEC production in 2012 is forecast to increase by 2 per cent, relative to 2011, to average 53.6 million barrels a day. Increases in non-OPEC oil production are expected to be concentrated in North America and Latin America. Over the medium term, growth in non-OPEC oil production is forecast to slow. Between 2013 and 2017, non-OPEC oil production is projected to grow at an average annual rate of 0.5 per cent to reach 55.1 million barrels a day. Incremental increases in non-OPEC oil production over the outlook period are projected to be greatest in North America. Production growth is projected to be underpinned by greater production in the US and Canada, offsetting falling production in Mexico. Oil production in the US over 2012 and 2013 is forecast to increase at an average rate of 2 per cent a year to reach 8.4 million barrels a day in 2013. Increases in tight oil (see Box 1) production primarily from the Bakken, Nicobara and Eagle Ford formations are forecast to offset lower production from maturing conventional fields in Alaska and California. Towards the end of the outlook period, continued expansion of the tight oil industry and additional production from the Gulf of Mexico are expected to contribute to increased US oil production provided that issues with the allocation of drilling permits are resolved. In 2017, US oil production is projected to grow to 9.1 million barrels a year, an increase of 13 per cent relative to production in 2011.
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Canadas oil production is forecast to increase by 6 per cent in 2012 and 4 per cent in 2013 to reach 3.8 million barrels a day in 2013. Production growth in the short term is expected to be supported by enhanced recovery of conventional crude oil in the Western Canadian Sedimentary Basin as a result of the recent success of horizontal drilling and multi-stage fracturing techniques. Growth in Canadas oil production over the medium term is attributed to increases in unconventional oil production, partially from oil sands projects. Increased production is expected from the expansion of existing oil sands projects such as CNRLs Horizon project and Suncors Firebag project, and the commencement of new projects. Imperials Kearl Lake mining project is due to start operation in late 2012 at 110 000 barrels a day and ramp up to 345 000 barrels a day after 2017. Huskys Sunrise Energy project is due to commence production of 60 000 barrels a day in 2014, ramping up to 200 000 barrels a day. Canadas oil production between 2014 and 2017 is projected to increase at an average annual rate of 8 per cent to reach around 5.2 million barrels a day, with oil sands accounting for around two thirds of total production. Oil production from Latin America is projected to be the second largest source of growth in non-OPEC over the medium term, largely supported by new projects in Brazil. In Brazil, oil production in 2012 is forecast to increase by 7 per cent to 2.3 million barrels a day, underpinned by production from several of Petrobas new offshore projects that are due to commence in the second half of the 2012. These projects include Baleia Azul, Tiro Sidon, Roncador module 3 and Guar, which have a combined peak capacity of 480 000 barrels a day. Growing production from these projects and other projects due to commence in 2013, such as Parque das Beleias, Papa-Terra and Roncador module 4, are expected to support a 2 per cent increase in Brazils oil production, which is forecast to total 2.4 million barrels a day in 2013. For the remainder of the outlook period, Brazilian oil production is projected to increase at an average annual rate of 7 per cent. Production increases will be underpinned by the installation of additional production systems in several offshore oil fields including Baleia Azul, Guara North, Cernambi, Lula Central, Lula High and Maromba, which combined have a peak capacity of 760 000 barrels a day. In 2017, Brazilian oil production is projected to average 3.2 million barrels a day. Oil production in the Russian Federation is projected to remain relatively unchanged over the medium term, despite changes to its oil export taxes in October 2011 that enhanced the profitability of upstream projects. Production from the Russian Federation is projected to fall from 10.6 million barrels a day in 2011 to 10.4 million barrels a day in 2017. Decreased production from maturing fields in Western Siberia is projected to offset production growth from new oil fields in Eastern Siberia.
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Box 1: Unconventional oil not so unconventional

Unconventional oil is set to play a growing role in world oil production. High oil prices over the medium term are projected to encourage exploration development activity by improving the economic viability of unconventional methods. Generally, the cost of producing unconventional oil is higher compared with conventional oil. The IEA presently characterises unconventional oil as including extra-heavy oil (also known as natural bitumen or oil sands), kerogen oil, and derived liquids such as coal-to-liquid (CTL) or gas-to-liquid (GTL). Interestingly, tight oil, which is produced increasingly in the US, is considered conventional oil, but its producers face challenges similar to producers of unconventional oil. Extra-heavy oil The extraction of extra-heavy oilor bitumenfrom a deposit generally requires heat to reduce viscosity. The worlds largest deposit of extra-heavy oil is found as naturally occurring bitumen in Canadian oil sands at shallow depths. Canadas largest oil sands deposits, which are located in Athabasca, Cold Lake and Peace River, contain an estimated 170 billion barrels of recoverable oil. These deposits can be extracted using two alternative methods: mining and in-situ. Mining is used to extract oil sands that are on or near the surface and the ore is treated with hot water to separate the bitumen. The in-situ method is used for deeper deposits. It employs steam-injection technology and solvents to reduce the viscosity of bitumen before extraction. Extra-heavy oil is also found in the Venezuela Orinoco belt, which is the worlds second-largest deposit of extra-heavy oil. The deposits are generally deeper than in Canada, and oil is extracted using in-situ methods. Kerogen oil Kerogen oil is often referred to as oil shale, but should not be confused with shale oil. Kerogen oil is derived from sedimentary rock containing kerogen, which when heated and processed releases hydrocarbons similar to oil. Deposits near the surface are mined in a similar way to oil sands and the environmental challenges are comparable. The costs of producing kerogen oil are high due to the amount of energy required to heat the shale to between 350C and 450C before oil can be extracted. Only around 15 000 barrels of kerogen oil is currently produced worldwide. CTL Coal-to-liquid is a process of deriving oil from coal, usually via the gasification of coal into syngas. While the technology is well established, CTL is one of the most costly sources of unconventional oil. South Africa is the most notable producer of CTL, with a facility that produced 160 000 barrels a day at capacity. Two commercial scale CTL projects are being proposed in Australia. The Amber CTL project, has an expected capacity of around 20 000 barrels a day and is scheduled for completion in 2014. The Clinton project has a capacity of 15 000 barrels a day and is scheduled for completion in 2015.
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March quarter 2012
GTL Gas-to-liquid technology is similar to CTL, uses the reaction of natural gas with steam and oxygen to create syngas. The Pearl GTL project in Qatar commenced in 2011 and is expected to ramp up to peak capacity of 140 000 barrels a day in 2012. Currently low gas prices in North America have reignited interest in GTL, with a feasibility study underway for a GTL plant fed by shale gas in Louisiana. Tight oil Tight oil is also known as shale oil. It is conventional oil trapped in geological formations with low permeability (e.g. shale rock). Special techniques including horizontal wells and multi-stage hydraulic fracturing are used to extract tight oil. Growth in tight oil production is most prominent in the US, from the Bakken formation around the North Dakota, Montana and Canadian boarders, the Eagle Ford formation in Texas, and the Niobrara formation on the boarder of Wyoming and Colorado. Impediments to growth in unconventional and tight oil By 2017 unconventional and tight oil are projected to account for 7 per cent of world oil production, up from 4 per cent in 2010. However, growth in production could be limited by lower crude prices, increased extraction costs including specialist services, infrastructure constraints and environmental costs. The future of unconventional and tight oil production over the longer term will be increasingly shaped by market conditions and policy responses to infrastructural and environmental concerns.
OPEC oil production underpinned by NGL in the short term

OPEC oil production is forecast to increase by around 1.2 per cent in 2012 to average 36.2 million barrels a day. Increases in OPEC oil production are forecast to be underpinned by growth in the production of natural gas liquids (NGL), while OPEC crude oil production is expected to remain largely unchanged. In 2013, as non-OPEC production stalls, OPEC oil will meet any expected gap. OPEC oil production is forecast to increase by 4 per cent in 2013 to average 37.5 million barrels. Between 2014 and 2017, OPEC oil production is projected to increase at an average annual rate of 1.8 per cent. Growth in OPEC NGL is projected to weaken towards the end of the outlook period, with OPEC crude oil production comprising an increasing share of additional OPEC oil production. OPEC crude oil production is forecast to be underpinned by increased output from Iraq. By the end of 2012, Iraqs oil producing capacity is expected to reach 3.1 million barrels a day, up 14 per cent from an average production rate of 2.7 million barrels a day in 2011. Oil output from the Rumaila, West Qurna-1, and Zubair oil fields, which together accounted for over two thirds of Iraqi production in 2011, is expected to support Iraqs oil growth. Iraqs national oil company plans to further expand these fields further over the medium term. Official production targets
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for Iraqi oil production are ambitious at 6.5 million barrel a day by 2015 and 12 million barrels a day by 2017. Export infrastructure and logistical constraints are likely to limit output growth to below official targets. Between 2014 and 2017, Iraqs oil production growth is projected to increase at an average annual rate of 6 per cent to reach 4.3 million barrels a day in 2017. Libyan crude oil production has increased significantly since the end of the 2011 civil war. Libyan production in the December quarter of 2011 averaged 550 000 barrels a day, 12 times higher than it was in the September quarter. Libyan crude oil production is projected to rebound to pre-civil war levels of around 1.6 million barrels a day by early 2014. For the remainder of the outlook period, growth in Libyan crude oil production is projected to slow and reach 1.9 million barrels a day in 2017. Increases in crude oil production in the UAE and Angola are projected over the outlook period. Over a dozen new projects in Angola are expected to offset production declines in more mature offshore fields and support an annual growth rate of 3 per cent over the outlook period. By 2017, crude oil production in Angola is projected to average 1.9 million barrels a day. In the UAE, crude oil production is projected to increase 4 per cent a year to reach 3.1 million barrels a day by 2017. Production growth in the UAE is expected to be supported by increased output from the Upper Zakum and Lower Zakum fields, and greater production from mature onshore fields following the employment of enhanced oil recovery techniques. Oil production in Saudi Arabia during 2011 averaged 9 million barrels a day, well below its capacity of 12 million barrels a day. Saudi Arabias production capacity is projected to fluctuate between 11.6 and 12 million barrels a day over the outlook period. Forecast falls in capacity during 2012 and 2013 reflect lower output from maturing fields. Projected increases in 2015 will be underpinned by the expected development of the second phase of the Manifa project. By 2017, Saudi Arabian oil production is projected to average 8.7 million barrels a day. Irans crude oil production is projected to decrease at an average annual rate of 5 per cent over the outlook period. International oil sanctions recently imposed on Irans oil exports may have several effects. They are likely to lead to a redistribution of its oil trade with Irans exports being redirected from Europe to China and India, cause a discount in the price of Irans oil, contribute to the flight of foreign investment, and reduce the number of projects coming online before 2017. Production declines from maturing oil fields are projected to offset new production from several small capacity projects. Production of NGLs by OPEC is forecast to increase by 10 per cent and 6 per cent in 2012 and 2013, respectively, as projects in Qatar, Saudi Arabia and the UAE ramp up to peak capacity. For the remainder of the outlook period, growth in OPEC production of NGLs is projected to slow to 3 per cent a year, and average 7.5 million in 2017. Production growth is expected to be supported by new projects in Iran, the UAE and Saudi Arabia including the Integrated Gas Development project and the Manifia project.
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Box 2: Downside risk: the Strait of Hormuz

On 27 December 2011, the Iranian Government threatened to block the transportation of oil through the Strait of Hormuz, limiting trade of oil between producers in the Middle East and consumers in Asia. The threat was made in retaliation to proposed international sanctions designed to prevent the exportation of Iranian oil and to persuade the Iranian Government to cease its alleged nuclear weapons program. Around one fifth of the worlds crude oil is transported by tankers from ports in the Persian Gulf through the Strait of Hormuz. The closure of the Strait would result in considerable increase in import prices throughout Asia and the Pacific due to the limitations of alternative transport routes and already constrained supply to the region. In the highly unlikely event that Iran carried out its threat and was successful at blocking the Strait of Hormuz, oil import prices in Asia would likely increase, and result in lower than forecast growth in oil consumption. Price increases would depend on the length of the closure and the response by the international community. According to the IEA, most military analysis believe that any closure of the Strait of Hormuz would be short term, as the US and UK would not allow the Strait to be closed given its importance to global energy markets.
TURKEY
CYPRUS LEBANON
MEDITERRANEAN SEA
SYRIA IRAQ
JORDAN
ISRAEL
IRAN
KUWAIT
Persian Gulf
EGYPT SAUDI ARABIA
BAHRAIN QATAR
Gulf of Oman
UNITED ARAB EMIRATES
OMAN
RED SEA
ARABIAN SEA
YEMEN
Gulf of Aden
Strait of Hormuz
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Australian production and exports declining until 201516

Australian production of crude oil and condensate is forecast to contract by 4 per cent in 201112 to 23.7 gigalitres. Lower production reflects planned shut-ins on the North West Shelf that occurred in the September quarter 2011 and declines from maturing fields. Output from the Kitan project in the Bonaparte Basin, which commenced in October 2011, is expected to partially offset these declines. In 201213, Australian crude oil and condensate production is forecast to increase by 1 per cent as a result of the commencement of crude production from the Montara/Skua project and condensate from the Kipper gas project. From 201314 to 201516, Australian production of crude oil and condensate is projected to decrease at an average annual rate of 6 per cent. Declining production from maturing fields is projected to more than offset new production from several small fields including Coniston, Fletcher-Finucan, Turrum, Crux and Balnaves. In 201617, Australias crude oil and condensate production is projected to rebound by 8 per cent to 19.1 gigalitres, underpinned by condensate production associated with the Prelude and Ichthys projects. Australian exports of crude oil and condensate over the outlook period are projected to follow a similar profile to production. Exports are forecast to contract by 4 per cent in 201112 and a further 1 per cent in 201213 to total 18.7 gigalitres, reflecting lower production from the north-west coast of Australia. From 201314 onwards, oil exports are projected to decline at an average rate of 6 per cent a year to total 13.9 gigalitres in 201617. The value of Australian oil exports is forecast to increase to $12.6 billion in 201112, reflecting forecast higher prices compared with 201011. Between 201213 and 201516, the real value of Australian oil exports are projected to decline to by 12 per cent a year, reflecting projected lower export volumes (see Figure 6). In 201617, Australias oil export earnings are projected to increase to $8 billion (in 201112 dollars), supported by condensate exports from the Prelude and Ichthys projects. Figure 6: Australian crude oil and condensate exports
25 20 15 10 5 GL 1996-97 2000-01 volume 2004-05 2008-09 value (right axis) 2012-13 2016-17 15 12 9 6 3 2011-12 A$b
Sources: BREE; ABS.
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Table 1:
Oil outlook
2010 2011 88.5 89.1 95 98 110 114 2010 11 2012 f 89.8 89.8 105 105 117 117 2011 12 f 2013 f 91.1 91.1 114 112 119 117 2012 13 f 2014 z 92.2 92.2 115 111 117 114 2013 14 z 2015 z 93.3 93.3 113 108 113 109 2014 15 z 2016 z 94.3 94.3 112 107 112 106 2015 16 z 2017 z 95.4 95.4 112 105 111 104 2016 17 z
World Production b Consumption nominal real c nominal real c mbd mbd US$/bbl US$/bbl US$/bbl US$/bbl 87.4 88.3 79 85 79 85 2009 10 Australia Crude oil and condensate Production b Export volume Export value nominal real d Imports LPG Production e Export volume Export value nominal real d Petroleum products Refinery production Exports g Imports Consumption h ML ML ML ML 37 200 850 19 967 50 929 38 393 760 18 762 52 095 37 993 804 21 393 53 516 37 907 1 232 19 961 53 541 33 963 1 104 24 972 54 489 34 048 1 106 25 970 55 458 34 133 1 109 26 968 56 449 34 218 1 112 28 100 57 465 A$m A$m 1 105 1 177 1 068 1 103 1 040 1 040 1 113 1 082 1 147 1 085 985 906 808 723 856 745 ML ML 4 097 2 776 3 907 2 471 3 915 2 281 3 841 2 237 3 815 2 222 3 365 1 960 2 846 1 658 3 062 1 784 A$m A$m ML 9 534 10 159 27 284 11 772 12 166 31 766 12 621 12 625 30 326 12 698 12 350 30 999 12 893 12 195 26 663 10 699 9 841 26 858 8 435 7 545 27 269 9 152 7 961 27 303 ML ML 25 583 i 24 752 i 18 064 19 638 23 690 18 944 23 905 18 682 23 743 18 252 20 944 15 560 17 713 12 652 19 059 13 945
West Texas Intermediate crude oil price
Brent dated crude oil price
b One megalitre a year equals approximately 17.2 barrels a day. c In 2012 US dollars. d In 201112 Australian dollars. e Primary products sold as LPG. g Excludes LPG. h Domestic sales of marketable products. i Energy Quest. f BREE forecast. z BREE projection. Sources: BREE; ABS; IEA; Energy Information Administration (US Department of Energy); Energy Quest; Geoscience Australia.
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Gas
Nina Hitchins
Global gas consumption is projected to increase at an average annual rate of 3 per cent over the outlook period, underpinned by increasing use of gas in electricity generation. Imports of LNG into Asia-Pacific region are projected to increase by an average of 7 per cent a year to reach 217 million tonnes in 2017. China is projected to account for a third of the total increase in the regions LNG imports. Projected increases in the global demand for LNG and the establishment of binding long-term contracts to secure future supplies have underpinned investment in additional liquefaction capacity. Global liquefaction capacity is projected to increase at an average annual rate of 5 per cent, to reach 366 million tonnes a year by the end of 2017. Australias LNG export earnings are projected to increase by an average of 20 per cent a year to total $30 billion (in 201112 dollars) in 201617. The growth will be underpinned by higher export volumes supported by the start up of 66 million tonnes a year of additional LNG production capacity over the outlook period.
Growth in world gas consumption to continue

Over the last decade, global gas consumption increased at an average annual rate of 3 per cent and totalled 3.3 trillion cubic metres in 2010. These trends are expected to continue over the medium term, with the International Energy Agency (IEA) projecting world gas consumption to reach 3.8 trillion cubic metres by 2016. Historical and projected increases in gas consumption reflect greater use of gas in electricity generation, industrial production and in the residential sector. Gas-fired electricity is an attractive option because it is characterised by low capital expenditure, short construction times, flexibility in meeting peak demand, and low carbon emissions relative to other fossil fuels. While the majority of global increases in gas demand are projected to be used in electricity generation, the extent of gas use in the electricity sector will depend on the price of gas relative to alternative fuels, as well as domestic policy settings regarding nuclear energy, renewable energy and carbon pricing. The majority of incremental gas consumption is projected to occur in emerging economies, where gas-fired energy is projected to support strong economic growth. Expanding gas distribution networks are also inducing a switch away from more expensive heating fuels such as kerosene. Demand for gas in more mature OECD markets is projected to increase moderately, reflecting the increasing share of gas used in the electricity generation sector.
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LNG to underpin global trade growth

The majority of the worlds gas production is confined to a few regions including the Former Soviet Union, North America and the Middle East. Gas consumption, however, is more decentralised and many regions supplement domestic gas production with imports. Projected increases in global gas consumption, centralised production and associated regional price disparities are projected to underpin an expansion of global gas trade. Investment in inter- and intra-regional transport capacity will facilitate trade and enable greater gas consumption, particularly in Asia. Greater transport capacity will take the form of additional pipelines and the construction of LNG liquefaction and regasification terminals. LNG trade in 2010 totalled 209 million tonnes and represented 9 per cent of global gas consumption, an increase from 6 per cent in 2000. LNG is projected to comprise an increasing proportion of global trade over the medium term, as it can be transported over longer distances and allows for a greater diversification of supply compared with gas transported through pipelines.
Grow in Asia-Pacific LNG imports to continue

LNG markets are of particular interest in an Australian context as the geographical distance between Australia and its export markets prevents the transportation of gas via pipelines. Australias LNG exports are delivered mainly to Japan, the Republic of Korea, Chinese Taipei and China. These markets accounted for over half of world LNG imports in 2010. In 2011, world LNG trade increased by 14 per cent, relative to 2010, to total 238 million tonnes. Growth of LNG imports was greatest in the Asia-Pacific region, and is estimated to have increased by 15 per cent to total 147 million tonnes. In all Asia-Pacific economies, LNG imports are increasingly used to supplement insufficient domestic gas supplies to meet growing demand. In Japan, increases in LNG imports were underpinned by greater gas-fired electricity generation following the March 2011 earthquakes and tsunami and the subsequent closure of most of its nuclear facilities. Asia-Pacific imports of LNG are forecast to increase by 11 per cent in 2012 to reach 162 million tonnes, supported by stronger gas-fired electricity generation and higher industrial and residential consumption in existing and emerging LNG importing economies. In 2013, growth of LNG imports into the Asia-Pacific region are forecast to slow to 4 per cent and to total 170 million tonnes. Increased LNG imports into the Republic of Korea, China, India and Chinese Taipei are forecast to offset a decline in Japans imports (see Figure 1).
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Figure 1:
LNG imports into the Asia-Pacific

250 200 150 100 50 Mt 2007 Japan 2009 Republic of Korea 2011 2013 China 2015 India 2017 Other Chinese Taipei
Sources: BREE; IEA
Asia-Pacific imports are projected to constitute an increasing proportion of global LNG trade over the medium term. From 2014 to 2017, Asia-Pacific imports of LNG are projected to increase at an average of 6 per cent a year, to reach 217 million tonnes by 2017, reflecting the increasing importance of gas in electricity generation, and greater direct consumption in the residential sector and industrial sector. Japan is currently the largest LNG importer in the world. In the absence of domestic gas production and international pipelines, Japan is completely reliant on LNG imports to meet domestic consumption requirements. In 2011, Japans LNG imports increased by 12 per cent, relative to 2010, to total 78 million tonnes. Robust growth in LNG imports followed the March 2011 earthquakes and tsunami that ultimately led to the closure of most of Japans nuclear reactors for stress tests. At the end of February 2012, only two reactors with a combined capacity of 2227 MW were operating in Japan. The remaining 49 reactors were inoperative either as the result of government imposed stress tests or because of planned maintenance. The two online generators are due to close for inspection and maintenance in the first half of 2012. Assuming local authorities allow the restart of around 15 nuclear power stations that have passed stress tests in the second half of 2012, Japans imports of LNG are forecast to increase by 2 per cent in 2012 and decrease by 6 per cent in 2013 to total 74 million tonnes. Projections of Japans LNG imports over the medium term are largely dependant on government policies that will dictate if and when nuclear capacity is restarted. Assuming all remaining 36 reactors reopen over the outlook period, Japans LNG imports are projected to increase at an average annual rate of 2 per cent from 2014 to total 80 million tonnes in 2017.
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Like Japan, the Republic of Koreas supply of gas consists entirely of LNG imports. In 2011, the Republic of Koreas imports of LNG increased by an estimated 12 per cent to total 33 million tonnes, underpinned by a rise in gas use for electricity generation and growing consumption of residential and commercial gas. In 2012 and 2013, the Republic of Koreas LNG imports are forecast to increase by 7 per cent to total 38 million tonnes in 2013. Increasing imports reflect an expectation that gas will continue to play a critical role in peak load electricity generation and the implementation of a policy designed to expand the gas distribution network. Over the remainder of the outlook period (2014 to 2017), however, fewer proposed expansions of power generation facilities will moderate the growth in gas in the electricity sector. Furthermore, infrastructure expansions designed to increase residential and commercial access to gas early in the outlook period are projected to reduce potential growth in LNG consumption towards the end of the outlook period. From 2014 to 2017, the Republic of Koreas LNG imports are projected to increase at an average annual rate of 2 per cent to total 42 million tonnes in 2017. Chinas gas consumption is projected to rise from 112 billion cubic metres in 2010 to reach 260 billion cubic metres by 2015. According to the IEA, the Chinese Government is aiming to increase the share of gas in domestic energy consumption to 8 per cent in 2015, by promoting its use in transportation, electricity generation and for residential use. While Chinese stateowned oil firms are focusing on developing domestic gas supply to meet rising demand, the IEA projects that Chinas gas production will equate to around half of the growth in domestic consumption. The remaining component of demand is likely to be met by increasing imports. In general, pipelines are the most cost effective means of importing gas into China. Pipelines are extensively used to import gas into Chinas northern and western provinces. However, in the southern and eastern provinces, the long distances to gas-consuming centres via pipeline make LNG imports more cost effective. Regasification capacity is expected to constrain increases in Chinas LNG imports over the outlook period. In 2012, Chinas LNG imports are forecast to increase 30 per cent to total 16 million tonnes, reflecting additional capacity at the Zhejiang Ningbo and Dalian facilities. In 2013, LNG imports are forecast to grow by an additional 13 per cent to total 19 million tonnes. Increases in LNG imports are forecast to be supported by the expected commissioning of the Zhuhai Jinwan and Tangshan facilities, but will be moderated by the completion of the Myanmar-China pipeline. Between 2014 and 2017, several additional LNG projects are scheduled to start up underpinning Chinas LNG imports over medium term. Combined, these projects are expected to support 37.3 million tonnes of LNG imports into China in 2017. Indias gas consumption is projected to increase over the medium term, due to increased gas use in the electricity and industrial sectors. Greater gas consumption will need to be met by increases in domestic production and imports. In 2012, Indias domestic gas production is forecast to fall as a result of continued operational problems in the Krishna-Godavari Basin. While India is expanding pipeline capacity over the medium term, LNG imports are forecast to supplement supply in the short term. In 2012, LNG imports into India are forecast to increase by 19 per cent, relative to 2011, to total 13 million tonnes. Increases in LNG imports will be supported by growth in Indias regasification capacity.
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Between 2013 and 2017, imports of LNG into India are projected to increase at an average annual rate of 5 per cent to reach 16 million tonnes in 2017. Over the medium term, growth rates of Indias LNG imports are projected to ease as additional pipeline capacity is constructed. Demand for LNG in Chinese Taipei is projected to increase over the medium term, as a result of a change in the governments energy policy announced in November 2011. The Chinese Taipei government has proposed to phase out nuclear power in response to the March 2011 earthquakes and tsunami in Japan. The commissioning of the 2700MW Lungmen nuclear plant has been delayed until 2014 to allow more time to conduct strict safety checks. In the meantime, gas-fired electricity generation capacity is assumed to operate at a higher utilisation rate to meet increasing electricity demand. In 2012, LNG imports into Chinese Taipei are forecast to increase 7 per cent to 13 million tonnes. From 2013, Chinese Taipei will be entitled to an additional 1.5 million tonnes a year from Qatar under contract, reducing spot market demand. Between 2014 and 2017, additional demand for gas will reflect the possible closure of nuclear electricity generating capacity and its substitution with gas-fired capacity. During this period, LNG imports into Chinese Taipei are projected to increase 6 per cent a year to reach 17 million tonnes in 2017. Imports into the Asia-Pacific region are expected to be further supported by growing demand from Asian economies that, prior to 2011, did not import LNG. These countries include Thailand, Malaysia, Singapore and Vietnam. Combined, these nations are projected to import 25 million tonnes of LNG by 2017.
Growing world LNG supply to be underpinned by Australian liquefaction capacity

Projected increases in the global demand for LNG and the establishment of binding long term contracts to secure future supplies have underpinned investment in additional liquefaction capacity. Given long construction times, projections of global liquefaction capacity growth over the outlook period are based on projects that are either committed or under construction. In 2012 and 2013, global liquefaction capacity is forecast to increase by 3 per cent each year to reach 296 million tonnes a year in 2013, underpinned by projects in Australia, Angola and Algeria. Over the remainder of the outlook period (2014 to 2017), global liquefaction capacity is projected to increase at an average annual rate of 5 per cent, to reach 366 million tonnes a year by the end of 2017 (see Figure 2).
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Figure 2:
Global LNG liquefaction capacity

400 350 300 250 200 150 100 50 Mt 2007 2009 Asia-Paci c 2011 2013 Middle East 2015 Atlantic 2017
Sources: BREE; IEA
As of February 2012, 14 liquefaction projects were committed or under construction around the world, eight of which are located in Australia. Australia LNG liquefaction capacity is projected to increase four fold over the outlook period to total 85 million tonnes in 2017. Most of this additional capacity is scheduled to come online after 2014. In 2012, Australias liquefaction capacity is expected to increase to 24 million tonnes a year, with the completion of the first train at the 4.3 million tonne Pluto project. Between 2014 and 2015, three coal seam gas LNG projects, with a combined capacity of 25 million tonnes, are scheduled to start up: the Australia Pacific LNG project (APLNG), the Queensland Curtis LNG project and the Gladstone LNG project. While funding has only been committed for the first train of the APLNG project, a positive foreign investment decision is assumed on the second train in the first quarter of 2012, given the establishment of binding sales and purchase agreements. The remaining LNG projects scheduled for completion include Gorgon (15 million tonnes, in 2014/15), Wheatstone (8.9 million tonnes, in 2016), Prelude (3.6 million tonnes, in 2016/17) and Ichthys (8.4 million tonnes, in 2016/17). New liquefaction facilities are also being constructed in Papua New Guinea (PNG), Indonesia, Algeria and Angola over the outlook period, with a combined capacity of 23 million tonnes a year. In 2012, Angolas first LNG project, Angola LNG, is expected to be completed, with a production capacity of 5.2 million tonnes a year. Algerias LNG production capacity is expected to increase by 9 million tonnes following the completion of the Gassi Touil LNG project and a new train as part of the Skikda project in 2013. In 2014, the PNG LNG project and the Donggi Senoro project in Indonesia are due to be completed, with a capacity of 6.6 million tonnes and 2 million tonnes, respectively.
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Box 1: North American LNG export potential and the Panama Canal expansion
Increasing production of unconventional gas in the US in recent years has increased the domestic supply of gas, and put downward pressure on local prices. As of November 2011, US LNG import prices were around US$4 per MBtu, an estimated discount of US$5-8 per MBtu relative to Europe, and US$13 per MBtu relative to Japan (see Figure 3). Figure 3: Regional gas prices
18 16 14 12 10 8 6 4 2 US$/MBtu Jan-07 Jan-08 US Henry Hub Jan-09 Jan-10 Jan-11 Jan-12
Japan LNG import price
Source: Argus Media Limited, Argus Global LNG; EIA.
While the price disparity between the Atlantic and Asia-Pacific LNG markets will encourage LNG re-exports from North America to Asia, the cost and time of transportation around the Cape of Good Hope is a limiting factor. These transportation costs will be reduced in 2014 when a US$5.3 billion expansion project for the Panama Canal is due to be completed. The project is expected to increase the width of the canal, allowing it to accommodate LNG vessels transporting LNG from the Atlantic market to the Asia-Pacific market. The expansion is likely to reduce transport costs and travel time to the Asia-Pacific market. The growing regional gas price disparity over recent years, combined with plans to widen the Panama Canal, have increased the attractiveness of investment opportunities in the US to re-export LNG, and to export domestically produced LNG. Several companies have received federal government approval to re-export LNG, after it is imported in accordance with long-term contracts and minimal operational requirements. As of February 2012, nine companies had applied to the US Department of Energy (DOE) to export a combined quantity of 104 million tonnes of domestically produced LNG a year (see Table 1). The only company to have obtained approval to export to both FTA and non-FTA countries was Cheniere Energy, the owner of the Sabine Pass terminal. Cheniere Energy is proposing to build a liquefaction facility at the terminal, where it already re-exports LNG.
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Table 1:
Project
Applications received by DOE to export US produced LNG

Export quantity (Mt a year) 16 21 15 <1 8 9 13 21 <1 104 Exports to FTA countries Approved Approved Approved Approved Approved Approved Approved Under DOE Review In process Exports to non-FTA countries Approved Under DOE Review Under DOE Review Under DOE Review Under DOE Review na Under DOE Review Under DOE Review na
Sabine Pass Liquefaction Freeport LNG Expansion Lake Charles Exports Carib Energy Dominion Cove Point LNG Jordan Cove Energy Project Cameron LNG Gulf Coast LNG Export Cambridge Energy Total
Source: DOE.
The Sabine Pass Liquefaction project, the Freeport LNG expansion project and the Lake Charles Exports project are the most advanced of proposed US LNG export projects. Cheniere Energy entered into sales and purchase agreements to supply customers in the Republic of Korea, India, the UK and Spain with a total of 16 million tonnes of LNG a year from the Sabine Pass facility. If the Sabine Pass, Freeport and Lake Charles projects proceed as scheduled, the US could become a net exporter of LNG by 2016. Meanwhile, Canadian exporters of LNG are looking to diversify their exports markets, as the import needs of the US decrease. Apache has gained approval from Canadas National Energy Board to export 5 million tonnes a year from its proposed Kitimat plant and the LNG Group has gained approval to export 2 million tonnes from its proposed BC LNG facility from 2014. Given that final investment decisions have not been reached on any of these new US and Canadian liquefaction projects, their additional liquefaction capacity has not been taken into account in this medium term projection.
Australian gas production to more than double over the outlook period
In 201112, Australias gas production is forecast to increase by 5 per cent to 56 billion cubic metres. Increases in production are expected to be underpinned by the commissioning of a number of new fields. In December 2011, production from the Reindeer field in the Carnarvon Basin commenced. Production from the Xena and Pluto fields, which will supply the Pluto project, is expected to commence in the first half of 2012.
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In 201213, the first stage of the Kipper/Tuna/Turrum project in the Gippsland Basin and the Macedon project in the Carnarvon Basin are scheduled for completion. These projects are expected to underpin an additional 13 per cent increase in Australian gas production in 201213 to total 63 billion cubic metres. Over the remainder of the outlook period (201314 to 201617), Australias gas production is projected to increase at an average annual rate of 22 per cent, to reach 137 billion cubic metres by 201617. Increased gas production is projected to be facilitated by new LNG capacity as well as demand for gas from the electricity generation, industrial and residential sectors.
Australian LNG exports

Australian exports of LNG are forecast to decrease by 2 per cent in 201112 to total 20 million tonnes, reflecting planned maintenance at the North West Shelf LNG plant in the second half of 2011 and at the Darwin LNG plant in the second quarter of 2012. Lower production as a result of maintenance is forecast to offset new production from the commencement of operations at the Pluto facility in the first half of 2012. In 201213, Australian exports are forecast to increase by 19 per cent to total 23 million tonnes, as production at the Pluto facility is scaled up towards capacity. Table 2:
Project Existing projects North West Shelf Darwin LNG Committed projects Pluto train 1 QCLNG Gorgon Gladstone APLNG Wheatstone Prelude Ichthys Carnarvon Surat-Bowen Carnarvon Surat-Bowen Surat-Bowen Carnarvon Browse Browse 4.3 8.5 15 7.8 9.0 a 8.9 3.6 8.4 1 2 3 2 2 2 1 2 2012 2014 2014/15 2015 2015 2016 2016/17 2016/17 Carnarvon Bonaparte 16.3 3.6 5 1
Existing and committed LNG projects over the outlook period

Basin Capacity (Mt a year) Trains Expected start up
a assuming a positive FID on the second train of APLNG in mid 2012. Source: BREE 2011, Mining Industry Major Projects, October 2011.
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Over the remainder of the outlook period (201314 to 201617), Australian exports of LNG are projected to increase at an average rate of 31 per cent a year to reach 63 million tonnes in 20162017 (see Figure 4). Projected increases in export volumes are expected to be underpinned by the commissioning of several LNG projects that are currently under construction, as shown in Table 2. Figure 4:
70 60 50 40 30 20 10 Mt 1996-97 2000-01 2004-05 volume 2008-09 2012-13 value (right axis) 2016-17
Australias LNG exports

35 30 25 20 15 10 5 2011-12 A$b
Source: BREE; ABS.
Box 2: Developments in Australias eastern gas market

Australias two existing LNG projects are located on the north and western coast of Australia, linking Australias western domestic gas market to international LNG markets. As a result, domestic prices in Australias western market are close to parity with exports. The lack of LNG terminals on the eastern coast of Australia, in conjunction with a number of domestic suppliers, has limited price increases in Australias eastern gas market. At present, domestic gas prices in the eastern market are well below prices in the Asia-Pacific LNG markets. Three LNG projects using coal seam gas are under construction and expected to start production in Queensland between 2014 and 2017. Once operational, these projects will connect Australias eastern gas market to the Asia-Pacific market, increase demand for domestically produced gas, and allow domestic prices to converge towards export parity over the longer term.
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LNG prices under long-term contracts in the Asia-Pacific are generally linked to the price of oil. In 201112, higher forecast oil prices are expected to support higher LNG prices. Increasing LNG prices, combined with increasing export volumes, are forecast to underpin growth of 8 per cent in Australian LNG export earnings to total $12 billion in 201112 Over the medium term, real LNG prices in the Asia-Pacific region are projected to ease in line with lower projected oil prices, greater supply of LNG from North America and expanding liquefaction capacity in Australia. Nevertheless, between 201213 and 201617, Australias export earnings are projected to increase by an average of 22 per cent a year to total $30 billion (in 201112 dollars) in 201617. Increases in export earnings are projected to be underpinned by significant increases in Australian export volumes, which are expected to offset the effect of moderating LNG prices. Table 3: Gas outlook
2009 10 Australia Production LNG export volume nominal real b Gm3 Mt 50.1 17.9 53.1 20.0 55.9 19.6 63.3 23.3 69.3 23.7 84.2 28.8 119.6 49.4 137.1 63.4 2010 11 2011 12 f 2012 13 f 2013 14 z 2014 15 z 2015 16 z 2016 17 z
LNG export value A$m A$m 7 789 8 299 10 437 10 786 11 647 11 651 12 808 12 458 13 788 13 042 16 552 15 225 27 565 24 658 34 550 30 055
b In 201112 Australian dollars. f BREE forecast. z BREE projection. Sources: BREE; Geoscience Australia.
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Thermal coal
Rubhen Jeya Thermal coal prices are projected to decline gradually over the outlook period, but are nevertheless expected to remain relatively high in historical terms. Over the outlook period, thermal coal imports are expected to be supported by growth in demand in the Asian region. Thermal coal imports will continue to be supported by new coal-fired power plants and government initiatives to increase electrification within a number of emerging economies. By 2017, world trade of thermal coal is projected to be 1040 million tonnes. Mine and infrastructure capacity expansions in Australia, Indonesia, Colombia and South Africa will support an increase in thermal coal exports while the emergence of exports from Mozambique and Mongolia will also contribute to international trade over the outlook period. Australias export volumes of thermal coal are projected to grow at an average annual rate of 11 per cent over the outlook period to total 269 million tonnes by 201617. Australias export values are projected to total $18.8 billion (in 201112 dollars) by the same year.
Thermal coal prices to remain elevated in the short term

For much of 2011, thermal coal spot prices traded between US$115 and US$125 a tonne. Prices softened towards the final quarter of 2011 reflecting a slower demand growth in importing economies that coincided with increased exports from a number of key exporting countries. For 2011 as a whole, spot prices averaged around US$122 a tonne. In 2012, thermal coal spot prices are forecast to ease to around US$115 a tonne due to increased supply from Australia and Indonesia. For Japanese Fiscal Year 20122013 (JFY, April 2012 to March 2013), thermal coal contract prices are assumed to settle at around US$115 a tonne. This would represent an 13 per cent lower price than the JFY 2011 contract prices which settled at around US$130 a tonne. The decrease in prices reflects a combination of factors including lower growth in import demand in several major importing economies and an increase in exports from large exporters such as Australia and Indonesia.
but declining over the medium term although still remaining high in historical terms
Over JFY 2013 to JFY 2017, thermal coal contract prices are assumed to gradually decline, reaching US$82 a tonne (in 2012 dollars), by JFY 2017. Despite the decline, thermal coal prices are projected to remain above historical averages (see Figure 1). The decrease in prices reflects strong growth in exports from Australia, Indonesia and Colombia and emerging exporters such as Mongolia and Mozambique.
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The projected decrease in prices is expected to be limited by production costs, which have increased significantly over the past decade. Production costs are expected to continue to increase as companies extract coal deposits that are deeper underground and further away from existing infrastructure. In addition, the costs of many inputs such as diesel, labour, explosives and machinery are also expected to increase. Higher unit costs also reflect the increased capital costs associated with project construction. Figure 1: JFY thermal coal prices
140 120 100 80 60 40 20 2012 US$/t 1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Source: BREE.
World imports to grow rapidly

Over the outlook period world thermal coal imports are projected to increase at an average rate of 4 per cent a year to reach 1040 million tonnes by 2017. The majority of growth is projected to occur in Asia, underpinned by strong import growth in non-OECD Asia, particularly China and India (see Figure 2). As economies in emerging Asia grow and per capita income increases, a significant proportion of increased electricity demand is expected to be supplied by coal-fired power stations. This is because coal remains a cheap form of energy for base load electricity generation and is geographically widely available. Gas, nuclear and renewable electricity generation is expected to increase throughout non-OECD Asia, however, it will still only account for a relatively small share of the total electricity generation in 2017. By contrast, thermal coal imports into OECD markets such as Japan and Europe are projected to remain relatively flat, due to relatively limited growth in electricity demand associated with assumed weaker economic growth over the short term and increases in energy efficiency over the outlook period. In the OECD, the share of electricity generated from coal is expected to decrease as government policies encourage the use of gas and renewable energy.
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Figure 2:
Major thermal coal importers

900 800 700 600 500 400 300 200 100 Mt 1997 1999 2001 2003 Japan 2005 2007 2009 2011 2013 India 2015 2017 China Europe Republic of Korea
Source: BREE.
underpinned by China
In 2011, Chinas thermal coal imports are estimated to have totalled 139 million tonnes, an increase of 8 per cent from 2010. The strong growth witnessed in Chinas imports since 2009 reflects an inability of Chinas domestic coal producers to meet increased domestic demand. It also reflects the competitiveness of imported coal, as domestic transportation and mining costs are high. In 2012, Chinas thermal coal imports are forecast to increase by 4 per cent to 145 million tonnes. The lower rate of growth in imports relative to 2011 reflects lower growth in electricity generation associated with assumed weaker economic growth and a decision to cap domestic coal prices, which should make domestic coal more competitive relative to imports. However, thermal coal imports are still forecast to increase given continued constraints on Chinas domestic coal infrastructure that will limit the quantity of coal that can be moved from the north and west of the country to the major consuming regions in the east. Over the medium term, Chinas thermal coal imports are projected to continue increasing in line with trends seen over the past three years. The increase in imports reflects projected strong growth in domestic demand that will outpace growth in domestic production. Robust growth in Chinas coal consumption will be underpinned by increases in electricity demand associated with rapid economic growth. A significant proportion of increased electricity generation is expected to come from coal-fired plants, with increased generation from gas, nuclear and renewable energy sources making up the difference.
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While China is the worlds largest coal producer and its production will increase over the medium term, increases in domestic supply are expected to be limited by high mining and transportation costs. Increases in mining costs are associated with new coal deposits that are at greater distances from existing infrastructure and further below the surface than previously mined deposits. An increased focus on the environment and safety is also expected place upward pressure on mining costs due to compliance. Transport costs are expected to increase as mining movies further into Chinas western provinces, which are further away from large consuming centres on the southeast coast. As a result coal imported into Chinas south eastern coastal region will continue to be competitive against coal transported from Chinas northern and western production regions. Accordingly, Chinas thermal coal imports are projected to increase at an annual average growth rate of 3 per cent to reach 166 million tonnes by 2017. Chinas coal exports have declined rapidly from around 81 million tonnes in 2004 to an estimated 13 million tonnes in 2011. The fall in exports reflects strong domestic demand and policies aimed at ensuring sufficient supply for domestic consumers. Over the outlook period, Chinas exports are projected to decline gradually to total 11 million tonnes by 2017, reflecting strong domestic demand and weaker import demand in north Asia.
and strong growth in India

India is expected to remain one of the fastest growing consumers and importers of thermal coal over the outlook period. Imports are projected to increase at an annual average rate of 11 per cent, growing from around 78 million tonnes in 2011 to reach 148 million tonnes in 2017. India will continue to rely heavily on thermal coal imports from Indonesia over the outlook period, with further support in imports from South Africa and Australia. Like China, Indias growth in thermal coal imports reflects strong growth in domestic consumption which is not expected to be matched by increases in domestic production. A rise in Indias thermal coal consumption is expected to be underpinned by the planned expansion of coal-fired electricity generation capacity to support rising electricity demand. The Ministry of Power identified gaps in electricity supply and outlined a plan for higher rates of electrification across India. This has resulted in the planning and construction of a number of power stations which are scheduled to start up over the outlook period. One of the initiatives was to increase the amount of electricity generated from both private power stations and government funded Ultra Mega Power Projects (UMPPs)power stations with a generation capacity of 4000 megawatts. There are four UMMPs either under construction or in the final stages of planning (see Table 1) and together these power stations could burn up to 16 million tonnes a year of coal. In addition, there are a number of smaller coal-fired power stations under construction that will contribute to Indias growth in thermal coal consumption.
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Table 1:
Project Sasan UMPP
Indias recently awarded UMPPs

State Madhya Pradesh Andhra Pradesh Jharkhand Gujarat Owner Reliance Reliance Reliance Tata Power Status Under Construction Under Construction Under Development Commenced operation of first of five units (800 mega watts)
Krishnapatnam UMPP Tilaiya UMPP Mundra UMPP
Sources: Company reports; Government of India.
The expected increase in Indias thermal coal imports is, in part, due to a number of new power stations that will rely on imported coal. While India is the world is third largest producer of coal, growth in production over the outlook period is not expected to be sufficient to meet consumption increases. There is uncertainty about the rate at which Indias coal production will increase given the lengthy approval process for the development of new mines. Many of the delays relate to getting environmental approvals and negotiating agreements with local land holders. Further, much of Indias coal reserves are of a poor quality, with low calorific values and high sulphur contents. Imported coal is often used to blend with domestically produced coal to increase the energy output of coal consumption and to improve the quality of emissions. In addition, a number of the power stations are located in Indias heavily populated regions and distant from coal mines, which are mostly located in the centre of the country. Inefficient transport networks can make it costly, and possibly uneconomic, to move coal around the country. This, in turn, tends to make imports more attractive to coal consumers.
Limited potential for growth in Japan, the Republic of Korea and the European Union
The March 2011 earthquakes and tsunami of the east coast of Japan had a significant impact on the power generation mix and generation capacity within Japan. These effects could last for the duration of the outlook period. In addition to nuclear power facilities, a number of coal-fired power stations were damaged by the earthquakes and tsunami. The immediate shutdown of some coal fired electricity generation resulted in Japans thermal coal imports in 2011 decreasing by an estimated 3 per cent relative to 2010 to 125 million tonnes. In 2012, Japans thermal coal imports are forecast to increase by 2 per cent to 128 million tonnes under the assumption that a restart of some of the damaged thermal power stations will result in increased imports. Increased economic activity associated with the reconstruction of damaged regions is also expected to support thermal coal imports in 2012.
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In 2013 and over the remainder of the outlook period, Japans thermal coal imports are forecast to remain more or less unchanged at around 129 million tonnes. At this level of imports, Japans coal-fired electricity generation would be operating at or near full capacity. Accordingly, any increases in thermal coal imports beyond 129 million tonnes would be dependant on expansions to coal-fired electricity generation capacity. The outlook for Japans thermal coal imports is based on the assumption that there will be no significant such additions over the outlook period. There is a possibility that an upcoming review of Japans energy sector may encourage the construction of new coal-fired capacity, particularly if it is recommended nuclear capacity is shut down for an extended period. If this happened, Japans thermal coal imports could increase beyond 129 million tonnes the outlook period. In 2011, the Republic of Koreas thermal coal imports increased by 7 per cent, relative to 2010, to 97 million tonnes as growth in electricity demand was met by increased output from recently commissioned and existing coal-fired power stations. In 2012 and 2013, thermal coal imports are forecast to increase by 3 per cent and 2 per cent, respectively, to reach 102 million tonnes in 2013. Over the remainder of the outlook period (2014 to 2017), at least 2000 megawatts of new coal-fired electricity generation capacity is scheduled to be commissioned. The new capacity is expected to support thermal coal imports that are projected to increase at an annual average growth rate of 2 per cent between 2014 and 2017 to reach 112 million tonnes. In 2011, European Union (EU) coal imports are estimated to have increased by 7 per cent, relative to 2010, to 160 million tonnes. The increase in imports was underpinned by increased imports to the UK, where thermal coal imports grew by around 50 per cent from the previous year to around 30 million tonnes, primarily because of disruptions to gas supplies from the North Sea and a rebuilding of coal stocks. In Germany, thermal coal imports increased from 2010 to total around 39 million tonnes, underpinned by higher electricity usage. In 2012, thermal coal imports are forecast to decrease by 3 per cent from 2011 to 156 million tonnes as weak economic growth across the region and the availability of gas for electricity generation limit growth in coal-fired electricity generation and, hence, thermal coal imports. Over the years 2013 to 2017, thermal coal imports into the EU are projected to increase at an annual growth rate of 2 per cent to total 168 million tonnes by 2017. Growth in coal imports into Germany is expected to offset lower imports into Southern European economies. In Germany, there has been a shift in its energy generation mix which has seen older nuclear power facilities shut down and legislation enacted to shut all nuclear facilities by 2022. The loss of nuclear power generation is expected to be replaced by a combination of new coal-fired power plants and renewable energy. In other parts of Europe, such as Spain, Portugal and Italy, projected lower coal consumption and imports are due to assumed weak economic growth over the outlook period and the increasing share of renewable energy in their electricity generation mix. Over the next 8 years Germany could gradually add net coal-fired generation capacity of around 10 000 megawatts. This net figure incorporates the closure of a number ageing power plants. New coal-fired power generation is expected to support imports, particularly given the decline of Germanys domestic coal production. The German Government has announced a target to close all of its hard coal production by 2018. If this eventuates all of Germanys black coal consumption will need to be sourced from imports.
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Global supply to increase over the medium term

Over the outlook period growth in the world thermal coal trade is projected to be supported by higher exports from Australia, Indonesia, Colombia and South Africa (see Figure 3). Mine, port and rail expansion plans are well underway in these countries to support an increase in exports. Figure 3: Major thermal coal exporters
1000 900 800 700 600 500 400 300 200 100 Mt 1997 1999 2001 2003 Colombia 2005 2007 2009 2011 2013 2015 2017 South Africa Russian Federation Australia Indonesia
Source: BREE.
Australias exports to increase

In 2011, Australias thermal coal exports increased by 4 per cent, compared with 2010, to total 148 million tonnes. This increase was supported by recently completed projects such as Xstratas Mangoola mine (annual capacity of 8 million tonnes), stage 1 of Yancoals Moolarben mine (8 million tonnes), and the expansion of the BHP Billitons Mount Arthur North open-cut mine (additional 3.5 million tonnes). In 2012, Australias coal exports are forecast to increase by 10 per cent to 162 million tonnes. Underpinning this growth will be projects scheduled for completion in 2012, including Rio Tinto and Mitsubishis Hunter Valley Operations Expansion, Xstratas Ravensworth North and Narrabri Coal Project (stage 2). Increased mine production capacity will also be supported by recently completed infrastructure projects, including Port Waratah Coal Services Kooragang Island Coal Terminal expansion (11 million tonnes a year), the X50 expansion at Abbot Point (additional 25 million tonnes). Supporting these infrastructure expansions is higher throughput at the Newcastle Coal Infrastructure Group Coal Terminal. Between 2013 and 2017, Australias thermal coal exports are projected to grow at an average annual rate of 11 per cent to total 271 million tonnes by 2017. Encouraged by sustained high prices and strong demand, a number of mining companies are scheduled to commission new projects over the latter years of the outlook period. The majority of these projects will be in New South Wales. For example, Xstratas Ulan West (annual capacity of 7 million tonnes), BHP
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Billitons Mount Arthur (4 million tonnes a year run-of-mine) and Idemitsu Kosans Boggabri open-cut mine (3.3 million tonnes) are all scheduled to commence production by 2014. In addition, it is assumed that expansions to the Ensham Resources underground mine in Queensland will contribute to increased production and exports over the medium term. Additional mine production will be supported by expansions to infrastructure capacity. Capacity at Newcastle Coal Infrastructure Group Coal Terminal is scheduled to increase through the addition of stage 2 (additional capacity of 23 million tonnes a) and stage 3 (additional 13 million tonnes) that will commence in 2013 and 2014. A number of rail projects in the Hunter Valley that are either under construction or at an advanced stage of planning will complement increased mine and port capacity. In Queensland, a number of port and rail projects are likely to start operation within the outlook period which will also increase export capacity. These include stage 1 of the Wiggins Island Coal Terminal and the associated rail project, and expansions at Abbot Point and the Goonyella to Abbot Point rail expansion and the Surat Basin Rail project. The Galilee Basin, located in Queensland, contains vast deposits of thermal coal. While a number of mining projects in the Basin are progressing towards a final investment decision, there are a number of challenges to project development and operation. These include the design of port and rail infrastructure and negotiations and possible agreements with other project owners on infrastructure access. Before a final investment decision can be taken, off-take agreements with customers may need to be finalised as well as securing funding for the multi-billion dollar development costs. While the Galilee Basin is expected to become an important coal producing region, significant exports from this region are not expected to occur until after 2017.
Indonesias exports to increase despite growing domestic demand

In 2011, Indonesias thermal coal exports are estimated to have increased by 6 per cent, relative to 2010, to total 302 million tonnes. The increase in exports reflects strong demand from China and India and favourable weather conditions in the second-half of 2011 which supported higher rates of production and exports. Indonesias thermal coal exports in 2012 are forecast to increase by a further 3 per cent to 310 million tonnes, underpinned by continued growth in exports to China and India and additional expansions to domestic production and infrastructure capacity. Over the medium term, Indonesias thermal coal exports are projected to continue increasing despite expected growth in domestic coal consumption. Indonesia continues to have frequent electricity shortages and in response, Indonesias state run power generator Perusahaan Listrik Negara (PLN) plans to increase its coal fired generation capacity. PLNs target is to add an additional 10 Gigawatts of electricity generation capacity by 2014, with a large portion to be from coal-fired power stations. To ensure these and other power stations have adequate access to coal, Indonesia has legislation in place that requires domestic coal producers to sell up to 25 per cent of their production to domestic consumers. However, despite the increase in demand from domestic consumers, Indonesias coal production is projected to increase in order to supply both domestic and export markets.
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Growth in production and export capacity will be supported by expansions at a number of Indonesias largest companies, including at Kaltim Prima Coal and Arutmin where combined capacity is expected to reach 100 million tonnes by 2013. Expansions to relatively smaller mines including the Fajar Bumi Sakti (FBS) and the Pendopo mines are also expected to contribute to an increase in Indonesias production and exports. In addition to mine capacity expansions, Indonesias largest coal miners are also investing in infrastructure and process improvements to boost their exports. For example, PT Adaro has invested in additional barge loaders at South Kelanis located near the Kelanis River Terminal, through which about 50 million tonnes of coal are transported. The additional barges are expected to improve efficiency, lower costs and also support PT Adaros expansion plans to increase production to 80 million tonnes a year. Reflecting these developments, Indonesias coal exports are projected to increase at an average annual rate of 3 per cent a year from 2013 to reach 351 million tonnes by 2017.
Colombian and South African exports to increase

In 2011, Colombias thermal coal exports are estimated to have increased by 9 per cent, relative to 2010, to total 75 million tonnes. The rise in exports largely reflects a significant increase in exports into Asia which was facilitated by low freight rates throughout 2011. In 2012 and 2013, Colombias thermal coal exports are forecast to increase, underpinned by capacity expansions at the La Guajira and Csar mining regions. Beyond 2013, Colombias thermal coal exports are projected to increase at an average annual rate of 5 per cent to total 97 million tonnes by 2017. The increase in exports will be supported by planned investment to expand production at the Cerrejon mine and also at the Csar coal region from producers such as Drummond, Glencore and Vale. The scheduled expansions to infrastructure, including a second berth at Puerto Bolivar by 2015, would support an increase in Colombias exports. Much of the growth in Colombias coal exports will need to be sold into Asia given the projected weak import demand growth in its traditional export markets of Europe and the US. Support for increased Colombian coal exports to Asia is supported by its desirable characteristics such as high calorific values and low sulphur content. A drive to diversify supply by some Asian countries will also support Colombias coal exports as will current relatively low freight rates. South Africas thermal coal exports in 2011 were estimated to be around 66 million tonnes, a decrease of 3 per cent from 2010. The decline in exports was partly attributable to limitations in infrastructure to support exports, and weather related disruptions in the first-half of 2011. In 2012 and 2013, thermal coal exports from South Africa are expected to increase by 3 per cent and 4 per cent each year to total 71 million tonnes in 2013. The growth in exports will be supported by gradual improvements to the efficiency of the infrastructure network, including increased capacity of the rail line to the Richards Bay Coal Terminal.
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Over 2014 to 2017, South Africas exports are projected to increase by around 3 per cent a year, reaching 81 million tonnes by 2017. The growth will be supported by an increase in production at Xstratas and Anglo Americans operations. However, there are a number of challenges to increasing exports for South African producers including energy supply disruptions at mine sites and infrastructure bottlenecks, particularly along the Richards Bay Coal Terminal rail line. In addition, increasing domestic demand could limit the availability of coal for export.
Exports from the US to decline in 2012

In 2011, thermal coal exports from the US increased by 36 per cent from 2010 to total 31 million tonnes. The rise in exports was underpinned by increased import demand from Europe and Asia. Additionally, weak domestic demand in the US freed up coal to be sold into export markets. In 2012, US thermal coal exports are forecast to decrease by 11 per cent, relative to 2011, to total 28 million tonnes, reflecting weaker demand from its largest market, Western Europe. Over the remainder of the outlook period (2013 to 2017), US exports are projected to increase to around 33 million tonnes a year. Exports from the US are supported by weak domestic demand for thermal coal associated with low domestic gas prices and an associated increase in use of gas fired electricity generation. There are also plans to upgrade export infrastructure on the eastern and Gulf Coasts to enable production that was previously destined for domestic markets to be exported. There are further upside risks to US exports, with preliminary plans in place to export coal from the north west of the country to importers in the Asia-Pacific region. Low cost and low energy content coal would be sourced from the Powder River Basin in Wyoming and exported via ports located either in Washington or Oregon. While there are marketing, environmental and social challenges associated with the plans, it is possible that coal could be exported from the north west of the US within the outlook period, which could boost US exports beyond 30 million tonnes a year.
Exports from Mozambique and Mongolia to contribute to international trade

Mozambique is a relatively new contributor to thermal coal trade and exported its first significant shipment in 2011. Mozambiques exports are expected to increase gradually over the short term before growing strongly in the second half of the outlook period. Mozambiques exports are supported by the Moatize coal project which is owned and operated by Vale. Production and exports from Moatize are expected to ramp up to about 3 million tonnes of thermal coal by 2015. There are a number of other projects that are either under construction, such as the Benga project, or in the planning stage that will also support export growth over the second half of the outlook period. To support higher exports, expansions to port and rail infrastructure is being proposed in the north and south of the country.
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Mongolia is another relatively new thermal coal exporter, but has significantly increased its production and exports over the past few years. Most of Mongolias coal is exported to China, initially by truck to the Chinese boarder before being loaded onto Chinas rail network bound for power generators in northern China. In 2010, Mongolia exported around 6 million tonnes of thermal coal compared with 0.2 million tonnes 5 years earlier. Given the expected growth in demand from China, Mongolias thermal coal exports are expected to continue growing, underpinned by new mine developments. However, significant growth in Mongolias exports over the medium term is dependant on the construction and connection of rail infrastructure from coal fields to the Chinese boarder, and beyond to Chinese power stations.
Australian export volumes and values to increase

Expansions at a number of mines and increased investment in infrastructure development will continue to support export volumes and earnings. In 201112, thermal coal export volumes are forecast to increase by 13 per cent, to 162 million tonnes. Due to increased export volumes, Australias thermal coal export values are forecast to increase by 24 per cent to $17.9 billion in 201112 (see Figure 4). Over the remainder of the outlook period (201213 to 201617), Australias thermal coal export volumes are projected to reach 268 million tonnes by 201617, with export earnings reaching $18.8 billion (in 201112 dollars). Figure 4:
300 250 200 150 100 50 Mt 1996-97 2001-02 volume 2004-05 2008-09 value (right axis) 2012-13 2016-17
Australias thermal coal exports

24 20 16 12 8 4 2011-12 A$b
Sources: BREE; ABS.
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Table 2:
Thermal coal outlook

2010 2011 2012 f 2013 f 2014 z 2015 z 2016 z 2017 z
World Contract prices b nominal US$/t real c US$/t Coal trade Imports Asia China Chinese Taipei India Japan Republic of Korea Malaysia other Asia Europe European Union d other Europe Other Exports Australia China Colombia Indonesia Russian Federation South Africa United States Other Mt
98 102 794
130 130 836
115 112 872
110 105 922
102 97 949
97 91 982
93 86 1 010
90 82 1 040
Mt Mt Mt Mt Mt Mt Mt Mt Mt Mt Mt Mt
532 129 65 60 129 91 19 40 192 149 43 70
569 139 67 78 125 97 20 43 203 160 43 64
603 145 68 92 128 100 21 49 201 156 45 68
637 151 69 110 129 102 22 55 206 159 48 79
661 155 71 119 129 105 22 61 208 160 48 80
687 159 73 128 129 107 23 69 213 164 49 82
712 163 74 138 129 109 24 75 214 166 49 84
737 166 75 148 129 112 26 81 218 168 50 86
Mt Mt Mt Mt Mt Mt Mt Mt
141 20 69 285 95 68 23 93 2009 10
148 13 75 302 97 66 31 104 2010 11 206.1 143.3 13 956 14 423
162 13 76 310 99 68 28 116 2011 12 f 224.8 162.2 17 845 17 851
192 12 82 321 99 71 29 116 2012 13 f 238.2 173.1 17 641 17 158
220 12 86 327 102 74 31 97 2013 14 z 271.6 206.6 19 943 18 863
236 12 90 337 105 76 32 94 2014 15 z 290.2 225.2 20 390 18 755
264 11 94 344 106 79 33 80 2015 16 z 319.0 254.0 21 635 19 353
271 11 97 351 107 81 33 91 2016 17 z 332.9 267.9 21 604 18 793
Australia Production Exports Volume Value nominal real e
Mt Mt A$m A$m
198.3 135.0 11 886 12 665
b Japanese Fiscal Year, starting April 1, fob Australia basis, BREE AustraliaJapan average contract price assessment. For steaming coal with a calorific value of 6700 kcal/kg (gross air dried. c In JFY 2011 US dollars. d Regarded as 27 countries for all years. e In 201112 Australian dollars. f BREE forecast. z BREE projection. Sources: BREE; IEA; Coal Services Pty Ltd; Queensland Department of Mines and Energy.
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Uranium
John Barber
In the short term, the uranium price is forecast to stabilise with lower planned production in Kazakhstan and continued demand growth in developing economies expected to offset lower consumption from reactor closures in Japan and Germany. The future of the Japanese nuclear energy industry remains uncertain. It is expected that some nuclear reactors will restart this year; however policy changes that promote decreased reliance on nuclear power in the medium to long term may affect growth in Japans uranium consumption. Over the outlook period, strong consumption growth from a large number of new reactors starting up, particularly in China, India and the Russian Federation, and reduced supplies from secondary sources are projected to lead to a price increase. Increased production from new mining projects and higher export prices are projected to lead to strong growth in Australias uranium exports over the outlook period.
Uranium prices to remain constant in 2012

The uranium spot price averaged around US$57 a pound for 2011, an increase of 20 per cent from 2010, although the monthly average price varied considerably over the year (see Figure 1). In 2011, the spot price peaked at US$73 a pound in January before dropping by 30 per cent to a low of US$49 a pound in August in response to the reactor closures in Japan and Germany that followed the Fukushima reactor accident in March. However, with demand remaining high in other countries, particularly from the start up of new reactors in China, India, and the Republic of Korea, the uranium price stabilised in the second half of 2011, averaging around US$52 a pound. The uranium price is forecast to average around US$53 a pound in 2012, a decrease of 7 per cent relative to the 2011 average price but at a similar level to prices in the second half of 2011. The relatively small change in prices in 2012, compared with 2011, reflects the impact of lower demand arising from the closure of Japanese reactors closures being largely offset by planned lower production in Kazakhstan. Developments in Japanese energy policy, particularly the timing of nuclear reactor restarts in the wake of the Fukushima reactor disaster, and global economic uncertainty are likely to influence uranium price movements in 2012.
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Figure 1:
Quarterly uranium price

160 140 120 100 80 60 40 20 2012 US$/lb 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Sources: BREE; The Ux Consulting Company, LLC http://www.uxc.com/.
Uranium prices to increase over the medium term

Between 2013 and 2017, uranium prices are projected to increase, as growth in consumption is projected to exceed growth in production. World uranium consumption is projected to increase, supported by the scheduled start up of a large number of reactors, particularly in emerging economies such as China and India, and continued robust consumption in the US and France. From 2013 onwards it is assumed there will be a decrease in uranium supplies from secondary sources following the completion of the US-Russian Federation Highly Enriched Uranium (HEU) feed deal which over the past few years has supplied around 8 000 tonnes of uranium a year to the market. Mine production, however, is not projected to increase at a rate that can offset lower secondary supplies. As a result uranium prices are projected to increase. By 2017 the uranium price is projected to reach around US$69 a pound (in 2012 dollars), representing an average annual increase of 3 per cent in real terms over the outlook period. This projection is based on the assumption that emerging countries, such as China and India, do not significantly lower their rate of building new nuclear reactors. Delays to the scheduled start up of new mines, which is common with uranium mining, represents an upside risk to the uranium price projection.
Uranium consumption to grow strongly

Generation of nuclear power remains the main commercial use for uranium. Uranium consumption is highest when a new nuclear reactor starts operating, which typically requires around 600 tonnes of uranium for the initial core (based on a 1 Gigawatt electric light-water reactor). Once a reactor reaches a steady-state level of operation uranium requirements are lower, with refuelling taking place every one to two years that involves the replacement of only a portion of the nuclear fuel.
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As of February 2012, there were 386 nuclear power plants operating around the world with a total generating capacity of approximately 330 Gigawatts electric. In addition, there are currently 49 Japanese nuclear reactors temporarily closed for safety inspections following the Fukushima reactor accident, although many of these may be expected to restart over the next two years. The US and France are the two largest producers of nuclear energy, with 104 reactors in the US and 58 in France producing 102 and 63 Gigawatts electric respectively. In 2012, world uranium consumption is forecast to increase by 5 per cent to around 77 300 tonnes. This growth will be underpinned by the start up of eight new reactors including two in both China and India. In addition, there are three reactors in Canada scheduled to restart and it is assumed that some of the nuclear power stations in Japan which are currently offline for safety inspections, will be restarted by the second half of 2012. Offsetting these factors will be lower demand associated with a number of reactors that shutdown in Germany and Japan in the second half of 2011. Over the remainder of the outlook period (2013 to 2017), growth in uranium consumption is projected to average 7 per cent a year, reaching approximately 110 000 tonnes by 2017. The start up of new nuclear reactors, particularly in China, India and the Russian Federation, is expected to greatly exceed the reduced consumption from reactors closing in the UK, Germany and Canada. Between 2012 and 2017, around 100 new nuclear reactors are scheduled to commence operating, with almost half of these located in China (see Table 1). Table 1:
Country Argentina Brazil Bulgaria Canada China Chinese Taipei Finland France India Japan Pakistan Romania Republic of Korea Russian Federation Slovakia Ukraine US Total
Source: World Nuclear Association.
Projected new capacity over the outlook period

New reactors 1 1 2 3 44 2 1 2 10 1 2 2 6 16 2 2 4 101 New capacity (GWe) 690 1 340 2 100 2 160 48 000 2 600 1 600 3 500 8 400 1 400 680 1 440 7 400 16 400 880 2 000 8 000 108 590
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Growth in the US nuclear energy industry has stagnated since the 1979 Three Mile Island reactor meltdown, with safety concerns and cheap gas prices leading to an increase in gas turbine power generation. In February 2012, the US Nuclear Regulatory Commission (NRC) gave approval for the construction of the first new nuclear power plant in the US in over 30 years. With around 20 Combined License Applications for new reactors also currently under review by the NRC, generation of nuclear energy in the US may start to increase after the outlook period.
Future of the Japanese nuclear industry

At the start of 2011 Japan was the worlds third largest consumer of uranium and had an energy policy that promoted the increased use of nuclear energy. The future of the Japanese nuclear power industry is now uncertain after a 15m tsunami critically damaged the Fukushima Daiichi power plant leading to radiation leaks. Flooding from the tsunami caused a disruption to back up power supplies and cooling systems, with subsequent overheating leading to a core meltdown in three reactors and hydrogen explosions that damaged a fourth. These reactors have now been permanently closed with initial plans, based on the decommissioning of the Three Mile Island nuclear power plant, that indicate it may take up to 40 years to fully dismantle the damaged reactors and buildings. In response to the accident, and growing public anti-nuclear sentiment, the Japanese Government has mandated all remaining reactors to close for a comprehensive safety assessment. Japans Energy Basic Plan, which previously promoted increasing nuclear energy to around 50 per cent of all energy consumption to reduce carbon emissions, is now being revised in response to government policy changes announced in the new Energy White Paper. As of February 2012, only two of Japans 51 nuclear power plants remain operational, with plans to close these for inspection in early 2012. Fourteen power plants have undergone stress tests as part of the safety assessment, but still require approval from local authorities in order to restart. Given increasing public opposition towards nuclear energy in parts of Japan it is unclear when the reactors will restart, however, with almost 30 per cent of Japans energy previously coming from nuclear power it is assumed in this outlook that in the short to medium term Japan will need to return to nuclear energy. Japans uranium consumption in 2012 is forecast to remain low at around 3300 tonnes based on the assumption that around 15 reactors restart. The restart of Japanese reactors is unlikely to require a significant amount of additional uranium in 2012, with existing inventories from offline reactors more likely to be used. In the medium term, Japans consumption of uranium will depend on decisions to continue with previous plans to build additional nuclear reactors. Prior to policy changes away from nuclear energy, Japan had two reactors under construction with plans to build another two by 2017. Assuming that the two planned reactors no longer go ahead due to the policy change, uranium consumption is projected to decrease from a 2010 pre-Fukushima accident consumption level at an annual average rate of 1 per cent to around 8600 tonnes by 2017. Decreased nuclear energy production due to Government policy may result in even lower consumption if additional nuclear power plants are closed in the outlook period.
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Growth in Chinas uranium consumption

The main contributor to growth in world uranium consumption over the medium term will be China. Chinas consumption is projected to more than triple between 2011 and 2017 to around 15 500 tonnes, supported by an increase in the number of reactors from 15 in 2011 to around 60 in 2017. In December 2011 the Chinese Government re-affirmed its commitment to increase nuclear energy over the medium and long term. Chinas energy policy is supportive of nuclear power because it can provide large quantities of base load electricity generation capacity with lower greenhouse gas emissions than other fuel sources, and also provides for diversification in its energy sources for energy security purposes.
and in the rest of Asia

In Asia (including India, but not Japan and China) uranium consumption in 2012 is forecast to increase by 32 per cent to 10 200 tonnes, supported by five new reactors that are expected to commence operation. This includes two in each of India and Chinese Taipei and one in the Republic of Korea. Over the outlook period, consumption in Asia is projected to increase to around 13 200 tonnes at an average rate of 9 per cent a year. Between 2012 and 2017, a total of 20 new reactors are scheduled to commence operation, including 10 new reactors in India and six in the Republic of Korea.
and also Europe over the medium term

A number of European countries are reviewing their use of nuclear energy in response to the Fukushima reactor incident. Germany has already committed to permanently closing eight nuclear reactors. In 2012, European uranium consumption, including the Russian Federation and the Ukraine, is forecast to remain at around 32 000 tonnes. Reactor closures in the UK and Hungary are likely to be offset by the start up of two reactors in the Russian Federation and one in Slovakia. Over the medium term, European uranium consumption is projected to grow at an average annual rate of 3 per cent to total around 39 000 tonnes by 2017. The opening of new of reactors in the Russian Federation, France and some Eastern European countries, including the Ukraine, Romania, Bulgaria and Slovakia should result in consumption growing faster in the second half of the outlook period relative to the 2012 to 2015.
Secondary uranium supplies to decline over the outlook period

Uranium supply can be divided into two categories: primary mine production and secondary sources. Between the late 1950s and 1989, uranium mine production was used extensively for military purposes and consistently exceeded requirements for electricity generation. However, since 1990 this trend has changed and uranium requirements for energy generation now exceed mine production.
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This shortfall has been met from secondary sources of uranium which include spent nuclear fuel, down blended HEU used in nuclear weapons and mixed oxide fuels. The proportion of uranium supplied from secondary sources peaked at nearly 50 per cent in 1999 but has declined sharply in recent years with increased mine production meeting the growth in demand. In 2011, secondary sources supplied around 17 000 tonnes of uranium and accounted for approximately 23 per cent of the market. The largest source of secondary supplies was the US-Russian Federation HEU purchase agreement, which provided around 8000 tonnes. This purchase agreement ends in 2013 and secondary supplies are projected to decline to less than 9000 tonnes after 2014. The medium term outlook assumes that the US-Russian Federation HEU purchase agreement is not renewed. In the event that a new agreement is signed, secondary supplies would be higher than projected and likely to lead to a lower uranium price.
Mine production to increase

In 2011, world uranium mine production increased by 2 per cent to around 56 600 tonnes with increases in Kazakhstan offsetting lower output in Canada. For 2012, production is forecast to increase by 3 per cent to approximately 58 200 tonnes as a result of higher Australian and African mine output. Over the outlook period, world uranium production is projected to increase at an average annual rate of 7 per cent to around 87 000 tonnes in 2017. The production increase is projected to be supported by new mine developments and expansions in Kazakhstan, Africa, Canada and Australia that are in the ramp up phase of production or are already under construction.
supported by Kazakhstan, Africa and Canada

Kazakhstan remained the worlds largest producer of uranium in 2011 with the 19 500 tonnes produced by its 15 mines accounting for around one third of global production. In 2012, production is forecast to remain constant following announcements in late 2011 that production would be stabilised in order to manage declining prices, and that no new projects would be developed while prices remain at current levels. Over the outlook period it is assumed that increased demand and higher uranium prices will lead mines in Kazakhstan to increase their production levels. The medium term projection is for output from existing mines to reach around 25 000 tonnes by 2017, with no new mines expected to start in this time due to the long start up time associated with uranium mining. In 2011 uranium production in Africa fell by 2 per cent as a result of lower grades and extraction rates at Rio Tintos Rssing mine in Namibia. For 2012, production is forecast to recover, increasing by 4 per cent to 10 700 tonnes with increased production coming from Paladin Energys Langer Heinrich in Namibia and recently started SOMINAs Azelik mine in Niger.
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Over the medium term, uranium production in Africa is projected to grow at an average rate of 7 per cent a year to around 19000 tonnes in 2017. This growth is expected to be underpinned by the start up of new mines, including AREVAs Imouraren mine (annual capacity of 2000 tonnes U3O8) in Niger, Extract Resources Rssing South (annual capacity of 2300 tonnes U3O8) Trekkopje (1900 tonnes U3O8) in Namibia and Simmers Buffelsfontein (annual capacity of 230 tonnes U3O8) in South Africa. An extension to the Rssing mine in Namibia is also expected to increase output by 600 tonnes a year from 2012. Canadas uranium production is forecast to remain steady in 2012 after the closure of the 1500 tonne capacity McClean Lake mine resulted in a 12 per cent decrease in production in 2011. Over 2012 to 2017, production is projected to increase at an average rate of 11 per cent a year to reach 16 700 tonnes by 2017. The start up of Camecos 4000 tonne a year Cigar Lake mine in 2013 is expected to underpin this growth. Production at the Cigar Lake mine has been delayed several times by flooding, but it is expected to become the worlds second largest uranium mine by 2017. Uranium production in Canada will be further boosted by an expansion at Camecos McArthur River mine in 2016 that will increase production by around 1000 tonnes a year.
Start up of new mines to boost Australias uranium production

Australias uranium mine production in 201112 is forecast to remain constant at around 7100 tonnes. As in 2010-11, production at ERAs Ranger mine was affected by heavy rainfall in December 2011 and normal operation is not expected to resume until the second half of 2012. Uranium Ones Honeymoon mine in South Australia commenced production in 2011, however, output is forecast to remain low for the remainder of the 201112 financial year. Out to 201617, Australias uranium mine production is projected to increase at an average rate of 12 per cent a year to 13 500 tonnes in 201617. The increase in production is based on the assumption that a number of new mines commence operation within the outlook period. Mines scheduled to start up within the medium term include Toro Energys Wiluna operation (annual capacity of 800 tonnes U3O8), Energy and Metals Australias Mulga Rocks operation (1200 tonnes U3O8), Mega Uraniums Lake Maitland mine (1000 tonnes U3O8) and BHP Billitons Yeelirrie operation (3500 tonnes U3O8) in Western Australia, and Energy Metals Bigrlyi mine (600 tonnes U3O8) in the Northern Territory. Plans to expand production at BHP Billitons Olympic Dam mine in South Australian are not included in this projection as the expansion is not expected to be completed within the outlook period. A number of the above projects are yet to receive company or government approvals and are undergoing feasibility and/or environmental studies. As a result, there is some uncertainty around project capacities and schedules that could result in actual production deviating from projections.
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Australias uranium exports to increase

In 201112, the volume of Australias uranium exports is forecast to increase by 2 per cent to 7100 tonnes with high wet-season rainfall in the Northern Territory again affecting production at the Ranger mine. The value of Australian exports is forecast to increase by 12 per cent to around $708 million in 201112 as a result of higher average contract prices being negotiated by Australian suppliers. This forecast assumes production at Ranger can restart before June 2012; delays to this are likely to result in a lower export volume and value. In Australia, the average long-term contract price has historically been lower than the world spot market price because long-term contracts were signed at a time of lower world prices. As a result, there are considerable differences between world spot prices and Australian unit export prices for uranium. As companies re-negotiate contracts, Australian unit export prices are expected to move closer to world spot prices. Over the outlook period, Australias uranium exports are projected to increase as a result of high world demand and increasing prices. The projection is for export volume to grow in line with production at an average rate of 12 per cent a year to reach 13 700 tonnes by 201617 (see Figure 2). Export values are projected to grow at an average annual rate of around 18 per cent a year to $1.7 billion (in 201112 prices) by 201617. Figure 2:
16
Australias uranium exports

2400
12
1800
1200
600 2011-12 A$m
kt 1996-97 2000-01 2004-05 volume 2008-09 2012-13 2016-17 value (right axis)
Sources: BREE; ABS.
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March quarter 2012
Table 2:
Uranium outlook
2010 2011 56.6 10.3 8.6 19.5 3.8 73.8 4.8 23.4 3.3 5.8 21.7 56.8 58.5 2010 11 7 069 6 950 610 630 87.7 90.6 2012 f 58.2 10.7 8.6 19.5 4.0 77.3 4.1 23.2 3.3 5.0 24.8 53.0 53.0 2011 12 f 7 079 7 079 707 708 99.9 99.9 2013 f 61.3 11.7 9.4 21.9 4.1 88.7 9.0 23.4 9.0 5.3 25.6 59.3 58.2 2012 13 f 7 960 7 960 777 755 97.6 94.9 2014 z 66.0 12.5 10.1 23.8 4.2 95.2 13.0 24.0 9.3 6.2 25.2 64.1 62.2 2013 14 z 6 240 6 240 621 588 99.6 94.2 2015 z 72.0 13.4 12.9 24.5 4.3 95.4 15.9 23.3 8.6 4.9 25.2 68.4 65.7 2014 15 z 7 490 7 490 757 696 101.0 92.9 2016 z 83.7 16.4 16.7 25.0 4.4 104.6 17.5 24.8 8.6 8.3 25.2 71.8 68.2 2015 16 z 10 630 10 630 1 318 1 179 124.0 110.9 2017 z 86.9 19.0 16.7 25.0 4.4 110.2 15.6 25.0 8.6 9.3 30.0 74.2 69.5 2016 17 z 13 700 13 700 1 940 1 687 141.6 123.2
World Production Africa b Canada Kazakhstan Russian Federation Consumption China European Union c Japan Russian Federation United States Spot price real d kt kt kt kt kt kt kt kt kt kt kt US$/lb US$/lb 55.2 10.5 9.8 17.8 3.6 79.8 3.4 25.6 9.4 4.9 23.0 47.0 50.1 2009 10 Australia Production Export volume nominal value real value e Average price real e t t A$m A$m A$/kg A$/kg 7 109 7 555 757 807 100.2 106.8
b Includes Niger, Namibia, South Africa, Malawi and Zambia. c Regarded as 27 countries for all years. d In 2012 US dollars. e In 201112 Australian dollars. f BREE forecast. z BREE projection. Sources: BREE; ABS; Department of Resources, Energy and Tourism; The Ux Consulting Company, LLC http://www. uxc.com/.
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Resources outlook
Steel and steel-making raw materials
Rubhen Jeya and Tom Shael
Over the outlook period, assumed strong economic growth in emerging Asian economies and an economic recovery in most developed economies is expected to underpin growth in world steel consumption, and in turn steel production. Growth in world steel production over the medium term is projected to support increased iron ore and metallurgical coal trade, particularly in Asian economies such as China, India, Japan and South Korea. Australias iron ore and metallurgical coal export volumes are projected to increase at an average annual rate of 11 per cent and 8 per cent, respectively, out to 201617 due to significant capacity expansions which are currently under construction. The growth in export volumes is projected to result in export earnings (in 201112 dollars) in 201617 reaching $77 billion for iron ore and $30 billion for metallurgical coal.
Steel
In 2012, world steel consumption is forecast to increase by 4 per cent, relative to 2011, to 1.5 billion tonnes, supported by demand from the construction of infrastructure projects in many developing economies. Despite the increase in steel consumption, relative to 2011, the rate of growth is forecast to slow, in line with assumed weaker economic growth particularly across the OECD, but also in economies in non-OECD Asia and Latin America. Over the period 20132017 world steel consumption is projected to increase at an average annual rate of 3 per cent and reach 1.8 billion tonnes in 2017 (see Table 1). Steel consumption growth in OECD economies is projected to be modest because of assumed moderate growth in economic activity. By contrast, growth in non-OECD steel consumption is projected to be more rapid, supported by strong economic growth, rising household incomes and continued industrialisation.
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Table 1:
World steel consumption and production (Mt)

2010 2011 164 94 31 44 624 69 56 24 76 1 450 2012 f 164 96 32 45 657 74 57 25 82 1 508 2013 f 166 98 34 47 695 77 59 25 88 1 575 2014 z 168 101 35 48 729 78 61 26 95 1 639 2015 z 171 104 36 50 761 80 64 26 101 1 694 2016 z 173 107 37 52 787 81 66 27 107 1 745 2017 z 176 110 38 53 812 83 68 28 113 1 803
Crude steel consumption European Union United States Brazil Russian Federation China Japan Republic of Korea Chinese Taipei India World steel consumption Crude steel production European Union United States Brazil Russian Federation China Japan Republic of Korea Chinese Taipei India World steel production
Source: BREE.
160 90 30 42 600 68 55 21 66 1 389
173 81 33 67 627 110 58 20 67 1 415
176 86 35 69 683 108 68 23 72 1 511
177 89 37 71 731 111 72 23 78 1 585
178 92 39 74 771 113 75 24 83 1 651
180 94 41 77 808 115 78 25 88 1 715
184 96 43 80 845 116 81 25 93 1 773
187 98 45 83 873 118 84 26 98 1 833
191 100 47 87 901 119 87 26 105 1 892
Developing economies to dominate steel consumption growth to 2017

Emerging economies, particularly China and India, are expected to account for an increasing proportion of global steel consumption over the outlook period. In 2012, steel consumption in these countries is forecast to account for 49 per cent (739 million tonnes) of world consumption, and is projected to grow at an average annual rate of 4 per cent to reach 51 per cent (925 million tonnes) by 2017.
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China is currently the worlds largest consumer of steel, accounting for an estimated 43 per cent of world consumption in 2011. Strong growth in steel consumption has been supported by the construction of public infrastructure and housing and manufacturing of consumer durables. In 2012, Chinas steel consumption is forecast to increase by 5 per cent, relative to 2011, to total 657 million tonnes. Over the remainder of the outlook period (2013 to 2017), Chinas steel consumption is projected to increase due to significant government investment in steel-intensive infrastructure such as highways and rail networks linking the less-developed provinces in western China to demand centres in the east. In addition, in the first half of the outlook period, Chinas steel consumption is expected to be boosted by the construction of the first phase of the affordable social housing program, which aims to build 36 million units of subsidised apartments by 2015. Between 2013 and 2017, Chinas steel consumption is projected to average 4 per cent a year to reach 812 million tonnes in 2017. In 2012, Indias steel consumption is forecast to increase by 8 per cent, relative to 2011, to 82 million tonnes as robust economic growth underpins increases in government spending on infrastructure and higher consumption of consumer durables. Over the period 20132017, consumption growth is projected to increase at an average rate of 7 per cent a year with steel consumption reaching 113 million tonnes by 2017. Increases in Indias steel consumption is expected to be supported by government efforts to increase the coverage and quality of road, rail, electricity and other infrastructure, and the gradual increase in consumption of consumer durables in response to rising incomes. Over the medium term, these government initiatives are expected to raise Indias steel consumption per capita from relatively low levels. In Brazil, steel consumption is projected to grow strongly over the outlook period, increasing at a projected average rate of 3 per cent a year to 38 million tonnes in 2017. The construction of infrastructure to host the 2014 FIFA World Cup and the 2016 Olympic Games is expected to provide strong support for steel consumption growth.
OECD steel consumption growth to be relatively slow

Over the medium term, steel consumption in OECD economies is projected to be slower than in the non-OECD economies, increasing at an annual average rate of 2 per cent. This lower growth relative to emerging economies is because of already well developed infrastructure and assumed much lower economic growth, particularly in Europe, and reduced government spending on infrastructure projects as part of European Union (EU) austerity measures over much of the outlook period. Steel consumption in the US and the EU is projected to increase at an average annual rate of 3 per cent and 1 per cent, respectively, over the outlook period. In Japan, steel consumption is forecast to increase by 3 per cent a year over the outlook period. Increased steel consumption will be supported by rebuilding activity across its earthquake and tsunami affected regions in the first half of the outlook period. Japans steel consumption growth is projected to moderate in the second half of the outlook period as the rebuilding program moderates. In 2017, steel consumption in the EU, the US and Japan is projected to be, respectively, 176 million tonnes, 110 million tonnes and 83 million tonnes.
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March quarter 2012
Rapid steel production growth in China, India and Brazil

In 2012, world steel production is forecast to increase by 5 per cent, relative to 2011, to 1.6 billion tonnes. Over the outlook period, global steel production is projected to grow at an average rate of 4 per cent a year, to reach 1.9 billion tonnes in 2017. The projected growth reflects both a return to near full production capacity in many OECD economies and strong growth in production in emerging economies. The majority of additional production capacity is expected to occur in developing economies, particularly China and India, while strong growth is also projected in Brazil. The share of world production for China, India and Brazil is projected to increase from 52 per cent in 2011 to 56 per cent in 2017. In 2012, Chinas steel production is forecast to increase by 7 per cent, compared with 2011, to total 731 million tonnes. Over the period 20132017, Chinas steel production is projected to grow to 901 million tonnes in 2017, representing average growth of 4 per cent a year. Despite the robust forecast, Chinas steel production could be affected by a number of downside risks. Principal among these is that government initiatives outlined in the 12th Five-Year Plan (201115) that include the creation of larger, more efficient steel producers, restrictions on steel capacity expansions and the upgrading of steel industry technology could, in the short term, reduce the expected growth in production. Over the 5-year outlook period, Indias steel production is projected to increase at an average annual rate of 6 per cent, to reach 105 million tonnes in 2017. The increase in steel production is expected to be supported by both the public and private sectors. For example, by 2015 government-owned corporations Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) have significant expansion plans to increase production capacity by around 15 million tonnes across a number of states. Private steel producers also propose to increase their steel production, including Tata Steel, Essar Steel and Jindal Steel Power Limited (JSPL). In addition, the Indian Government is encouraging foreign investment in steel making, which is attracting responses from major international companies, including ArcelorMittal and South Koreas POSCO. Possible downside risks to the expected growth in steel production include potential project delays caused by issues relating to land access and environmental approvals. In OECD economies, only a moderate increase in steel production is projected over the outlook period. Steel production in the both the US and Japan is projected to grow at an average rate of 2 per cent a year, reaching 100 million tonnes and 119 million tonnes in 2017, respectively. Iron and steel capacity utilisation in the EU is expected to increase in line with the assumed increases in economic growth in 2013 and beyond. In the EU, steel production in 2012 is forecast to remain largely unchanged, relative to 2011, at 177 million tonnes. In 2011 and 2012 the European steel industry is operating well below capacity, but beyond 2013, some idled capacity is expected to restart with EU steel production expected to increase at an average annual rate of 2 per cent between 2013 and 2017 to total 191 million tonnes in 2017.
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Raw materials
Raw material prices
In 2011, iron ore contract prices averaged US$153 a tonne, an increase of 36 per cent relative to 2010. Spot prices (on a 62 per cent iron content basis, free-on-board Australia) in the March quarter 2012 are estimated to average around US$134 a tonne, an increase of around 3 per cent from the December 2011 average. The recent increase in prices reflects reduced iron ore exports from India, and some precautionary buying from steel producers in anticipation of seasonal weather related supply disruptions in Western Australia. Over the remainder of 2012, iron ore prices are forecast to ease as production increases from new projects in Australia and growth in Asian steel production weakens. Further price decreases are expected to be limited by an expected reduction in exports from India. For 2012 as a whole, iron ore contract prices are forecast to average around US$140 a tonne (on a 62 per cent iron content basis, free on board Australia), or a decrease of 9 per cent compared with 2011. Figure 1: Raw material contract prices, FOB Australia
400 350 300 250 200 150 100 50 2012 US$/t 1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
iron ore (62% iron content)
semi-soft coking
hard coking
Source: BREE.
Over the remainder of the outlook period (2013 to 2017), contract prices are projected to ease gradually, averaging US$109 a tonne (in 2012 dollars) in 2017 (see Figure 1). The projected fall in prices largely reflects the effect of considerable expansions to supply that are scheduled for completion over the medium term.
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March quarter 2012
Prices for metallurgical coal in the March quarter were settled at around US$235 a tonne, a decrease of 18 per cent from the December quarter price of US$285 a tonne. The decrease in prices is largely a combination of weaker import demand growth from large steel producing economies and increased exports from Queensland as mines return to normal production rates after weather disrupted production in late 2010 and early 2011. These factors are expected to continue to negatively influence metallurgical coal prices for the remainder of 2012, resulting in a 23 per cent decrease in average contract prices year-on-year, to US$221 a tonne. Over the remainder of the outlook period, metallurgical coal prices are projected to moderate further with substantial supply increases from Australia, Canada, Mongolia and Mozambique.
Iron ore
In 2012, world trade of iron ore is forecast to increase by 7 per cent, relative to 2011, to reach 1.1 billion tonnes. Over the medium term, world iron ore trade is projected to increase at an annual average rate of 5 per cent, reaching 1.5 billion tonnes in 2017 (see Table 2). Chinas imports are projected to continue to grow strongly, while the majority of growth in iron ore supply is expected to come from operations in Australia and Brazil. Table 2: World iron ore trade (Mt)
2010 Iron ore imports European Union Japan China Republic of Korea Chinese Taipei World imports Iron ore exports Australia Brazil India Canada South Africa West Africa (Guinea & Mauritania) World exports
Source: BREE.
2011 136 128 645 64 22 1 075
2012 f 139 134 713 67 23 1 149
2013 f 142 136 742 72 23 1 213
2014 z 144 138 757 75 24 1 279
2015 z 146 140 770 78 25 1 355
2016 z 149 142 813 80 25 1 439
2017 z 152 143 854 83 26 1 500
133 134 619 56 19 1 051
402 311 96 33 48 11 1 051
439 313 63 34 54 12 1 075
493 333 43 36 58 14 1 149
525 372 46 37 64 15 1 213
588 411 46 37 67 17 1 279
678 443 46 38 71 23 1 355
749 467 44 38 75 35 1 439
779 489 40 38 79 47 1 500
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Chinas reliance on imports to increase

China has been the worlds largest importer of iron ore since 2004, and this is expected to continue over the outlook period. In 2012, Chinas imports of iron ore are forecast to increase by 11 per cent, compared with 2011, to total 713 million tonnes. The key factor determining Chinese imports in the short term is the speed at which domestic production capacity can come on line and the cost and quality of domestic production. Chinas iron ore production tends to be of a low quality relative to imports and has a number of marginal mines with high marginal costs of production. As a result, the proportion of Chinese consumption supplied by imports can fluctuate substantially depending on Chinas swing production, which depends on iron ore prices. Over the medium term, Chinese steel producers are expected to increase their reliance on imported ore due to: declining quality of domestic reserves; an increasing number of steel mills are located in coastal regions with easy access to ports; and efforts are being made to increase the average grade of steel produced in China, that necessitates an increased demand for relatively high-quality iron ore imports from Australia and Brazil. Over the outlook period, Chinas imports are projected to increase at an annual average rate of 5 per cent to reach 854 million tonnes in 2017, accounting for approximately 57 per cent of global imports. Imports by other major iron ore consumers the Republic of Korea, the EU and Japan are expected to continue to increase in line with modest growth in steel production at an annual average rate, respectively, of 5 per cent, 2 per cent and 2 per cent over the outlook period.
Australia to remain dominant in world seaborne trade

In 2012, Australian exports are forecast to increase by 12 per cent from the previous year to total 493 million tonnes. The increase is supported by a forecast increase to production at a number of mines including those operated by Rio Tinto, and the ramp up of production at BHP Billitons Rapid Growth Project 5. Expansions and greenfield developments in Australia are expected to account for the majority of growth in global iron ore exports over the outlook period. Australias exports of iron ore are forecast to increase at an annual average of 10 per cent over the outlook period, to total 779 million tonnes in 2017. A number of mine projects are at various stages of planning and development that will contribute to Australias exports over the outlook period. Rio Tinto has committed to expanding its annual production by 58 million tonnes a year to 283 million tonnes by the second-half of 2013. A further expansion to 353 million tonnes a year could be completed by mid-2015. BHP Billiton recently completed its Rapid Growth Project 5 and is in the process of ramping up the 50 million tonne expansion. Another 20 million tonnes of capacity will be added by the end of 2012 allowing BHP Billiton to increase its export capacity to 240 million tonnes.
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March quarter 2012
Mine and infrastructure expansions at Fortescue Metals Group operations are expected to further add to Australias production and exports with the scheduled completion of more than 100 million tonnes of additional annual capacity by mid-2014 (see Table 4). Also supporting increased production in the first half of the outlook period will be two magnetite projects: CITIC Pacific Minings Sino Iron project (annual capacity of 28 million tonnes) and Gindalbie Metals and Ansteels Karara project (10 million tonnes). A number of smaller operations are also scheduled to start up over the outlook period including Mt Gibson Irons Extension Hill (3 million tonnes), an expansion at Cliffs Natural Resources Koolyanobbing operation (additional 2.5 million tonnes) in Western Australia and stage 1 of Ironclad Minings and Tafford Resources Wilcherry Hill operation (2 million tonnes) in South Australia. Table 4:
Project Advanced projects Chichester Hub (5595 Mtpa) Jindelbar mine and rail (WAIO) Sino Iron project Solomon Hub (stage 1) Nammuldi expansion Less advanced projects Jack Hills project (stage 2) Roy Hill West Pilbara Crosslands Resources Hancock Prospecting Aquila resources/AMCI 2014/15 2014 2014 2535 Mt 55 Mt (lump and fines) 30 Mt hematite Fortescue Metals Group BHP Billiton CITIC Pacific Mining Fortescue Metals Group Rio Tinto 2013 2014 2012 2013 2014 40 Mt 35 Mt 28 Mt 60 Mt 26 Mt
Selected Australian iron ore projects over 20 million tonnes

Company Expected start up New capacity
Source: BREE 2011, Mining Industry Major Projects, October 2011.
Brazil to increase its iron ore exports

Brazil will continue to be the second largest exporter of iron ore over the outlook period. In 2012, Brazils iron ore exports are forecast to increase by 6 per cent from the previous year to total 333 million tonnes. The increase is largely attributable to the increase in production at a number of mines in the South-eastern Systems and at Carajas where production ramped up from recent expansions. Brazils exports are projected to increase over the outlook period at an annual average rate of 8 per cent to reach 489 million tonnes in 2017 (see Figure 2). A significant proportion of these exports are expected to be sourced from expansions to Vales Brazilian operations. Several expansions are scheduled for completion over the next five years and are primarily concentrated in the Carajas and south-east iron ore systems. The largest of these projects is the 90 million tonne annual capacity Serra Sul project that is scheduled to be in operation towards the end of the outlook period. Other projects such as the expansion of ArcelorMittals Andrade iron ore mines and the potential commencement of the Vetria Minerao integrated project could further add to Brazils iron ore production and export capacity by end of 2017.
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Figure 2:
Major iron ore exporters

1600 1400 1200 1000 800 600 400 200 Mt 1997 1999 2001 2003 2005 2007 Brazil South Africa 2009 2011 India West Africa 2013 2015 2017 Australia Canada
Source: BREE.
while Indias iron ore exports projected to decline

Indias exports of iron ore are projected to decrease over the outlook period due to a government policy aimed at ensuring sufficient iron ore supply for domestic steel producers. Over the past 18 months a number of restrictions have been put in place that have reduced Indias iron ore exports. For example, in mid-2010, a ban on production in the Indian state of Karnataka was instituted by the Indian Government in an attempt to stop illegal mining, while restrictions on the movement of iron ore were placed in other states, namely Orissa and Goa. An export tax is being progressively increased and now stands at 30 per cent of the iron ore value. Reflecting these restrictions and the high export tax, Indias iron ore exports in 2012 are forecast to decrease by 31 per cent, relative to 2011, to 43 million tonnes. Over the remainder of the outlook period, it is assumed that the Indian government will continue to implement policies that encourage the sale of iron ore to domestic steel producers. This is expected to result in Indias iron ore exports decreasing to 40 million tonnes by 2017.
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March quarter 2012
Box 1: The emergence of West Africa in seaborne iron ore trade

Over the long term, new iron ore exporters may emerge as competitors to Australias and Brazils significant share of the traded iron ore market. One such region is West Africa. In 2011, iron ore production in Western Africa was around 12 million tonnes, with the majority coming from Mauritania. However, there are significant quantities of high quality iron ore reserves in the region including Gabon, Cameroon and Guinea and a number of projects in these countries are being progressed. These include Rio Tintos Simandou project in Guinea, Sundance Resources Mbalam project in Cameroon, and ArcelorMittals Yekepa project in Liberia and Faleme project in Senegal. Some of these projects have estimated resources that could eventually support annual production of up to 100 million tonnes. Almost all of the production would be exported. In order for production and exports in these countries to grow, a number of challenges will need to be addressed. Many economies in West Africa lack suitable regulatory and fiscal frameworks which discourages mining investment because of sovereign risk issues. At present there is limited export infrastructure in most West African economies to support large scale iron ore production and exports. Road, rail and port infrastructure will, therefore, need to be planned and built before mining can commence. Thus, while there is large potential for greatly increased supply from West Africa, there remain substantial hurdles to be overcome and these will limit African exports over the outlook period.
Growth in volumes to support Australian export earnings

In 201112, Australias export volumes are forecast to increase by 16 per cent, relative to 201011, to 473 million tonnes, underpinned by higher production at a number of mines. The value of Australias iron ore exports in 201112 is forecast to increase by 2 per cent to $59.7 billion, compared with 201011. This is largely attributable to an increase in export volumes being partially offset by the appreciation of the Australian dollar and a slight decline in prices from the previous corresponding period. Over the medium term, growth in export volumes from capacity expansions at a number of mines will underpin an increase in export values. However, the positive effect of higher export volumes on export earnings will be partly offset by projected declines in contract prices over the remainder of the outlook period. Export volumes of iron ore are projected to increase at an average annual rate of 11 per cent, to reach 767 million tonnes (see Figure 3). Export earnings are projected to increase to $77 billion (in 201112 dollars), representing average growth of 4 per cent a year over the outlook period.
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Figure 3:
Australias iron ore exports

800 700 600 500 400 300 200 100 Mt 1996-97 2000-01 volume 2004-05 2008-09 2012-13 2016-17 value (right axis) 80 70 60 50 40 30 20 10 2011-12 A$b
Sources: BREE; ABS.
Metallurgical coal
World production and trade
In 2011, world metallurgical coal trade is estimated to have remained relatively unchanged, relative to 2011, at 271 million tonnes. The static growth in world trade was largely a result of disruptions to Australian exports as a consequence of substantial flooding in the major coal basins of Queensland. In 2012, world trade is forecast to grow by 10 per cent, relative to 2011, to reach 297 million tonnes. Over the outlook period, world trade of metallurgical coal is projected to increase at an annual average rate of 5 per cent to reach 354 million tonnes in 2017 (see Table 3). The strongest growth in imports is expected to come from India, China and Brazil, while imports into Japan and the EU are projected to only increase moderately. Australias metallurgical coal exports are projected to increase over the outlook period supported by the expansion of production and infrastructure capacity. New developments, in Mozambique and Mongolia, are also expected to contribute to growth in world metallurgical coal exports over the outlook period.
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March quarter 2012
Table 3:
World metallurgical coal trade (Mt)

2010 2011 46 55 46 34 7 32 13 271 2012 f 47 55 63 34 7 36 14 297 2013 f 50 56 64 35 7 38 15 306 2014 z 51 57 64 37 7 40 16 319 2015 z 49 57 68 38 7 41 17 333 2016 z 51 57 69 39 8 44 17 347 2017 z 52 57 69 41 8 46 18 354
Metallurgical coal imports European Union Japan China Republic of Korea Chinese Taipei India Brazil World imports Metallurgical coal exports Australia Canada United States Russian Federation World exports
Source: BREE.
45 58 48 28 5 30 12 273
159 28 51 14 273
133 30 55 17 271
157 33 51 18 297
170 35 46 20 306
185 36 44 20 319
199 37 42 20 333
215 38 41 21 347
220 38 39 21 354
India, China and Brazil to support growth in metallurgical coal demand

Over the outlook period, metallurgical coal imports into India, China and Brazil are projected to grow strongly, underpinned by strong growth in steel production. Between 2012 and 2017, Chinas metallurgical coal imports are projected to increase by 7 per cent to reach 69 million tonnes by 2017. The growth in Chinas imports reflects several factors. First, metallurgical coal reserves in China have higher production costs relative to imports and are of lower quality. These coal reserves are also large distances from steel mills in the southern coastal region of China. Second, new steel production capacity will be increasingly located in western regions due to Chinese Government urbanisation and industrialisation plans. While there are some metallurgical coal reserves in Chinas west, the region is relatively close to the Mongolian border and the Chinese Government will likely encourage imports from Mongolia, which has substantial reserves.
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Indias imports of metallurgical coal are forecast to increase at an annual average rate of 6 per cent over the outlook period to reach 46 million tonnes by 2017. Brazils imports are projected to increase at an average annual rate of 5 per cent between 2012 and 2017 to total 18 million tonnes by the end of the outlook period. The strong growth in imports in both Brazil and India, reflect expected strong growth in steel production and a reliance on imports in the absence of domestic metallurgical coal production.
World seaborne exports to grow steadily

In 2012, Canadas exports of metallurgical coal are forecast to increase by 10 per cent, relative to 2011, to total 33 million tonnes. The increase is largely attributable to increased production at various mines including those owned by Teck. Over the remainder of the outlook period, Canadas exports are forecast to increase at an annual average of 4 per cent to reach 38 million tonnes in 2017. This projected growth will come from incremental expansions planned by Teck, including expansions at the Fording River and Elkview operations and the scheduled completion of the Quintette project in 2013. Over the outlook period, Mozambique and Mongolia are expected to emerge as important metallurgical coal exporters. In Mozambique, Vale has recently completed its 11 million tonne annual capacity (8.5 million tonne metallurgical coal) Moatize project and Rio Tintos Riversdale 2.4 million tonne annual capacity (1.6 million tonne metallurgical coal) Benga project is scheduled for completion in early 2012, with a potential for a further expansion to 3.3 million tonnes. Given that these are greenfield projects in a country that previously had very little export infrastructure there is expected to be a ramp up period of 23 years before full production rates can be achieved. In 2011, Mongolia exported around 13 million tonnes of metallurgical coal, all of it to China. Coal is trucked to the Mongolian border where it is unloaded and then reloaded on to trucks or trains on the Chinese side of the border. Over the outlook period, Mongolias exports of metallurgical coal are projected to increase underpinned by significant reserves currently under development and robust demand from steel producers in Chinas northern and western provinces. By 2017, Mongolias metallurgical coal exports are projected to reach 30 million tonnes. However, there are a number of challenges to the large scale development of metallurgical coal projects including insufficient infrastructure, particularly rail.
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March quarter 2012
Australian metallurgical coal export growth supported by new projects

Australias metallurgical coal exports in 2011 decreased by 16 per cent, relative to 2010 to 133 million tonnes as the effects of heavy rain in January 2011 that reduced production for much of the year. Exports in 2012 are forecast to increase by 18 per cent to 157 million tonnes as production in Queensland recovers from flood-related disruptions in 2011. Over the outlook period, Australias exports of metallurgical coal are projected to increase at an average annual rate of 9 per cent to reach 220 million tonnes in 2017 (see Figure 4). The strong growth will be supported by new and expanded mining projects (see Table 5) and expansions to port and rail capacity on the Queensland coast, including developments at the ports at Abbot Point and Hay Point. Figure 4: Major metallurgical coal exporters
350 300 250 200 150 100 50 0 1997 1999 Australia 2001 2003 Canada 2005 2007 2009 2011 2013 2015 2017
United States
Russian Federation
Source: BREE.
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Table 5:
Project
Selected Australian metallurgical coal projects over 2 million tonnes

Company Expected start up New capacity
Advanced projects Burton Caval Ridge/Peak Down expansion Curragh Mine Daunia Grosvenor underground Hunter Valley Operations Expansion Ravensworth North Less advanced projects Austar underground (stage 3) Denham Eaglefield Expansion Lenton Maules Creek Millennium Expansion Minyango Moranbah South Project Oaky Creek (phase 2) Washpool Coal Project Yancoal Australia Peabody Energy Peabody energy New Hope Coal Aston Resources Peabody Energy Caledon resources Anglo Coal Australia/Exxaro Xstrata Aquila resources 2012/13 2014 2013 2014 2013 2014 2014 2014 2015 2013 3.6 Mt hard coking (ROM) 56 Mt coking 5.2 coking (ROM) 3.5 Mt coking 10.5 Mt semi-soft coking and thermal 3.5 Mt coking (ROM) 4.5 Mt thermal and coking 6.5 Mt coking 5 Mt coking 2.6 Mt hard coking Peabody Energy BHP Billiton Mitsubishi Alliance (BMA) Wesfarmers BMA Anglo Coal Australia Rio Tinto/Mitsubishi Xstrata 2012 2014 2012 2013 2013 2012 2012 23 Mt hard coking 8 Mt coking Increase to 8.5 Mt 4.5 Mt coking 4.3 Mt hard coking 6 Mt thermal and semi-soft coking 8 Mt thermal and semi-soft coking
Source: BREE 2011, Mining Industry Major Projects, October 2011.
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Australian exports
Australias metallurgical coal export volumes in 201112 are forecast to increase by 6 per cent to 148 million tonnes which is expected to result in an increase in export earnings by 1 per cent to $31 billion. Over the outlook period, export volumes are forecast to rise by 8 per cent a year to 218 million tonnes in 201617. Australias export earnings from metallurgical coal are projected to total $30 billion (in 201112 dollars) in 201617 (see Figure 5). Figure 5:
250 200 150 100 50 Mt 1996-97 2000-01 volume 2004-05 2008-09 2012-13 2016-17 value (right axis)
Australias metallurgical coal exports

50 40 30 20 10 2011-12 A$b
Sources: BREE; ABS.
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Table 6:
Steel, iron ore and metallurgical coal outlook

2010 2011 2012 f 2013 f 2014 z 2015 z 2016 z 2017 z
World Contract prices b Iron ore c nominal real d Metallurgical coal e nominal real d US$/t US$/t 191 203 2009 10 Australia Production Iron and steel g s Iron ore Metallurgical coal Mt Mt Mt 6.89 423 163 7.31 450 146 5.35 504 152 4.84 530 169 4.88 566 180 4.88 647 195 4.88 735 213 4.88 783 222 289 298 2010 11 221 221 2011 12 f 224 220 2012 13 f 219 212 2013 14 z 208 200 2014 15 z 196 186 2015 16 z 195 183 2016 17 z US$/t US$/t 112 120 153 158 140 140 134 132 132 128 129 124 124 118 116 109
Exports Iron and steel g s Nominal value Real value h Iron ore Nominal value Real value h Metallurgical coal Nominal value Real value h Mt A$m A$m Mt A$m A$m Mt A$m A$m 1.55 1 120 1 193 390 35 075 37 371 157 24 526 26 131 1.78 1 303 1 347 407 58 387 60 340 140 29 793 30 790 1.19 886 886 473 59 708 59 727 148 31 094 31 104 1.04 783 761 514 66 644 64 820 166 30 122 29 298 1.03 777 735 550 70 587 66 765 176 33 321 31 517 1.03 778 716 631 79 533 73 157 191 34 757 31 971 1.03 778 696 719 86 948 77 777 209 34 754 31 088 1.03 778 677 767 88 259 76 777 218 34 932 30 387
b fob Australian basis, BREE AustraliaJapan average contract price assessment. c Fines contract, 62% iron content basis. d In 2012 US dollars. e High-quality hard coking coal. For example, Goonyella export coal. g Includes all steel items in ABS, Australian Harmonized Export Commodity Classification, chapter 72, Iron and steel, excluding ferrous waste and scrap and ferroalloys. h In 201112 Australian dollars. f BREE forecast. s BREE estimate. z BREE projection Sources: BREE; International Iron and Steel Institute; Coal Services Australia; Queensland Coal Board; UNCTAD.
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Gold
Adam Bialowas
Gold prices are projected to peak in 2012 at US$1810 an ounce before declining steadily over the remainder of the outlook period to around US$1200 (in 2012 dollars) by 2017. The supply and demand fundamentals of the gold market are influenced by gold purchases by the official sector that are assumed to be substantial over the outlook period. Gold mine production is forecast to increase over the medium term, underpinned by increased output from China, Latin America and Australia. The value of Australian gold exports is set to decline over the outlook period to $14 billion in 2017 (in 2012 dollars) as the falling price of gold more than offsets increases in export volumes.
Gold prices to increase in 2012

In 2011, the gold price averaged US$1569 an ounce, which represented a 28 cent increase on the 2010 average price of US$1225 an ounce. This was the tenth successive year the gold price had averaged higher than the previous year. Prices increased rapidly throughout the September quarter 2011 supported by concerns about the world economic outlook and the sovereign debt crisis in Europe. In 2011, the high gold price was underpinned by investment demand associated with economic and financial uncertainty in the euro zone, and to a lesser extent the US. In times of economic uncertainty, gold provides a role as a safe haven and alternative store of value. Significant purchases of gold by the official sector in 2011 also placed additional upward pressure on the price of gold. In 2012, the gold price is forecast to increase by 16 per cent relative to 2011 to average US$1810 an ounce. There are a number of factors that will serve to support the price of gold at this level. They include: on-going uncertainty in world financial markets resulting from the debt crisis in some euro zone countries; negative real interest rates in the US that discourage holding of US dollars; continued central bank purchases of gold; and assumed inflationary pressures in emerging economies that makes gold attractive as a hedge against inflation.
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Figure 1:
Quarterly gold price

2000 1800 1600 1400 1200 1000 800 600 400 200 2012 US$/oz 1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Sources: BREE; LMBA.
and ease over the medium term

In 2013, the gold price is forecast to decline by less than 1 per cent, relative to 2012, to US$1800 an ounce. This outcome assumes a recovery in world economic growth that will reduce the speculative investment demand for gold in preference to other assets. An improvement in the world economy should also increase the willingness of investors to hold a greater share of their assets in equity and property. As a result, this will diminish the desire to hold gold for investment purposes. Over the remainder of the outlook period (2014 to 2017), gold prices are projected to decrease as world economic growth is assumed to increase to levels consistent with long-term trends. The gold price is projected to average US$1610 an ounce (in 2012 dollars) in 2014 before declining to US$1200 an ounce (in 2012 dollars) in 2017 (see Figure 1). There are significant upside risks associated with the price outlook for gold. In particular, the strength and pace of a global economic recovery will influence the risk profile of investors. In particular, on-going financial uncertainty and volatility provides support for higher than projected gold prices.
Gold fabrication demand to rise over the outlook period

Gold fabrication demand consists of gold used in jewellery, electronics, dental applications, medals, coins and other industrial uses. Gold used in jewellerythe largest component of gold fabricationis estimated to have fallen by 2 per cent in 2011, relative to 2010, to 1979 tonnes. The decline in jewellery consumption in 2011 was due to high gold prices throughout the year as well as the high degree of price volatility which encouraged consumers to defer purchases until the direction of future gold prices was more certain. Jewellery demand in most countries is estimated to have fallen, with the exception of China, where jewellery demand rose by 16 per cent to 517 tonnes. In aggregate, however, overall gold fabrication demand fell by less than 1 per cent in 2011, relative to 2010, to 2766 tonnes. The lower overall decline was due to an increase in the purchase of gold coins and medals.
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Gold fabrication demand in 2012 is forecast to increase by less than 1 per cent relative to 2011 to total 2780 tonnes (see Figure 2). The modest growth in fabrication demand reflects high gold prices that are expected to dampen consumption growth throughout emerging economies such as China and India. In addition, Middle Eastern gold fabrication demand is forecast to fall in 2012 because of its reliance on gold jewellery exports to developed economies, particularly those in the European Union (EU). Figure 2: Annual gold jewellery demand
3500 3000 2500 2000 1500 1000 500 tonnes 1997 1999 Europe Indian Sub-Continent 2001 2003 2005 2007 2009 2011 2013 2015 2017
North America East Asia
Latin America Other
Middle East
Sources: BREE; GFMS.
Over the remainder of the outlook period (2013 to 2017), consumption of fabricated gold is projected to increase at an average annual rate of 2 per cent to reach 3070 tonnes by 2017. The growth in consumption is attributed to weaker gold prices that are projected to support jewellery demand in both China and India. Rising incomes in these emerging economies over the outlook period will also increase the affordability of jewellery and other fabricated gold products for an increasing proportion of the population. In the EU and the US, fabricated gold consumption is expected to continue to decline as consumers substitute away from gold jewellery to other forms of jewellery. However, with a decrease in gold prices over the outlook period, the rate of decline in fabricated consumption in the EU and the US is expected to slow, compared with the previous 5 years.
Official sector to continue to be a net purchaser

After becoming a net buyer of gold in 2010 for the first time in over 20 years, the official sector registered a dramatic increase in net gold purchases in 2011. Official sector purchases of gold in 2011 totalled around 430 tonnes and represented a five-fold increase compared with 2010 levels. In 2012 official sector purchase of gold are expected to increase slightly to 450 tonnes (see Figure 3).
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A major factor behind the transition of the official sector from a net seller to net purchaser of gold has been the concern of many central banks about exposure to foreign exchange risks. Traditionally, one of the major assets held by central banks are holdings of major currencies such as the US dollar, the euro and the yen. The devaluation of the US dollar relative to some national currencies and concerns over the euro has led to increased interest in gold as a means of diversifying central bank asset holdings. As a result, in 2011 there were large central bank purchases of gold made by Mexico (100 tonnes), the Russian Federation (87 tonnes), Thailand (53 tonnes) and the Republic of Korea (40 tonnes). Figure 3: Net official sector sales
800 600 400 200 tonnes -200 -400 -600 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Sources: BREE; GFMS; WGC.
Over the remainder of the outlook period (2013 to 2017), official sector purchases of gold are projected to remain robust, although there is projected to be a gradual decline to purchases to total 325 tonnes in 2017. The decrease in central bank net purchases over the outlook period is because of an assumed increases in the world economic outlook and an improvement in the relative strength of the US dollar. However, as official sector gold purchases depend on a variety of special domestic circumstances, there is still considerable uncertainty over central bank net purchases of gold purchases over the outlook period.
Producer hedging to remain dormant

Producer hedging involves gold producers borrowing gold from central banks and selling it on to the spot market so as to reduce exposure to the risk of lower gold prices at the time of actual production. As a result, the value of future mine production is effectively brought forward.
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In 2011, the outstanding hedge positions of global gold producers increased by 12 tonnes, compared with net dehedging of over 100 tonnes in 2010. Although an increase of hedged positions of 12 tonnes is relatively small, it is notable that 2011 was the first year in a decade when hedging positions were undertaken and which could indicate an expectation of lower gold prices by some market participants. These hedging positions, however, appear to have been undertaken principally as a means of securing financing for mine expansions and new mine developments. In 2012, hedging or dehedging activities is expected to be relatively subdued. Any significant dehedging activity will be limited by the size of remaining hedge positions, which have largely been wound up over the past 5 years. High gold prices in 2012 should also discourage gold producers from taking out hedging positions. To 2017, the projected decline in the price of gold may result in an increase in hedging activities as producers seek to lock in high prices.
Scrap sales to reflect gold price movements

In 2011, the supply of gold scrap, largely sourced from recycled jewellery, declined for the second successive year, falling by 2 per cent to 1612 tonnes. While historically the supply of scrap gold has increased with higher prices, the apparent counterintuitive movement in 2011 may reflect scrap holders views of further increases in the price of gold. In 2012, the supply of scrap is forecast to decrease by 4 per cent to 1550 tonnes. The fall in scrap supply reflects consumers willingness to hold gold in the absence of better alternative investments. The available stock of gold scrap is also placing downward pressure on sales as stock levels have been run down significantly over the past four years following successive increases in gold prices. Over the remainder of the outlook period (2013 to 2017), the supply of scrap gold is expected to continue to decline with scrap supply projected to decrease to 1000 tonnes by 2017. The lower scrap supply is a result of reduced stocks of scrap, and gold holders reduced incentives to sell holdings at lower gold prices.
Production to increase modestly over the outlook period

In 2011, world gold mine production is estimated to have increased by 2 per cent, relative to 2010, to 2752 tonnes, the highest ever recorded annual global production. This represents the third consecutive year of world gold production growth and reflects the incentives that high gold prices provide to global producers to invest in developing gold projects. Increases in gold production in Ghana, the Russian Federation and Canada were offset by production losses in Peru and Indonesia where declines in output occurred due to industrial disputes.
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World gold mine production in 2012 is forecast to increase by 3 per cent, relative to 2011, to 2840 tonnes. Chinas gold mine production is forecast to increase by 3 per cent to 380 tonnes as a number of small gold mines start up, encouraged by high prices. Indonesias gold production is forecast to increase by 13 per cent to 130 tonnes under the assumption that Freeport McMoRans Grasberg mine returns to normal operating levels after being significantly affected by industrial disruptions in 2011. Gold production in the Russian Federation and central Asia is also forecast to increase as a number of operations that started production in 2011 are expected to increase production to full capacity. Over the medium term (2013 to 2017), global gold mine production is projected to grow at an average rate of 2 per cent a year to reach 3120 tonnes by 2017. Steady growth in gold production is expected to come from Chile and Peru associated with expansions of a number of large copper mines which produce gold as a by-product. China is projected to remain the largest gold producer over the outlook period; however, China is unlikely to experience the strong production growth rates seen over the past few years. This is because many of Chinas gold mines have relatively high costs and are small in scale, which could make many unprofitable if prices decline as projected over the medium term. Offsetting the production growth in Latin America and China will be lower production from the US and South Africa. Falling production in these countries reflects a combination of factors such as declining ore grades, safety and labour issues, and a lack of new deposits to replace resources that are being exhausted.
Australian gold production to increase

Australian gold mine production in 201112, is forecast to increase by 1 per cent, relative to 201011, to total 268 tonnes. Supporting this increase in Australias gold mine production capacity is the start up of Crocodile Golds Cosmo Deeps operation (annual capacity of 3 tonnes) and St Barbaras King of the Hills expansion at its Leonora operation (2 tonnes) in the second half of 2011. Increases in production in 201112 are also expected to be supported by increased output from Ramelius Resources Mt Magnet operation (2.5 tonnes) and Navigator Resources Cockburn pit at its Bronzewing operations (2 tonnes). Offsetting this growth in production from new or expanded operations will be lower output from a number of mines in the Northern Territory from partial flooding due to heavy rain in late 2011 and early 2012. In 201213, Australian gold production is forecast to increase by 7 per cent, relative to 201112, to total 287 tonnes (see Figure 4). The start up and subsequent ramp up of production at Newcrests Cadia East operation (22 tonnes) is expected to provide the majority of the increase in Australian production. However, additional capacity is expected to come from the start up of new mines at Evolution Minings Mt Carlton operation (2.5 tonnes) and Silver Lake Resources Murchison mine (3 tonnes).
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Figure 4:
Australian gold mine production by state

350 300 250 200 150 100 50
tonnes 1996-97 2000-01 2004-05 Queensland Tasmania 2008-09 Northern Territory South Australia 2012-13 2016-17
Western Australia Victoria
New South Wales
Source: BREE.
Australian gold production is projected to increase by 11 per cent to around 318 tonnes in 201314 and remain close to that level for the remainder of the outlook period. Mines that will contribute to production growth over these years include the Cadia East mine and new or expanded mines that are scheduled for completion within the outlook period. These new mines include: Southern Cross Golds Marda project (1 tonne) and Westgold Resources Central Murchison operation (3.5 tonnes).
Value of Australian exports to decline over outlook period

Australian gold exports consist of refined gold from Australian mine production and imports of gold dore (impure gold) and scrap gold, which are shipped to Australia and then refined into gold bullion and re-exported. In 201112, the volume of Australian gold exports is forecast to increase by 10 per cent, relative to 201011, to total 331 tonnes. The increase in exports is expected to be supported by forecast higher domestic mine production and an assumed increased availability of scrap and gold dore from international sources as a result of continued high prices for gold. Reflecting both increased export volumes and increases in the Australian dollar price of gold, the value of Australias gold exports is forecast to rise by 33 per cent in 201112 to $17.3 billion. In 201213, increases in exports of both Australian-produced and overseas-sourced gold are forecast to result in export volumes rising by 9 per cent to 361 tonnes. In 201213 the value of Australias gold exports is forecast to increase by a 19 per cent to $20.5 billion (see Figure 5). This reflects a combination of high gold prices and increased export volumes.
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Between 201314 and 201617, Australias gold exports are projected to remain relatively stable ranging between 390 and 400 tonnes a year. With the real Australian dollar price (in 201112 dollars) of gold projected to decline significantly after 2013, the value of Australias gold exports is projected to decrease over the remainder of the outlook period. By 201617, the value of gold exports is projected to fall to $14 billion (in 201112 dollars), a level similar to that of 201011. Figure 5:
500 400 300 200 100 tonnes 1996-97 2000-01 2004-05 volume 2008-09 2012-13
Australias gold exports

25 20 15 10 5 2011-12 $A/b 2016-17
value (right axis)
Sources: BREE, ABS.
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Table 1:
Gold Outlook
2010 2011 2 766 2 752 1 612 (1 598) (430) (1 180) 12 1 569 1 618 2010 11 265 301 13 016 13 451 1 389 1 436 2012 f 2 784 2 842 1 550 (1 608) (450) (1 148) (10) 1 814 1 814 2011 12 f 268 331 17 265 17 270 1 652 1 652 2013 f 2 759 2 911 1 450 (1 603) (425) (1 168) (10) 1 800 1 767 2012 13 f 287 361 20 519 19 957 1 770 1 721 2014 z 2 847 3 011 1 200 (1 364) (400) (954) (10) 1 656 1 609 2013 14 z 318 392 20 967 19 832 1 665 1 574 2015 z 2 840 3 056 1 100 (1 316) (375) (931) (10) 1 494 1 436 2014 15 z 325 399 19 579 18 009 1 527 1 405 2016 z 2 961 3 102 1 050 (1 191) (350) (831) (10) 1 388 1 317 2015 16 z 327 394 17 401 15 566 1 374 1 229 2017 z 3 065 3 123 1 000 (1 058) (325) (723) (10) 1 285 1 203 2016 17 z 326 396 16 087 13 994 1 264 1 100
World Consumption Mine production Scrap sales Residual net stock official sector private sector producer hedging Price b nominal real c US$/oz US$/oz 1 225 1 307 2009 10 Australia Mine production Export volume Export value nominal real d Price nominal real d A$/oz A$/oz 1 236 1 317 A$m A$m 12 996 13 847 t t 240 335 t t t t t t t 2 779 2 689 1 645 (1 555) (73) (1 374) (108)
b London Bullion Market Association AM price. c In 2012 US dollars. d In 201112 Australian dollars. f BREE forecast. z BREE projection. Note: Net purchasing and dehedging shown in brackets. Sources: BREE; ABS; GFMS; LBMA.
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Aluminium
George Stanwix
Aluminium prices are expected to decline in 2012, compared with 2011. However, prices are projected to increase, on average, between 2013 and 2017, underpinned by stronger consumption growth relative to production growth. Over the medium term, aluminium consumption is projected to increase as demand in the major semi-fabricated markets strengthens, providing a positive impetus to price. Aluminium production growth is expected to occur mainly in emerging economies as a result of comparatively low energy costs. Australian aluminium export earnings are expected to moderate over the outlook period associated with a decline in domestic production and lower export volumes.
Prices weak in the short term, but strengthening over the medium term
After reaching a peak of around US$2800 a tonne in May 2011, aluminium prices averaged US$2437 a tonne in 2011, 12 per cent higher than prices in 2010 (see Figure 1). In 2012, aluminium prices are forecast to decrease by 6 per cent, relative to 2011, to average US$2287 a tonne in response to weaker growth in world aluminium consumption associated with an assumed decrease in world economic growth. In 2012, the decrease in the aluminium price is expected to be constrained by higher production costs, including rising electricity and raw material costs that has already resulted in a number of aluminium producers reducing their production capacity. Figure 1: Quarterly aluminium prices
4000
3000
2000
1000 2012 US$/t 1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Sources: BREE; LME.
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Over the remainder of the outlook period (2013 to 2017), aluminium prices are projected to increase, in real terms, peaking at US$2640 a tonne (in 2012 dollars) in 2015 before easing to around US$2530 a tonne in 2017 (see Figure 2). The increase in prices reflects robust consumption growth in line with an assumed improvement in the economic outlook in OECD economies. Between 2013 and 2015, aluminium production is projected to increase at a rate less than consumption growth. This is partly because strong aluminium production growth in non-OECD economies will be partially offset by smelter closures in many OECD economies. In 2016 and 2017, aluminium prices are projected to moderate to around US$2500 a tonne (in real terms) in response to increased aluminium production, particularly from the Middle East. Global aluminium stocks are projected to decrease to 4.6 weeks of consumption by the end of 2017, compared with 8.8 weeks of consumption at the end of 2011. Figure 2:
3500 3000 2500 2000 1500 2012 US$/t
Annual aluminium prices and stocks

11 9 7 5 3 weeks of consumption
2001
2003
2005
2007 prices
2009
2011
2013
2015
2017
stocks (right axis)
Sources: BREE; LME; WBMS.
Aluminium consumption growth to increase to 2017

In 2011, world aluminium consumption is estimated to increase by 5 per cent, compared with 2010, to total 42 million tonnes following increased demand in all major aluminium-consuming economies. The rate of growth in world aluminium consumption is forecast to weaken in 2012 due to assumed lower economic and industrial production growth in some key aluminium markets. In 2012, global consumption of aluminium is forecast to increase by 4 per cent, relative to 2011, to total 44 million tonnes. Over the medium-term, world aluminium consumption is expected to be underpinned by demand from the construction, aerospace and automobile manufacturing sectors, particularly within emerging economies. Between 2013 and 2017, world aluminium consumption is projected to increase at an average annual rate of 7 per cent to reach 62 million tonnes by 2017.
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supported by consumption growth in China

In 2011, aluminium consumption in China is estimated to have increased by 11 per cent, compared to 2010, to total 18 million tonnes. Over the outlook period, China is expected to account for an increasing share of world growth in aluminium consumption. Growth in Chinas aluminium consumption out to 2017 is expected to be supported by the economys continued urbanisation and industrialisation. The continual movement of people from rural areas to urban areas requires additional housing and infrastructure, which is aluminium intensive in its construction. Also supporting growth in Chinas aluminium consumption over the medium term will be rising household incomes that are expected to result in an increase in demand for domestically produced aluminium intensive consumer durables such as white goods and automobiles. The potential growth in Chinas aluminium consumption is illustrated by its relatively low per capita aluminium intensity compared to major industrial economies such as Germany and the US (see Figure 3). Figure 3:
30 consumption per person (kg) 25 20 15 10 5 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000
Aluminium consumption and income
GDP per person (PPP international dollars) China Japan Germany Korea India United States Italy
Note: The purchasing power parity (PPP) adjusted international dollar has the same purchasing power as one US dollar at a given point in time. The measure allows comparisons between countries over time. Time period used comprises 1980 to 2011. Sources: BREE; IMF.
Chinas relatively low consumption intensity, large population and rapidly growing GDP per person indicates that there is substantial scope for further growth in aluminium consumption over the outlook period. As a result, Chinas aluminium consumption is projected to increase at an average annual rate of 10 per cent, between 2012 and 2017, to reach 31 million tonnes in 2017.
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Aluminium consumption growth in the OECD is dependent on the strength of an economic recovery
In 2011, aluminium consumption in OECD economies is estimated to have increased by less than 1 per cent, compared to 2010, to total 16 million tonnes. Aluminium demand growth in 2012 in the OECD is forecast to remain weak, particularly in the European Union (EU) and Japan. In the US, aluminium consumption is forecast to increase underpinned by increased activity in the aerospace and transportation manufacturing sectors. Over 2013 to 2017, aluminium consumption in the OECD is projected to increase, underpinned by an assumed strengthening of economic growth in the EU, the US, and Japan. By 2017, OECD aluminium consumption is projected to total 20 million tonnes, or an average annual increase of 5 per cent a year between 2013 and 2017.
Aluminium production to respond to falling prices

In 2011, aluminium production is estimated to have increased by 6 per cent, relative to 2010, to total just below 44 million tonnes. The growth in aluminium production is primarily due to higher levels of output from China, the Middle East and India. In 2012, world aluminium production is forecast to increase by 2 per cent to slightly over 44 million tonnes as new smelters start up in China and India. This growth, however, is expected to be offset by lower output from OECD economies where there have been a number of announced reductions in plant capacity. Over the remainder of the outlook period (2013 to 2017), aluminium production is projected to increase at an average annual rate of 7 per cent a year, reaching 61 million tonnes in 2017. Over this period, the majority of production growth is expected to occur in non-OECD economies.
Non-OECD economies to underpin world aluminium production growth

Over the medium term, the growth in aluminium smelting capacity is expected to largely occur in countries where companies can secure long term, competitively priced power contracts. China is projected to remain the largest aluminium producer over the outlook period. In 2011, China accounted for 41 per cent of world production; its large share reflecting cheap input costs such as labour and electricity. The Chinese Government is currently supporting the modernisation of its aluminium production industry by shutting down old and inefficient capacity and replacing these plants with smelters based on modern technology. Despite the shutdown of some existing capacity, Chinas aluminium production is nevertheless projected to increase at a rate of around 6 per cent a year, between 2012 and 2017, to reach 25 million tonnes in 2017.
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Supported by the availability of relatively cheap natural gas, there are plans to significantly expand aluminium production capacity in the Middle East. New projects scheduled to start up in the Middle East over the outlook period include Alcoas and Ma'adens Ras Al-khair smelter (annual capacity of 740 000 tonnes) and the Sino Saudi Jazan smelter (1 million tonnes) in Saudi Arabia; and EMALs Abu Dhabi smelter phase II expansion (520 000 tonnes) in the United Arab Emirates (UAE). This new capacity is expected to result in production in the Middle East increasing at an average annual rate of 18 per cent between 2012 and 2017 to reach 9 million tonnes in 2017. Indias aluminium production is expected to grow strongly over the period to 2017 as a result of the start up of up to five smelters with a total capacity of 2 million tonnes a year. Indias aluminium production is projected to increase by 22 per cent a year, between 2012 and 2017, to reach 5 million tonnes by 2017.
OECD production growth weak

Aluminium production in the OECD is expected to grow at below 1 per cent a year, between 2012 and 2017, associated with increasing capacity utilisation that is expected to be largely offset by a reduction of existing capacity due to the closure of a number of older smelters. As a result of increased cost pressures a number of aluminium producers have announced plans to curtail production capacity in the OECD. In 2011, Alcoa announced plans to permanently close a number of its higher-cost smelting operations in response to high energy costs and lower aluminium prices. The closures include the Portovesme smelter in Italy and La Corua and Avils operations in Spain as well as two smelters in the US (Rockdale, Texas and Alcoa, Tennessee). Together, the production plant closures amount to a reduction of 531 000 tonnes a year of production capacity. Rio Tinto Alcan has announced the permanent closure of the 275 000 tonne a year Zeeland Aluminium smelter (ZALCO) in the Netherlands. Norsk Hydro also announced in November 2011 that it would not restart idled capacity at its Sunndal primary aluminium smelter (annual capacity of 400 000 tonnes) in Norway until market conditions improve. The major additions to world capacity over the outlook period are expected to come from a number of projects currently at varying stages of planning and development (see Table 1).
100
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Table 1:
Selected aluminium smelters expected to be commissioned over the outlook period

Company Aluminium Bahrain Rio Tinto Alcan Century Aluminum Hindalco Hindalco Hindalco Vedanta Vedanta Smelter Alba Sixth Potline Kitimat Helguvik Aditya Jharkhand Mahan Jharsuguda II Korba III East Kalimatan China Lamard Samalaju, Sarawak Sarawak Phase II Sohar Phase II BEMO in Krasnoyarsk Taishet in Irkutsk Ras Al-khair Sino Saudi Jazan Aluminium EMAL Phase II Capacity (kt) 400 136 360 359 359 359 500 325 500 276 370 120 360 147 375 740 1000 520 Start up 2015 2014 2013 Early 2013 2015 Q1 2012 2014 Q3 2012 2015 Late 2012 Mid 2015 Early 2013 2014 2013 2013 2013 Late 2014 2013 Type na Brownfield Greenfield Greenfield Greenfield Greenfield Brownfield Greenfield Greenfield Greenfield Greenfield Brownfield Brownfield Greenfield Greenfield Greenfield Greenfield Brownfield
Country Bahrain Canada Iceland India
Indonesia Iran Malaysia
NALCO SALCO and NFC Chalco and GIIG Holdings Sumitomo and Press Metal
Oman Russian Federation Saudi Arabia
Oman Oil, Abu Dhabi WEA, RTA UC Rusal UC Rusal Ma'aden and Alcoa Binladin Group, Chalco and MMC
UAE
DUBAL and Mubadala
Source: Harbor Aluminium.
Australian aluminium production to moderate

In 201112, Australias aluminium production is forecast to remain steady at around 1.94 million tonnes relative to 201011 as no new smelting capacity has been added recently. In 201213, aluminium production is forecast to decrease to 1.90 million tonnes due to the closure of a 60 000 tonne a year pot line at the Kurri Kurri smelter. The closure was announced by Norsk Hydro in January 2012.
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Over the remainder of the medium term, the outlook for Australian aluminium production is uncertain. In February 2012, Alcoa announced that it was undertaking a review of operations at its Point Henry smelter (annual capacity 190 000 tonnes) in light of the high cost environment in which it is operating. High costs reflect rising electricity, labour and other input costs and a high value of the Australian dollar. The review is expected to be completed in June 2012. Furthermore, Rio Tinto has announced plans to review its Pacific Aluminium business, which includes the Bell Bay smelter in Tasmania, Boyne Island smelter in Queensland, and Tomago smelter in NSW. On the basis of these company announcements it is assumed that further aluminium capacity will be curtailed over the outlook period. By 201617, Australias aluminium production is projected to decrease to around 1.4 million tonnes, a decrease of 27 per cent from 201011 levels.
Australias exports to decrease over the outlook period

In 201112, aluminium exports are forecast to remain steady, relative to 201011, at around 1.7 million tonnes, reflecting stable aluminium production (see Figure 4). With decreasing aluminium production in 201213, export volumes are forecast to decrease by 2 per cent, compared to 201112, to total 1.7 million tonnes. Over the outlook period, export volumes are projected to decrease at an average annual rate of around 7 per cent (201314 to 201617). Export volumes are projected to total 1.2 million tonnes in 201617, associated with weaker aluminium production. In 201112, the value of aluminium exports is forecast to decrease by 9 per cent, compared to 201011, to $3.8 billion due mainly to lower prices. In 201213, Australian export earnings are forecast to remain steady, relative to 201112 to $3.8 billion, supported by increasing aluminium prices. Over the outlook period, growth in aluminium export earnings is projected to decrease as a result of lower aluminium export volumes, partially offset by higher world prices. The value of aluminium exports is projected to decrease at an average annual rate of 7 per cent between 201314 and 201617, to total $2.7 billion in 201617 (in 201112 dollars). Figure 4:
2
Australias aluminium exports

8
1.5
0.5
2 2011-12 A$b 1996-97 2000-01 2004-05 volume 2008-09 2012-13 2016-17 value (right axis)
Mt
Sources: BREE; ABS.
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Alumina
Alumina prices recovery to lag aluminium prices
In 2011, spot alumina prices averaged US$384 a tonne, an increase of 15 per cent from 2010. Spot alumina prices are forecast to fall in 2012 as world aluminium production growth weakens, which is expected to lead to a reduction in alumina demand. Over the remainder of the outlook period (20132017), alumina prices are projected to increase, in real terms, as a result of stronger aluminium production growth and, hence, alumina demand. Rising alumina production input costs associated with higher electricity, caustic soda and other raw materials prices are expected to provide further support for prices over the medium term. Between 2013 and 2017, the spot alumina price is projected to increase at an average annual rate of 1 per cent to US$363 a tonne (in 2012 dollars) by 2017.
Australias alumina production to increase

In 201112, Australias alumina production is forecast to increase by 5 per cent to around 20.5 million tonnes, as production at Queensland Aluminas refinery is assumed to return to capacity following flood-related impacts in the first half of 2011. Production at BHP Billitons Worsley refinery is also expected to increase in the March quarter 2012 following the completion of a 1.1 million tonne a year expansion. Australias alumina production in 201213, is forecast to increase by around 12 per cent to 22.9 million tonnes underpinned by the completion of an expansion at Rio Tinto Alcans Yarwun refinery near Gladstone. When the expansion is complete in late 2012, the Yarwun refinery capacity will increase by 2 million tonnes to 3 million tonnes a year. Australias alumina production is projected to peak in 201314 at 24.4 million tonnes as production reaches full capacity at the expanded Yarwun and Worsley refineries. Over the remainder of the outlook period (201415 to 201617), Australias alumina production is projected to remain at around 24.4 million tonnes as there are no further capacity expansions scheduled to be completed within this period.
Australias alumina export earnings to grow over the outlook period

Underpinned by higher production, Australian export volumes of alumina in 201112 are forecast to increase by 4 per cent, relative to 201011, to total 16.8 million tonnes (see Figure 5). In 201213, Australias alumina exports are forecast to increase by a further 14 per cent to 19.2 million tonnes. By 201617, Australias alumina exports are projected to reach 21.6 million tonnes, reflecting higher alumina production and an increased availability of supply associated with lower domestic consumption in the aluminium industry.
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In 201112, higher export volumes are forecast to offset lower prices, resulting in export earnings from alumina increasing by 14 per cent, relative to 201011, to $6 billion. As prices and export volumes increase, Australias alumina export earnings are forecast to total $7.3 billion in 201213, an increase of 23 per cent from 201112. With alumina prices projected to increase over the remainder of the outlook period, alumina export earnings are projected to increase at an annual average growth rate of 3 per cent to total $8.1 billion (in 201112 dollars) in 201617. Figure 5:
25 20 15 10 5 Mt 1996-97 2000-01 volume 2004-05 2008-09 2012-13 2016-17 value (right axis)
Australias alumina exports

10 8 6 4 2 2011-12 A$b
Sources: BREE; ABS.
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Table 2:
Aluminium outlook
2010 2011 2012 f 2013 f 2014 f 2015 z 2016 z 2017 z
World Production Primary aluminium Consumption Primary aluminium Closing stocks Primary aluminium b weeks consumption Prices LME aluminium nominal real c Alumina nominal spot real spot c
kt kt kt
41 093 39 657 6 501 8.5
43 513 41 795 7 098 8.8
44 192 43 603 7 687 9.2
48 991 49 556 7 123 7.5
51 946 52 789 6 279 6.2
55 604 55 761 6 122 5.7
58 884 59 049 5 957 5.2
61 420 61 948 5 430 4.6
US$/t USc/lb US$/t USc/lb US$/t US$/t
2 170 98 2 314 105 333 355 2009 10
2 437 111 2 513 114 384 396 2010 11 1 938 19 544 69 296 1 686 4 178 4 318 16 227 5 218 5 392 8 595 229 237 9 625 9 947
2 287 104 2 287 104 339 339 2011 12 f 1 936 20 474 71 235 1 701 3 803 3 804 16 816 5 970 5 972 10 765 282 282 10 055 10 058
2 461 112 2 415 110 351 345 2012 13 f 1 899 22 880 74 228 1 671 3 750 3 648 19 177 7 323 7 122 8 894 230 224 11 303 10 994
2 662 121 2 587 117 376 366 2013 14 z 1 722 24 360 77 207 1 515 3 764 3 560 21 003 8 874 8 393 9 256 239 227 12 877 12 179
2 745 125 2 640 120 394 379 2014 15 z 1 639 24 360 78 197 1 442 3 829 3 522 21 164 9 554 8 788 10 180 263 242 13 646 12 552
2 691 122 2 554 116 377 358 2015 16 z 1 469 24 360 81 176 1 293 3 358 3 004 21 495 9 492 8 491 12 981 336 300 13 186 11 795
2 704 123 2 532 115 388 363 2016 17 z 1 410 24 360 81 169 1 241 3 152 2 742 21 610 9 329 8 116 12 980 336 292 12 817 11 150
Australia Production Primary aluminium Alumina Bauxite Consumption Primary aluminium Exports Primary aluminium Nominal value Real value d Alumina Nominal value Real value d Bauxite Nominal value Real value d Total value nominal real
kt kt Mt kt kt A$m A$m kt A$m A$m kt A$m A$m A$m A$m
1 920 20 056 68 312 1 624 3 838 4 089 16 653 4 969 5 294 8 023 178 190 8 985 9 573
b Producer and LME stocks. c In 2012 US dollars. d In 201112 Australian dollars f BREE forecast. z BREE projection. Sources: BREE; LME; WBMS.
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Copper
Adam Bialowas
Copper prices are forecast to peak in 2013 at US$8830 tonne before declining steadily over the remainder of the outlook period to around US$6770 (in 2012 dollars) in 2017. World copper consumption is expected to increase at an average rate of 4 per cent a year to total 24.4 million tonnes by 2017. In 2017, China is expected to account for over 45 per cent of total world copper consumption. World copper mine production is projected to grow strongly over the outlook period supported by extensive capacity additions in Chile and Peru. Mine production is projected to increase at an average annual rate of 5 per cent to total 21.5 million tonnes by 2017. The value of Australian copper exports is set to decline over the outlook period to $9 billion in 2017 (in 201112 dollars) as falling copper prices counterbalance increasing Australian export volumes.
Copper prices to peak in 2013

In 2011, the price of copper averaged a record US$8852 tonne, an increase of 17 per cent compared to 2010. Throughout much of 2011 copper prices were supported by supply disruptions at a number of key operations including in Latin America and Indonesia. In the last quarter of 2011, the copper price fell because of uncertainty surrounding European debts and market expectations of weaker global economic growth (see Figure 1). At the end of 2011, the copper price was trading at US$7554 a tonne, compared with a peak of US$10 048 a tonne in February 2011. At the end of 2011, copper stocks were around 2.6 weeks of consumption, down from 2.8 weeks of consumption at the end of 2010. Figure 1: Quarterly copper prices
12000 10000 8000 6000 4000 2000 2012 US$/t 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: BREE; LME.
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In 2012, copper prices are forecast to average $US8430 a tonne, a decrease of 5 per cent relative to 2011. The decrease in prices primarily reflects the absence of the large speculative component which was present in the first half of 2011. Thus, while the copper market is expected to remain tight in 2012, the average price is expected to be reflective of physical supply and demand fundamentals rather than financial factors, which was the case in early 2011. Copper stocks are expected to decline further in 2012 to 2.2 weeks of consumption (see Figure 2). Copper prices in 2013 are forecast to increase by 5 per cent to US$8830 a tonne as world copper consumption increases in line with the assumption of improved economic growth. While growth in refined copper production is expected to outpace growth in consumption in 2013, the market is expected to remain in deficit with stocks decreasing to around 2 weeks of consumption at the end of 2013. Figure 2:
10000 8500 7000 5500 4000 2500 2012 US$/t 2001 2003 2005 price 2007 2009 2011 2013 2015 2017 stocks (right axis)
Annual copper prices and stocks

7 6 5 4 3 2 weeks of consumption
Sources: BREE; LME; WBMS.
Over the remainder of the outlook period (2014 to 2017), copper prices are projected to decline gradually. Growth in world copper consumption in the second half of the outlook period is projected to moderate to an average annual rate of 3 per cent compared with 5 per cent in 2012 and 2013. Production growth between 2014 and 2017 is projected to increase at an average annual rate of 4 per cent a year. As a result, stocks are projected to gradually increase each year reaching 3.4 weeks of consumption at the end of 2017. In 2017, world copper prices, in real terms, are projected to be US$6770 a tonne (in 2012 dollars).
World copper consumption to increase

In 2011, global copper consumption increased by less than 2 per cent, relative to 2010, to total 19.5 million tonnes. During the first half of the year, growth in apparent copper consumption was weak as high copper prices encouraged many consumers to run down stocks rather than make additional purchases. In the second half of 2011 copper consumption growth was limited by uncertainty surrounding the global economic outlook.
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In 2012, world copper consumption is forecast to increase by 5 per cent to 20.4 million tonnes with the majority of this growth expected to occur in China. Copper consumption growth in the OECD in 2012 is forecast to be weak as housing construction and manufacturing activity remains subdued. World copper consumption in 2013 is forecast to increase by a further 5 per cent, relative to 2012, to total 21.4 million tonnes as OECD economic growth is assumed to strengthen. Over the remainder to the outlook period (2013 to 2017) world copper consumption is projected to grow at an average annual rate of 4 per cent to reach 24.4 million tonnes in 2017. China is projected to contribute the majority of this growth and account for over 45 per cent of world copper consumption in 2017.
Emerging economies underpin copper consumption growth

In 2012, Chinas copper consumption is forecast to increase by 8 per cent to 8.6 million tonnes following growth of 7 per cent in 2011. The strong rate of growth in 2012 reflects copper demand for housing and infrastructure construction and the manufacturing of consumer durables. In addition, Chinas copper demand in 2012 is expected to be supported by the rebuilding of stocks after a large drawdown in 2011 in response to high prices and tighter restrictions on liquidity. As a result, Chinas copper consumption in 2013 is forecast to increase by 8 per cent relative to 2012 to total 9.2 million tonnes.
China copper consumption to continue increasing

Over the remainder of the outlook period, (2014 to 2017) Chinas copper consumption is projected to increase at an average annual rate of 5 per cent to reach 11.3 million tonnes in 2017. Trends that have contributed to copper consumption growth in China over the past decade, such as industrialisation and urbanisation, are assumed to continue over the outlook period. One of the characteristics of Chinas economic development over the past decade has been the rate of urbanisation as people have migrated from rural areas to cities in search of employment. By 2017, over 51 per cent of the population is expected to live in cities around China, compared with a rate of 47 per cent in 2010. This equates to around 70 million people moving into urban areas over the next five years. In order to accommodate this shift, and to improve the affordability of housing, Chinas 12th Five-Year Plan (201115) sets out a target of constructing an additional 36 million housing units. The increase in urban population will also need to be supported by an expansion of Chinas electricity grids, and other infrastructure such as roads, rail and water networks. The construction of housing and electricity infrastructure is particularly copper intensive and will underpin consumption growth into the second half of this decade. Also supporting growth in Chinas copper consumption will be the production of consumer durables such as motor vehicles, white goods and electronic appliances.
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In other emerging economies such as India and Brazil, and also in the Russian Federation, copper consumption is also projected to increase over the medium term. As with China, increased copper consumption in these countries reflects assumed growth in housing and infrastructure construction and consumption of consumer durables. In the OECD, copper consumption growth is forecast to be moderate in 2012 and 2013 at around 2 per cent a year and to total 7.9 million tonnes in 2013. Copper consumption growth will be supported by reconstruction activities in Japan following the March 2011 earthquake and tsunami. Copper consumption in the US is also forecast to increase as automobile manufacturing and production for consumer durables are assumed to increase. In 2014, and for the remainder of the outlook period, OECD copper consumption growth is projected to increase in line with improved economic conditions across the European Union, the US and Japan. Increased manufacturing activity and housing construction is expected to result in OECD copper consumption increasing at an average annual rate of 1 per cent between 2014 and 2017 to reach 8.1 million tonnes in 2017.
World copper mine production supported by Latin America

In 2011, world copper mine production increased by less than 1 per cent, relative to 2010, to total 16.2 million tonnes. The weak growth in copper production reflects higher output in Africa being partially offset by lower output in Indonesia and Latin America that were associated with industrial relation disputes. Mine production in 2012 is forecast to increase by 4 per cent relative to 2011 to reach 16.8 million tonnes, underpinned by production growth in Africa and Chile. In Africa, mine production is forecast to increase to around 1.7 million tonnes as First Quantum Minerals Kansanshi mine (annual capacity of 250 000 tonnes) and Vedanta Resources Konkola operation (175 000 tonnes) increase production to capacity after being commissioned in 2011. In Chile, copper production in 2012 is forecast to increase by 14 per cent, relative to 2011, to 6 million tonnes. This increase is expected to be supported by the start up of new mines such as, Codelcos and Freeport MacMorans El Abra mine (annual capacity of 135 000 tonnes) and an expansion at Anglo Americans Los Bronces operation (additional 70 000 tonnes). Also supporting global copper production growth is higher output from mines which were affected by industrial action in 2011.
Higher mine production over the medium term

Over the remainder of the outlook period (2013 to 2017) global copper mine production is projected to grow at an average rate of 5 per cent a year to reach 21.5 million tonnes by 2017. The bulk of this additional capacity is expected to come from large, existing producers in Chile and Peru.
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In Chile, the worlds largest copper producer, production growth is projected to increase at around 3 per cent a year, reaching 7.1 million tonnes by 2017. A number of large copper mines are also scheduled to start production within the outlook period including Codelcos Mina Minestro Hales operation (annual capacity of 170 000 tonnes), Pan Pacific Coppers Caserones project (180 000 tonnes) and Goldcorps El Morro mine (200 000 tonnes). Peru is projected to be one of the fastest growing copper producers between 2013 and 2017, with production projected to increase at an average annual rate of 15 per cent a year to reach 2.6 million tonnes by 2017. New mines scheduled to commence production during the outlook period include Chinalcos Toromocho operation (annual capacity of 275 000 tonnes), Xstratas Las Bambas mine (310 000 tonnes) and Minmetals El Galeno mine (200 000 tonnes). A potentially significant contributor to world copper production over the outlook period is the Oyu Tolgoi mine in Mongolia. The mine is based on one of the worlds largest undeveloped copper and gold resources and is majority owned by Rio Tinto. The US$6 billion project will have a copper production capacity of 450 000 tonnes a year when complete in 2014.
Growth in refined copper production to continue over the outlook period

Refined copper production in 2012 is forecast to increase by around 4 per cent, relative to 2011, to 20.3 million tonnes. Supporting increases will be the commissioning of various solvent extraction-electrowinning (SX-EW) projects, such as Freeport McMoRans El Abra operation (annual capacity of 135 000 tonnes) in Chile and continued production ramp up at Katanga Minings Kamoto mine (150 000 tonnes) in the Democratic Republic of Congo. Additionally, China, already the worlds largest producer of refined copper, is expected to continue increasing its refining capacity in 2012 through expansions at existing refineries in Jinchuan (additional 150 000 tonnes) and Tianjing (100 000 tonnes), as well as new refineries such as Zijin (150 000 tonnes). World refined copper production is projected to increase on average by 4 per cent a year over 201317 to total 24.6 million tonnes by 2017. Growth in SX-EW capacity is expected to account for a large proportion of this growth. Operations that use SX-EW technology are increasingly being developed due to their low capital and operating costs, relative to traditional refining processes, and the ability to extract metal from low grade ore that would otherwise be uneconomic to mine. In Africa, increase refined production from SX-EW operations is scheduled to come from the phase 2 expansion of Freeport McMoRans Tenke Fungurume project (annual capacity of 190 000 tonnes) and the commissioning of China Nonferrous Metal Groups Muliashi mine (40 000 tonnes) in Zambia.
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Australian production to increase

In 201112, Australias copper mine production is forecast to increase by 8 per cent, relative to 201011, to total 1 million tonnes. Increased production is supported by the start up of Hillgrove Resources Kanmantoo mine (annual capacity of 20 000 tonnes) and Sandfire resources DeGrussa operation (77 000 tonnes). Australian production of refined copper in 201112 is expected to remain unchanged compared to 201011 levels at 487 000 tonnes, as an expected production increase by CST Minings Lady Annie operation balances out a planned refinery outage at BHP Billitons Olympic Dam operation. Australian copper mine production in 201213 is forecast to increase by 14 per cent, relative to 201112, to total 1.2 million tonnes. Increased mine output is expected to come from initial production of underground operations at Newcrests Cadia East Underground expansion (additional 80 000 tonnes) and higher production from Ivanhoes Osborne mine and the commissioning of Venturex Resources Pilbara VMS operation (80 000 tonnes). Over the remainder of the outlook period (201314 to 201617) Australian copper mine production is projected to grow at an average rate of 3 per cent to reach 1.3 million tonnes by 201617. New operations scheduled to start up over this period include Golden Cross Copper Hill project (annual capacity of 37 000 tonnes) in 2015 and Ivanhoe Australias Mount Elliot operation (40 000 tonnes) in 2016. Additional output is assumed to come from an expansion at Rio Tintos Northparkes operation towards the end of the outlook period. Significant increases in copper production associated with the expanded Olympic Dam project are not assumed to occur until after 201617. Australian production of refined copper in 201213 is forecast to increase by 3 per cent to 504 000 tonnes before decreasing at an average rate of 7 per cent a year to 374 000 tonnes in 201617. The significant decrease in Australia's refined copper production over the outlook period primarily reflects Xstratas decision to close its Townsville and Mt Isa refining operations by 2016. The closure of some refining capacity will be partially offset by the start up of new capacity such as Ivanhoe Australias Mt Dore SX-EW operation (annual capacity of 20 000 tonnes) which is scheduled to commence operation in 2014.
Australian export earnings to decline

In 201112, the metallic content of Australian copper exports is forecast to increase by 10 per cent to 929 000 tonnes, supported by higher export volumes of ores and concentrates. This increase is expected to more than offset the effects of a lower Australian copper price, resulting in a 7 per cent increase in the value of Australian copper exports to $9 billion. Australian earnings (in 201112 dollars) from copper exports are projected to peak in 201314 at $10.7 billion, driven primarily by strong growth in the volume of exports of ores and concentrates (see Figure 3). Subsequent to this peak, export earnings are projected to decline to $9 billion (in 201112 dollars) in 201617 as a reduction in refined copper production leads to a decline in the metal content of Australian copper exports in conjunction with a projected decline in the export price of copper.
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Figure 3:
1500 1250 1000 750 500 250 kt
Australias copper exports

12 10 8 6 4 2 2011-12 A$b 2016-17
1996-97
2000-01 volume
2004-05
2008-09
2012-13 value (right axis)
Sources: BREE; ABS.
Table 1:
Copper outlook
2010 2011 2012 f 2013 f 2014 z 2015 z 2016 z 2017 z
World Production mine kt refined kt Consumption kt Closing stocks kt weeks consumption LME price nominal real b US$/t USc/lb US$/t USc/lb
16 147 19 222 19 204 1 017 2.8 7 534 341.7 8 034 364.4 2009 10
16 209 19 578 19 508 957 2.6 8 852 401.5 9 126 413.9 2010 11 952 485 1 750 375 8 422 8 703
16 777 20 329 20 420 866 2.2 8 431 382.4 8 431 382.4 2011 12 f 1 025 487 2 020 383 9 048 9 051
17 771 21 376 21 420 822 2.0 8 825 400.3 8 662 392.9 2012 13 f 1 168 504 2 428 365 10 481 10 194
18 851 22 602 22 456 968 2.2 8 150 369.7 7 918 359.2 2013 14 z 1 259 504 2 759 353 11 317 10 705
19 922 23 310 23 155 1 123 2.5 7 425 336.8 7 140 323.8 2014 15 z 1 293 504 2 927 353 10 851 9 981
20 700 24 069 23 742 1 450 3.2 7 300 331.1 6 930 314.3 2015 16 z 1 307 444 3 012 346 10 151 9 080
21 449 24 611 24 442 1 620 3.4 7 225 327.7 6 765 306.9 2016 17 z 1 301 374 3 587 220 10 326 8 983
Australia Mine output Refined output Exports ores and conc. c refined Nominal value Real value d
kt kt kt kt A$m A$m
819 395 1 928 271 6 506 6 932
b In 2012 US dollars. c Quantities refer to gross weight of all ores and concentrates. d In 201112 Australian dollars. f BREE forecast. z BREE projection. Sources: BREE; ABS; ICSG; WBMS.
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Nickel
Tom Shael
Nickel prices are forecast to be lower in 2012 and 2013, compared with 2011, averaging US$20 700 and US$21 300, respectively. By the end of 2017, prices are projected to average around US$20 500 a tonne (in 2012 dollars), as higher stock levels and nickel pig iron production capacity limit the potential for higher nickel prices. Consumption growth over the outlook period is projected to be supported by demand from China and other emerging economies. Demand in OECD economies is projected to remain subdued as a result of assumed relatively weak economic growth. World mine production is expected to be supported by production at recently started or soon to be commissioned operations in South-East Asia. Australias exports of nickel are projected to grow at an average rate of 6 per cent over the outlook period, reaching 300 000 tonnes in 2017. Export values are projected to total $4.4 billion (in 201112 dollars) in 201617.
Nickel prices to recover from late 2011 lows

From a peak of US$29 030 a tonne in February 2011, nickel prices fell 42 per cent to a low of US$16 935 in late November 2011 (see Figure 1). For 2011 as a whole, nickel prices averaged US$22 854 a tonne, a 5 per cent increase from 2010. The significant decrease in nickel prices that occurred between August and late November 2011 was largely a reflection of uncertainty surrounding the outlook for the world economy associated with the euro zone crisis and weak US economic data. Figure 1: Quarterly nickel prices
60000 50000 40000 30000 20000 10000 2012 US$/t 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Sources: BREE; LME.
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In 2012, the nickel price is forecast to decrease by 9 per cent, relative to 2011, to average US$20 700 a tonne as fiscal consolidation and austerity measures in many European economies underpins assumed lower world economic growth and industrial production. Although this price is lower than the 2011 average, it is on par with the average price for the second half of 2011. Nickel stocks in 2012 are forecast to increase by 20 per cent, compared with 2011, to reach 207 000 tonnes, or around 6.5 weeks of consumption. The increase in stocks in 2012 is magnified by a large drawdown of reported stocks in 2011 (see Figure 2). Nickel prices in 2013 are forecast to increase by 3 per cent relative to 2012 and average US$21 300 a tonne. Assumed stronger economic growth and industrial production in Europe and the US will support demand for nickel for use in stainless steel and nickel-containing metal alloy manufacturing. The growth in demand is forecast to be met by an increase in production and result in a slight increase in stocks to 222 000 tonnes at the end of 2013, again representing around 6.5 weeks of consumption. Figure 2: Annual nickel prices and stocks
45000 40000 35000 30000 25000 20000 15000 10000 5000 2012 US$/t
10 9 8 7 6 5 4 3 2 weeks of consumption
2001
2003
2005
2007 price
2009
2011
2013
2015
2017
stocks (right axis)
Sources: BREE; INSG; LME.
and stabilise over the outlook period

Over the outlook period significant increases in the nickel price are expected to be limited by nickel pig iron production. Nickel pig iron is a ferronickel pig iron containing 46 or 813 per cent nickel. It contains much less nickel than conventional ferronickel (2540 per cent) and has higher concentrations of sulphur and phosphorous. The influential presence of nickel pig iron in the nickel market began in the mid-2000s when Chinese stainless steel manufacturers started to use the pig iron as a substitute for conventional ferronickel in response to very high nickel prices.
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Nickel pig iron production generally becomes profitable when the nickel price is around US$18 000 a tonne. If the nickel price were to remain significantly above this level for a sustained period of time, nickel pig iron production would increase and would be used as a substitute for conventional ferronickel. While the presence of nickel pig iron production capacity may place downward pressure on prices, over the medium term the nickel price will be supported by the increasing reliance on production from laterite ores. The processing of these ores (see Box 1) is significantly more expensive than the traditional source of nickel, sulphide ores. The higher production costs of these ores will effectively limit the potential for substantial and extended periods of low nickel prices, as some nickel mine production would become untenable at prices below US$18 500 a tonne. Over the medium term, the effect of nickel pig iron refining capacity in China and the increased amount of nickel sourced from laterite ores are projected to result in nickel prices averaging around US$20 500 a tonne (in 2012 dollars) in 2017. Over the outlook period, nickel consumption is projected to increase at a slightly faster rate than production, resulting in a slight supply deficit in 2017 with stocks decreasing to 224 000 tonnes, or 6 weeks of consumption.
Consumption growth to moderate over the medium term

In 2011, world nickel consumption is estimated to have increased by 7 per cent, relative to 2010, to reach 1.6 million tonnes as strong consumption growth in the first half of 2011 was partially offset by weak consumption in the second half of the year associated with economic uncertainty surrounding the euro zone economies. Growth in stainless steel and nickel-containing metal alloy production (particularly in China) will be the primary driver of nickel consumption over the outlook period, as approximately 60 per cent and 20 per cent of nickel is used in these two manufacturing processes, respectively. In 2012, world consumption of nickel is forecast to increase by 5 per cent, relative to 2011, to total 1.7 million tonnes (see Table 1). In 2012, nickel consumption in non-OECD economies is forecast to increase, supported by growth in developing Asian economies. Consumption growth in China and India is a result of the expansion of urban infrastructure and housing developments and ongoing industrialisation and urbanisation. In particular, infrastructure construction in Chinas western provinces will provide support for nickel demand in the short term. As a result, nickel consumption in China in 2012 is forecast to increase by 8 per cent, to 735 000 tonnes, which equates to 66 per cent of total growth in world consumption for the year.
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Table 1:
World nickel consumption (kt)

2010 2011 680 339 35 156 74 123 1 572 2012 f 735 341 37 160 78 130 1 656 2013 f 785 369 40 163 85 133 1 757 2014 z 820 384 43 165 90 134 1 821 2015 z 850 390 46 165 92 135 1 870 2016 z 865 400 50 165 94 135 1 906 2017 z 875 406 54 165 95 134 1 929
China European Union India Japan Republic of Korea United States World consumption
Sources: BREE; INSG.
575 326 34 149 74 120 1 464
Over the remainder of the outlook period (2013 to 2017), growth in world nickel consumption is projected to average 2 per cent a year, reaching 1.9 million tonnes in 2017. Growth will continue to be underpinned by an increased demand for stainless steels in emerging economies. Given these economies low nickel consumption per person compared with many developed economies, there appears to be substantial growth potential in nickel consumption within emerging economies over the medium term. Over the outlook period, nickel consumption will be supported by growth in stainless steel production. However, the effect of stainless steel production on nickel demand will be partly offset by an expected continued substitution away from nickel-intensive varieties. Production of austenitic (300 series) stainless steels, which has the highest nickel content of 810 per cent, is expected to gradually decline. This production is expected to be replaced by martensitic (200 series, 23 per cent nickel) and ferritic (400 series, no nickel) stainless steels, which increase the content of other minerals, such as manganese and chromium, to achieve the strength and anticorrosive qualities that nickel provides. Despite being currently only 5 per cent of total nickel consumption, an important factor in the outlook for nickel consumption are developments within the growing battery market, including for electric cars, and mobile devices such as phones, cameras and computers. Recent improvements to lithium-ion batteries have created competition for the nickel metal hydride battery. However, the replacement of nickel-based batteries by lithium batteries will be limited by their respective properties. Traditionally nickel-based batteries have a superior shelf-life and are more durable than lithium batteries. On the other hand, lithium batteries can easily be made into a variety of shapes, are much lighter than nickel-hydride batteries, and do not suffer from the memory effect where batteries gradually lose their maximum energy capacity with repeated recharging. These characteristics have led to technology developments that combine lithium and nickel to produce a battery which has higher energy potential, longer life and fewer fire risks. Increased purchases of both electronic consumer goods and energy efficient motor vehicles are expected to create a larger market for these batteries and, subsequently, for nickel.
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Over the medium term, nickel consumption in the OECD is projected to grow moderately as a result of a recovery in private consumption of nickel-intensive goods following the assumed sovereign debt related economic slow-down in 2012. To 2017, nickel consumption is projected to grow at an average of 3 per cent a year in the European Union (EU), to reach 406 000 tonnes; 2 per cent a year in the US, to reach 134 000 tonnes; and 1 per cent a year in Japan, to reach 165 000 tonnes. In 2017, nickel consumption is projected to reach 875 000 tonnes in China and 54 000 tonnes in India, representing average growth rates of 4 per cent and 8 per cent a year, respectively. Growth in both India and China will be underpinned by construction of urban infrastructure and demand for consumer durables.
Mine production to be supported by new laterite projects

In 2011, world nickel mine production is estimated to have increased by 23 per cent, relative to 2010, to total 1.9 million tonnes. This large increase was underpinned by a 128 per cent increase (to 135 000 tonnes) in Brazils output, which was supported by the start up of the Ona Puma and Barro Alto mines. Also contributing to this rise in world production was a 41 per cent jump (to 223 000 tonnes) in Canadas mine production, following the settlement of two years of labour related disputes. In 2012, world nickel mine production is forecast to increase by 2 per cent, relative to 2011, to total just under 2 million tonnes (see Table 2). This will largely be supported by small increases in mine production from Australia, Finland and many small producers in Africa. Table 2: World nickel mine production (kt)
2010 Australia Brazil Canada Indonesia Russian Federation Philippines World mine production
2011 212 135 223 294 270 245 1 942
2012 f 217 135 225 295 272 245 1 984
2013 f 223 135 225 295 275 245 2 039
2014 z 234 135 220 290 275 250 2 124
2015 z 252 140 220 290 275 250 2 204
2016 z 263 140 220 290 275 250 2 255
2017 z 265 145 220 290 275 250 2 297
168 59 158 236 270 190 1 576
Over the remainder of the outlook period (2013 to 2017), most expansions to production capacity are expected to be from new nickel laterite operations in New Caledonia, Madagascar, Papua New Guinea and Myanmar. The increasing scarcity of high-quality and easily accessible sulphide deposits suggests that the trend toward higher exploitation of laterite reserves will continue over the outlook period and beyond (see Box 1).
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New projects scheduled to start up over the outlook period include: Vales VNC (annual capacity of 60 000 tonnes) and Xstratas joint venture Koniambo (60 000 tonnes) projects in New Caledonia; Sherritt Internationals joint venture Ambatovy (60 000 tonnes) project in Madagascar; China Metallurgical Groups Ramu (31 150 tonnes) project in Papua New Guinea; and China Nonferrous Mining Groups Tagaung Taung (22 000 tonnes) project in Myanmar. Mine production in 2017 is projected to increase to 210 000 tonnes in New Caledonia, 45 000 tonnes in Madagascar (ramping up from 2012), 25 000 tonnes in Papua New Guinea (ramping up from 2013) and 19 000 tonnes in Myanmar (ramping up from 2013). By 2017, world nickel mine production is projected to reach 2.3 million tonnes, representing average growth of 3 per cent a year from 2013. Mine production in the Philippines is projected to plateau at around current levels and to decrease slightly in the case of Indonesia. This is expected to be the result of projected moderating nickel pig iron production in China (see below). Despite rumours that Indonesia may introduce an export ban on unprocessed raw materials from 2014, it has been assumed in the preparation of this outlook that this will either not eventuate or will have only a negligible impact on laterite exports from the South-East Asian country. Production increases in Australia over the medium-term are expected to contribute to higher world nickel mine production. The main sources of the increase will be the redevelopment of the Ravensthorpe nickel laterite mine by its new owners First Quantum Minerals, the start up of Norilsk Nickels Honeymoon Well operation, and new production from many smaller operations including Metallica Metals NORNICO and Lucky Break, and Poseidon Nickels Mt Windarra. BHP Billiton recently announced it will be reducing mine production at its Nickel West operation by 30 per cent, with the expectation the reduction will last until early-2013. The effect of this business decision is forecast to be outweighed by the redevelopment of the Ravensthorpe mine, resulting in 2 per cent growth in Australian mine production in 2012, relative to 2011. Over 2013 to 2017, Australian nickel mine production is projected to increase at an annual average of 4 per cent a year to reach 265 000 tonnes.
Box 1: Changing sources of nickellaterite and sulphide ores explained

Nickel is found predominantly in two types of ore bodies: higher content sulphides greater than 10 per cent nickeland lower content lateritesaround 1.5 per cent nickel. Sulphide deposits tend to occur deeper below the surface, where nickel occurs as the compound Pentlandite, (Ni, Fe)9S8. Laterite deposits occur closer to the surfacetypically in tropical regionswith the nickel occurring in oxide compounds (limonites) and silicate compounds (saprolites). Laterite ores are estimated to account for around 70 per cent of the worlds nickel resources, yet only 45 per cent of the worlds annual nickel production is sourced from these ores. This is because nickel sulphides are easier to process and cost less to develop, despite being more difficult to access because of their depth. The development of nickel laterite projects has continued to be high cost and technically difficult despite significant research and development over the past 30 years.
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Nickel sulphide ores are converted to nickel metal using conventional flotation and pyrometallurgical processes. The ore is crushed, ground and undergoes flotation before being smelted to produce nickel matte, which usually contains around 70 per cent nickel. The matte is then further refined either by leaching, roasting or electrorefining. There are two processes by which nickel laterite ores can be converted to metallic nickel: hydrometallurgical and pyrometallurgical.
Hydrometallurgical processes
Hydrometallurgical processes are energy intensive because the ores need to be partially dried before the subsequent phases of the process can begin. However, once the ores are dried, the processes tend to rely on chemical activity such as leaching solutions (using acid or ammonia) at various temperatures and pressures, rather than smelting in furnaces at high heat. These processes usually produce nickel metal (of varying nickel content) as the end product. The main problem with hydrometallurgical processing is the rate of nickel recovery is lower. Typically, maximum economic recovery is around 85 per cent. As a result, ores need to have a relatively higher grade for these processes to be economic. There are several existing hydrometallurgical processes, that include rotary kiln electric refining (RKEF), the Caron process, high pressure acid leaching (HPAL) and heap leaching.
Pyrometallurgical processes
Pyrometallurgical processes (smelting) are more suited to processing saprolite (high clay content) than limonite (high iron content) ores. The process is energy intensive because the ores must be completely dried before they can be processed to prevent steam building up during the smelting process and becoming a safety risk. Typically, ferronickel or nickel matte is produced as the end nickel product. Ferronickel is often used as a direct input into stainless steel manufacturing without further processing. However, nickel matte must undergo leaching, roasting or electrorefining as occurs in the processing of sulphide ores. Irrespective of the method used, it is more expensive both in terms of capital costs and marginal costs to process nickel from laterite ores than sulphide ores. In addition, each laterite ore is unique (e.g. different clay content) because of the rock formation process and, hence, extraction processes must be adapted to each deposit. Laterite production is expected to become increasingly important to world nickel output. For these projects to remain economic and nickel production to increase, prices will need to remain high enough to cover the costs of production at these projects.
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Refined production to follow mine production

In 2011, world refined production is estimated to have increased by 11 per cent; led by strong nickel pig iron production growth in China and the restart of production at some operations in Canada after the resolution of long-standing labour disputes. In 2012 and 2013, world refined production is forecast to grow by 6 and 5 per cent, respectively; reaching just under 1.8 million tonnes by the end of 2013 (see Table 3). Production growth over the short term is forecast to be supported by China (adding 29 00 tonnes over 2012 and 2013), Australia (21 000 tonnes), Japan (17 000 tonnes), Madagascar (13 000 tonnes), New Caledonia (10 000 tonnes) and Brazil (10 000 tonnes). Table 3: World refined nickel production (kt)
2010 Australia Canada China Finland Japan Russian Federation World refined production
2011 110 144 411 49 158 267 1 600
2012 f 134 148 430 52 165 267 1 690
2013 f 131 150 440 55 175 270 1 773
2014 z 130 150 440 57 175 270 1 829
2015 z 129 150 435 60 175 270 1 872
2016 z 130 150 435 62 178 270 1 906
2017 z 130 150 435 65 180 270 1 924
102 105 332 49 166 262 1 446
Over the medium term, growth in refined nickel production is expected to largely mirror growth in mine production. Production from on-site refineries at new operations is projected to underpin average growth of 3 per cent a year over the outlook period. By 2017, world refined nickel production is projected to be 1.9 million tonnes. Australias refined nickel production is projected to grow strongly in 2012 before declining slowly to 130 000 tonnes by 2017. The growth is expected to be supported by the redevelopment of the Ravensthorpe mine by First Quantum and the expected start up of some of Norilsk Nickels Australian operations. China has been rapidly expanding its nickel refining capacity through nickel pig iron. However, this is expected to moderate over the medium term for several reasons. First, as explained in Box 1: Nickel Pig Iron and its impact on the nickel market (REQ December 2011, pp. 6263), nickel pig iron swing production capacity effectively caps the nickel price (although the capping price will rise with input prices, particularly electricity, which accounts for around one quarter of input costs). This means nickel pig iron will still be employed in China for its ease of integration into stainless steel manufacturing, but will predominantly serve as world swing supply.
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Second, the changing mix of stainless steel demand (particularly in China) in favour of the nickel-free ferritic and low nickel martensitic stainless steels will limit the demand for nickel pig iron. Martensitic stainless steel also requires the low nickel (46 per cent) variety of nickel pig iron, which is more expensive to produce compared to the higher (813 per cent) variety. The cost difference arises from the method of production. The low nickel variety is mostly produced in blast furnaces, with current production costs estimated at around US$21 000 a tonne. The higher nickel content nickel pig iron, which is produced primarily in electric arc furnaces, has an estimated production cost of US$15 000 a tonne. Over the outlook period, Chinas refined nickel production is projected to remain relatively flat, totalling 435 000 tonnes in 2017. Flat domestic production is not assumed to adversely impact Chinas exports of stainless steel (which are actually expected to increase over time). Instead, rather Chinas dependence on imported final nickel is assumed to rise (see Figure 3). Figure 3: Chinas refined production, consumption and apparent imports
900 750 600 450 300 150 kt 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 re ned production apparent imports 60 50 40 30 20 10 %
apparent imports as a proportion of consumption (right axis)
Australias exports volumes to increase steadily

In 201112, Australias export volumes are forecast to increase by 16 per cent, relative to 201011, to 243 000 tonnes. The increase in export volumes will be driven largely by higher production from restarted operations, including First Quantum Minerals Ravensthorpe and Norilsk Nickels Lake Johnson, despite lower production at BHP Billitons Nickel West Kwinana refinery. Even with this large increase in export volumes, earnings from nickel are forecast to decrease by 2 per cent to $4 billion, as a result of an expected 20 per cent drop in the Australian dollar nickel price. The lower forecast Australian dollar nickel price is a result of lower forecast world nickel prices and a stronger Australian dollar compared with 201011.
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Over the remainder of the outlook period (201213 to 201617), Australias nickel export volumes are projected to increase at an average annual rate of 4 per cent to reach 300 000 tonnes in 201617 (see Figure 4). The projected increase in nickel export volumes corresponds to higher mine and refined production. Export earnings are projected to increase moderately over the outlook period to total $4.4 billion (in 201112 dollars) in 201617, as projected declines in the Australian dollar nickel price partially offset increases in export volumes. Figure 4:
350 300 250 200 150 kt 1996-97 2000-01 2004-05 volume 2008-09 2012-13 value (right axis) 2016-17
Australias nickel exports

10 8 6 4 2 2011-12 A$b
Sources: BREE; ABS.
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Table 4:
Nickel outlook
2010 2011 1 942 1 600 1 572 172 5.7 2012 f 1 984 1 690 1 656 207 6.5 2013 f 2 039 1 773 1 757 220 6.5 2014 z 2 124 1 829 1 821 227 6.5 2015 z 2 204 1 872 1 870 229 6.4 2016 z 2 255 1 906 1 906 229 6.2 2017 z 2 297 1 924 1 929 224 6.0
World Production mine kt refined kt Consumption kt Stocks kt weeks consumption LME price nominal real b
1 574 1 446 1 464 213 7.6
US$/t USc/lb US$/t USc/lb
21 800 989 23 245 1 054 2009 10
22 854 1 037 23 560 1 069 2010 11 195 101 60 210 4 096 4 233
20 661 937 20 661 937 2011 12 f 219 124 70 243 4 012 4 014
21 268 965 20 874 947 2012 13 f 218 132 83 265 4 590 4 465
20 585 934 20 000 907 2013 14 z 230 131 86 270 4 612 4 362
20 800 943 20 000 907 2014 15 z 241 129 89 273 4 608 4 239
21 225 963 20 150 914 2015 16 z 260 130 102 291 4 862 4 349
21 893 993 20 500 930 2016 17 z 265 130 105 300 5 091 4 429
Australia Production mine c s refined intermediate Export volume d s Export value nominal s real e s
kt kt kt kt A$m A$m
157 120 43 221 3 875 4 129
b In 2012 US dollars. c Nickel content of domestic mine production. d Includes metal content of ores and concentrates, intermediate products and nickel metal. e In 201112 Australian dollars. f BREE forecast. s BREE estimate. z BREE projection. Sources: BREE; ABS; INSG; LME.
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Zinc
Clare Stark
World zinc prices are projected to rise at an average annual rate of 5 per cent over the outlook period to reach US$2664 a tonne (in 2012 dollars) by 2017. Relatively strong consumption growth in developing economies, particularly China, is projected to offset weaker demand growth in the OECD. Australian zinc exports volumes (total metallic content) are projected to increase at an average annual rate of 5 per cent over the outlook period to total around 2 million tonnes by 2017. Reflecting higher export volumes and projected higher world prices, Australian export earnings are projected to increase at an annual average rate of 6 per cent over the outlook period to reach around $2.9 billion (in 201112 Australian dollars) in 2017.
World zinc prices remain volatile

In 2011, zinc prices averaged around US$2195 a tonne, an increase of 2 per cent relative to 2010 (see Figure 1). During 2011, zinc prices were notably volatile, particularly in the second half of 2011, associated with uncertainty over European sovereign debt and the outlook for global economic growth. The volatility in zinc prices has continued in the first two months of 2012 with prices trading between US$1827 a tonne and US$2179 a tonne. For 2012 as a whole, zinc prices are forecast to average US$2075 a tonne, a decrease of 5 per cent compared with 2011. The decrease in price reflects weak growth in zinc consumption associated with an assumed easing of economic growth in most developing economies and weak economic growth in OECD economies. Zinc production is also forecast to increase at a faster rate than consumption as new mines commence production. Accordingly, world zinc stocks are forecast to be equal to 8 weeks of consumption by the end of 2012, an increase of 2 per cent compared with the end of 2011. Figure 1: Quarterly zinc prices
5000 4000 3000 2000 1000 2012 US$/t 1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Sources: BREE, LME.
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Stocks remain above historical levels

London Metal Exchange (LME) stocks during 2011 remained at historically high levels, although stocks fluctuated from a 15 year peak of around 895 000 tonnes in early July to around 736 000 tonnes in early December 2011. Stocks have risen during the first two months of 2012 to average around 840 000 tonnes, significantly higher than the 15 year average of approximately 426 000 tonnes. The higher levels of stocks reflect growth in refined zinc production outpacing consumption in 2011, as well as the emergence of a carry trade where large volumes of metals, including zinc, are used as security for bank lending.
Prices to rise over the outlook period as the market moves towards deficit
Over the remainder of the outlook period (2013 to 2017), zinc prices are projected to increase as consumption growth increases at a faster rate relative to production growth. Zinc consumption is projected to grow at an annual average rate of 4 per cent a year. However, refined zinc production is projected to grow at only 3 per cent a year, with increases in mine and refined capacity partially offset by the closure of a number of large operations. Between 2013 and 2017, zinc prices are projected to increase at an average annual rate of 4 per cent to reach US$2664 a tonne (in 2012 dollars) by 2017 (see Figure 2). Reflecting the market deficit over the second half of the outlook period, zinc stocks are projected to decrease to 1.5 weeks of consumption in 2017, down from a peak of 8 weeks of consumption in 2012. A key risk to the outlook for zinc prices is the timing of new projects starting up production. With a number of large operations scheduled for closure, because of exhaustion of reserves, new projects will be required to replace this capacity. Delays to the start up of new projects could place upward pressure on zinc prices. Figure 2:
4500 4000 3500 3000 2500 2000 1500 1000 500 2012 US$/t 2001 2003 2005 price 2007 2009 2011 2013 2015 2017
Annual zinc prices and stocks

9 8 7 6 5 4 3 2 1 weeks of consumption
stocks (right axis)
Sources: BREE, LME.
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Strong consumption growth over the outlook period

In 2011, world zinc consumption increased by 1 per cent, relative to 2010, to total 12.7 million tonnes and is forecast to grow by a further 5 per cent in 2012 to total 13.3 million tonnes. Over the outlook period, growth in consumption is projected to average around 4 per cent a year, resulting in world consumption increasing to 16.5 million tonnes by 2017. Around half of all world zinc consumption occurs through galvanising, an anticorrosive coating for steel. The extra protection provided by zinc depends on the environment in which the galvanised steel product is used. For example, galvanised steel is estimated to extend the life span of steel by 40 years in urban environments, and by as much as 100 years in a relatively lower polluted, rural environment. These properties, and its lower price compared with stainless steel, enable galvanised steel to be utilised extensively in structural applications such as telecommunications and electricity infrastructure, housing, railways, and bridges. Zinc based alloys for die casting, brass and bronze represent a third of world zinc consumption. These products are widely used in the manufacturing industry for the production of household appliances, electronics, and automobiles. For example, the average car is estimated to contain around 17 kilograms of zinc in the form of galvanised and die cast parts.
underpinned by China and other emerging economies

In recent years, China has emerged as a major consumer of zinc, accounting for 43 per cent of world zinc consumption in 2011 This is a substantial increase compared with 1992 when China accounted for only 8 per cent of zinc consumption (see Figure 3). Over the outlook period, China is likely to maintain, and possibly increase, its share of world zinc consumption as its economy continues to urbanise and industrialise. Other emerging economies, such as India, are also projected to increase zinc consumption.
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Figure 3:
Distribution of world zinc consumption
1992
China Asia ex-China Europe United States
8% 27% 37% 16%
Other America 7% Oceania Africa 2% 2%
2002
19% 26% 29% 13%
2012 f
43% 21% 20% 7%
f BREE forecast Sources: BREE; ILZSG.
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The significant investment in infrastructure required to support the rapid expansion in industrial production in emerging economies over recent years has provided support for world zinc consumption. In China, the government reportedly intends to increase rail capacity by 20 00030 000 kilometres by 2020. The Indian Government has also identified significant investment in expanding and strengthening rail infrastructure, the main transport method for bulk freight in India and that will facilitate the expected growth in Indias industrial production. Substantial public sector investment in infrastructure and housing is expected to contribute to increasing zinc demand over the outlook period. As part of Chinas 12th Five-Year Plan (201115), the Chinese Government has committed to constructing and renovating a substantial amount of housing for low-income households in urban areas, as well as renovating housing in rural areas. Further development of electricity and telecommunication distribution infrastructure to manage with a growing demand for better and higher quality infrastructure in urban areas will also contribute to growth in zinc consumption. The expansion of the middle class in emerging economies, consistent with rising per capita income arising from strong economic growth, is likely to also support demand for consumer durables, such as automobiles and household appliances. In turn, this should increase zinc consumption. Growing demand for motor vehicles has emerged as an important driver of demand for zinc and this growth is expected to continue over the outlook period. Over the outlook period, zinc consumption in China is projected to grow at an annual average rate of around 6 per cent to total approximately 7.8 million tonnes by 2017. Zinc consumption in India is projected to grow at an annual average rate of around 5 per cent to total approximately 756 000 tonnes by 2017.
Moderate growth in OECD economies

In 2012, zinc consumption in the OECD is forecast to increase 6 per cent, compared with 2011, to total 5.2 million tonnes. Increases in consumption in the US and Japan will be partially offset by lower consumption in Europe. Japan's zinc consumption is forecast to increase because of rebuilding activity associated with significant damage to utilities, buildings and infrastructure following the March 2011 earthquakes and tsunami. Growth in US zinc consumption in 2012 is expected to be underpinned by higher manufacturing output, in line with recent increases in capacity utilisation (see Figure 4). Over the remainder of the outlook period (2013 to 2017), zinc consumption in OECD economies is expected to grow at an annual average rate of around 3 per cent to total 5.8 million tonnes by 2017, based on the assumption of ongoing recovery in economic growth.
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Figure 4:
80 78 76 74 72 70 68 66 64 62 %
US manufacturing capacity utilisation
Jan 2008
Jul 2008
Jan 2009
Jul 2009
Jan 2010
Jul 2010
Jan 2011
Jul 2011
Source: US Federal Reserve.
World zinc mine supply increasing steadily

In 2011, world zinc mine production is estimated to have grown by 6 per cent relative to 2010 to total 13 million tonnes. An additional 350 000 tonnes of zinc metal is forecast to be produced in 2012, enabling a 3 per cent rise in total output to 13.4 million tonnes. Increased zinc production in 2012 reflects the start up, in 2011, of Hindustan Zincs Rampura Agucha expansion in India (additional annual capacity of 100 000 tonnes) and Xstrata, BHP Billiton, Teck and Mitsubishis joint venture Antamina mine in Peru (annual capacity of 300 000 tonnes) which were commissioned during 2011.
despite end of mine life closures

From 2013 onwards, the outlook for world zinc production will be influenced by the closures of a number of operations and the timing of replacement capacity. Xstratas Brunswick (annual capacity of 250 000 tonnes) and Perseverance (130 000 tonnes) mines in Canada, MMGs Century mine (500 000 tonnes) in Australia, and Vedantas Lisheen mine (170 000 tonnes) in Ireland, are the major mines scheduled to cease operations as reserves are exhausted. The combined annual capacity of all mines scheduled for closure over the outlook period is around 1.5 million tonnes. In addition, a number of companies are reporting declining ore grades at a number of ageing operations which will result in increased production costs and difficulty in maintaining current production levels. Significant expansions to world zinc production capacity that are currently under construction include Blackthorn Resources and Glencore Internationals Perkoa mine in Burkina Faso (annual capacity of 90 000 to 100 000 tonnes) and Trevali Minings Halfmile Lake mine in Canada (55 000 tonnes).
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Over the outlook period, five large confirmed projects in the Russian Federation, Mexico, Canada, Burkina Faso, and Australia are projected to commence production adding an extra 740 000 tonnes to global capacity. In addition to these developments, a number of smaller projects, amounting to around 370 000 tonnes of zinc, are also expected to be completed. There are some 80 projects currently under consideration across a variety of countries, such as Algeria, Canada, Greenland and Indonesia. Some of these projects have the potential to start up as early as 2013 if regulatory and company approval is received (see Table 1). A number of these projects under consideration are being developed in countries with relatively high levels of sovereign risk. For example, two competing companies claim the right to develop the Mehdiabad project in Iran and each asserts that the Iranian Government has granted them ownership of the deposit. Table 1:
Country Algeria Australia
Selected world zinc mine projects under consideration

Project Oued Amizour Dugald River Kempfield McArthur River (phase 3) Woodlawn Retreatment Project Expected capacity (kt) 200 200 82.8 200 151 250 255 150 95150 175 177 120 400
Canada
Hackett River Howards Pass (Selwyn) Izok Lake
Greenland Indonesia Ireland Kazakhstan South Africa
Citronen Dairi Pallas green Shalkiya Gamsberg
Source: Company websites and reports.
Production in China is mainly based at small mines that have an annual capacity of 50 000 tonnes or less. These projects are highly responsive to price signals, with the ability to rapidly shutdown or restart operation. For example, after a period of sustained higher world zinc prices at the beginning of 2011, Chinese zinc mine production increased by 56 per cent in March 2011, relative to February 2011. Following an 11 per cent decrease in average monthly prices between September and October in 2011, Chinese mine production growth stalled between October and November.
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Over the outlook period, the share of production from small-scale, flexible, mines is expected to increase with an estimated 175 000 tonnes of new capacity to be commissioned. Given that China accounts for around one-third of global zinc production, the ability to rapidly change output has significant implications for world zinc mine supply. In particular, any major changes in world zinc prices over the outlook period could trigger considerable changes in Chinas mine production, which, in turn, could affect world prices. Over the outlook period, the additions to global zinc mine production capacity are expected to more than offset the effect of mine closures and result in an increase in net mine production. Between 2013 and 2017, world zinc production is projected to increase at an average annual rate of 4 per cent to reach 15.8 million tonnes by 2017.
contributing to increased refined production

Refined zinc production in 2011 is estimated to have increased by 2 per cent relative to 2010 to total 13.1 million tonnes. In 2012 world refined zinc production is forecast to increase by 3 per cent to 13.5 million tonnes. This will be supported by the commencement of production at a number of new smelters, particularly in China, which contributed around 400 000 tonnes to global refined capacity in 2011. Over the outlook period, world refined zinc production is projected to increase at an average annual rate of 3 per cent to total 15.8 million tonnes in 2017. Nine confirmed projects in the Republic of Korea, the US, and China, Sweden, Bulgaria, and Italy are expected to contribute approximately 820 000 tonnes to global refined zinc capacity over the remainder of the outlook period. Additionally, there are 20 projects currently under consideration which could potentially commence production over the outlook period.
Australian zinc production to grow

In 201112, Australias zinc mine production is forecast to increase by 6 per cent, relative to 201011 to total 1.57 million tonnes. The increase in production is underpinned by the expansion of production at Xstratas Black Star Open Cut Deeps mine (annual capacity of 120 000 tonnes) and commencement of production at Xstratas Handle Bar Hill mine (88 000 tonnes). The expansion of production at Bass Metals Hellyer mine (55 000 tonnes) and Kagaras Vomacka mine (20 000 tonnes) commissioned during 201011 will also support increased output. Australian zinc mine production is forecast to increase by a further 4 per cent in 201213 to total 1.64 million tonnes. The scheduled expansion of production at Xstratas George Fisher Mine and Perilyas Potosi mine along with the expected commencement of production at CBH Resources Rasp mine, will contribute around 190 000 tonnes additional capacity to support higher production levels.
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Beyond 201213, the scheduled closure of Terramins Angas mine and MMGs Century mine will remove around 560 000 tonnes of capacity from Australian production capacity. However, this will be offset by the scheduled commencement of production at Xstratas Lady Loretta mine (annual capacity of 126 000 tonnes) and the potential commencement of production at a number of mines currently under consideration, including MMGs Dugald River mine (200 000 tonnes).Combined, these developments could contribute up to 770 000 tonnes of capacity to Australian zinc mine production. By 201617, Australian zinc mine production is projected to reach 2 million tonnes. Growth in Australian refined zinc production is expected to be slower than the projected increase in production of concentrates because of capacity constraints. Currently, approximately 540 000 tonnes of refined production capacity has been installed in Australia. After rising by 4 per cent in 201112 to 521 000 tonnes, production is expected to rise by a further 3 per cent to 535 000 tonnes in 201213. Between 201314 and 201617, refined zinc production is projected to remain at capacity.
Australian export volumes and values to increase

In 201112, export volumes of both zinc ores and concentrates and refined zinc are forecast to increase by 2 per cent, compared with 201011, to total 1.5 million tonnes, as a result of increased domestic production. Over the remainder of the outlook period, export volumes are projected to increase at an annual average rate of 5 per cent to reach around 2 million tonnes in 201617, supported by the expansion of production at newly commissioned zinc mines and stable domestic consumption (see Figure 5). Australian export earnings from zinc are expected to decrease by around 8 per cent in 201112 relative to 2010-11 to total $2.2 billion, due to forecast lower world prices and an assumed strong Australian dollar. By 201617, however, Australian export earnings are projected to reach $2.9 billion (in 201112 dollars), a 34 per cent increase in real terms from 201112 levels, as a result of projected higher world prices and much larger export volumes. Figure 5:
2000 1600 1200 800 400 kt 1996-97 2000-01 volume 2004-05 2008-09 2012-13 value (right axis) 2016-17
Australias zinc exports

5 4 3 2 1 2011-12 A$b
Sources: BREE, ABS.
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Table 2:
Zinc outlook
2010 2011 2012 f 2013 f 2014 z 2015 z 2016 z 2017 z
World Production kt mine kt refined kt Consumption kt Closing stocks weeks consumption LME price US$/t nominal USc/lb US$/t real b USc/lb
12 270 12 830 12 572 1 562 6.5 2 158 98 2 301 104 2009 10
13 026 13 062 12 709 1 915 7.8 2 195 100 2 262 103 2010 11 1 479 499 2 317 410 1 494 2 373 2 452
13 374 13 480 13 345 2 050 8.0 2 075 94 2 075 94 2011 12 f 1 574 521 2 312 449 1 525 2 175 2 176
13 636 13 971 13 951 2 070 7.7 2 319 105 2 276 103 2012 13 f 1 637 530 2 407 462 1 591 2 264 2 202
14 195 14 322 14 564 1 828 6.5 2 525 115 2 453 111 2013 14 z 1 784 540 2 719 467 1 743 2 759 2 610
15 040 14 828 15 179 1 478 5.1 2 638 120 2 536 115 2014 15 z 2 003 540 3 181 467 1 960 3 257 2 996
15 520 15 467 15 814 1 131 3.7 2 695 122 2 558 116 2015 16 z 1 862 540 2 885 467 1 821 3 105 2 777
15 785 15 838 16 498 471 1.5 2 845 129 2 664 121 2016 17 z 2 000 540 3 179 467 1 958 3 364 2 926
Australia Mine production Refined production Exports Ore and conc. c Refined Total metallic content Total value nominal real d
kt kt kt kt kt A$m A$m
1 362 515 2 271 425 1 482 2 214 2 359
b In 2012 US dollars. c Quantities refer to gross weight of all ores and concentrates. d In 201112 Australian dollars. f BREE forecast. z BREE projection. Sources: BREE; ABS; ILZSG; WBMS.
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Reviews
vol 1 no 3
A comparison of Australian, OECD and global energy markets

Allison Ball and Kate Penney1*
Introduction
Australias energy market has some key differences to many other OECD countries. Coal plays a much larger role in Australias energy mix, and our energy use is expanding at a faster rate. Renewable energy sources account for a smaller share of Australias electricity generation than the OECD average. Australia is also one of the few net energy exporters in the OECD and plays an important role in meeting global energy needs. This review provides some comparisons between the Australian, OECD and world energy markets. It includes recent trends in energy consumption and electricity generation, fuel mixes, energy intensity, energy use per person, energy production, and energy self sufficiency. All data used in this review were sourced from the International Energy Agency (IEA) 2011 edition of World Energy Balances. There may be some small differences between IEA data for Australia and BREEs recently published Energy in Australia 2012.
Energy consumption is rising in Australia and globally

World total primary energy supply (TPES) has increased on average by 2.2 per cent a year over the past decade, to reach 12 150 million tonnes of oil equivalent in 2009. By contrast, TPES in OECD countries declined by 0.1 per cent a year on average between 2000 and 2009. This was mainly driven by a sharp decline of 4.4 per cent in OECD energy demand in 2009 as the global financial crisis took effect, particularly in the US. Prior to the crisis, TPES in the OECD was increasing slowly by 0.4 per cent a year between 2000 and 2008. Australian TPES rose by 2.2 per cent a year between 2000 and 2009, supported by robust economic and population growth during this period (see Table 1). Australia is the worlds eighteenth largest energy consumer, and accounts for just over 1 per cent of world TPES.
The views expressed in this review are those of the authors alone and are not necessarily those of the Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
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Table 1:
Energy consumption and the economy, 2009

Australia OECD 32 114 1.5 1 225 0.7 5 238 -0.1 0.16 -1.6 4.3 -0.8 World 64 244 3.8 6 761 1.2 12 150 2.2 0.19 -1.6 1.8 0.9
GDP (measured at PPP) Annual growth in GDP, 20002009 Population Annual growth in population, 20002009 Total primary energy supply (TPES) Annual growth in TPES, 20002009 Energy intensity (TPES/GDP) Annual growth in energy intensity, 20002009 Energy use per person (TPES/population) Annual growth in energy use per person, 20002009
2000 US$b % million % Mtoe % toe per 000 2000 US$ PPP % toe %
704 3.0 22 1.5 131 2.2 0.19 -0.8 5.9 0.6
...although energy intensity is falling

Energy intensitythe amount of energy consumed per unit of economic outputhas been declining in Australia (by 0.8 per cent a year between 2000 and 2009) and globally over the past decade (see Figure 1). In Australia, this decline can be attributed to two main factors. First, greater efficiency has been achieved through technological improvement and fuel switching. Second, rapid growth has occurred in less energy intensive sectors, such as the commercial and services sector, relative to more moderate growth of the energy intensive manufacturing and processing sectors. Energy intensity in Australia is higher than the OECD average, although equal to the global average. Figure 1: Energy intensity
0.35 0.30 0.25 0.20 0.15 0.10 0.05 toe per 000 2000 US$PPP
1974
1979
1984 Australia
1989
1994 OECD
1999
2004 World
2009
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Energy consumption per person is higher in Australia

Energy consumption per person in Australia has increased by around 0.6 per cent a year over the period 2000 to 2009. The decline over the same period in the OECD as a whole can be attributed to the effects of the global financial crisis on energy demand. Australia consumed 5.9 tonnes of oil equivalent of energy per person in 2009, which is higher than the OECD and global average (see Figure 2). This reflects the higher concentration of energy intensive industries in Australia compared with many other OECD countries. More generally, energy consumption per person tends to be higher in countries with higher per person incomes, higher rates of cars and appliances per household, greater access to energy, and large industry sectors. Globally, Australia ranks fourteenth on an energy consumption per person basis. Figure 2: Energy consumption per person
7 6 5 4 3 2 1 toe per person
1974
1979
1984 Australia
1989
1994 OECD
1999
2004 World
2009
Coal plays a larger role in Australias fuel mix

Oil is the worlds main energy source, currently accounting for around 33 per cent of TPES, followed by coal (27 per cent) and gas (21 per cent). Renewables account for around 13 per cent of world energy consumption, most of which is bioenergy, with much smaller contributions from hydro, geothermal and wind. This fuel mix has been relatively stable over the past decade, apart from a notable increase in the share of coal at the expense of oil. The use of oil, gas and nuclear power is higher in OECD countries than the global average, with lower contributions from coal and bioenergy. Coal plays a more significant role in Australias energy mix than in other OECD countries and world energy markets, accounting for more than 40 per cent of Australias TPES (see Figure 3). Australias dependence on oil is similar to the world average, while the penetration of gas is similar to that of the OECD and world average, as is that of wind and solar. The use of hydro energy and bioenergy is significantly lower in Australia than in the world energy market. In Australia, the fastest growing energy sources over the past decade have been gas, wind and solar (see Figure 4).
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Figure 3:
Fuel mix in primary energy supply, 2009

45 40 35 30 25 20 15 10 5 % coal oil Australia gas nuclear OECD hydro bioenergy World other renewable
Figure 4:
Annual growth in primary energy supply, 20002009

20 15 10 5 % -5 coal oil gas Australia nuclear hydro OECD bioenergy World other renewable total
...and industry and transport play a larger role in total final energy demand
The transport and industry sectors are the largest users of final energy in Australia, accounting for more than two-thirds of total final energy consumption in 2009. The transport sector is also the largest user of final energy in the OECD. Compared with Australia, the residential sector accounts for a greater proportion of final energy use in the OECD and globally (see Figure 5).
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Figure 5:
Final energy consumption by sector, 2009

40 35 30 25 20 15 10 5 %
industry transport residential commercial & public services agriculture, shing & forestry other
Australia
OECD
World
Wind and gas fired electricity generation is growing in Australia and globally
World gross electricity generation has increased by 3 per cent a year since 2000, to reach 20 055 TWh in 2009. Coal and gas were the largest sources of global electricity generation in 2009, accounting for 40 per cent and 21 per cent, respectively. Nuclear power comprised 13 per cent of world and 22 per cent of OECD electricity generation. Renewables contributed around 19 per cent of global electricity generation, most of which is hydro energy (see Figure 6). Australia relies more heavily on coal for electricity generation than the world and OECD, while in the OECD the balance of base load power generation is largely made up by nuclear and hydro energy. Around three-quarters of Australias electricity is generated using coal, reflecting the relatively low cost of coal in Australia and the abundance of coal reserves along the eastern seaboard where the majority of the electricity is consumed and generated. The use of gas-fired electricity in Australia is lower than both the world and OECD average, although its uptake in Australia has increased at a faster rate over the past decade (see Figure 7). The share of wind and solar powered electricity in Australia is slightly higher than the world average.
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Figure 6:
Fuel mix in electricity generation, 2009

80 70 60 50 40 30 20 10 % coal oil gas Australia nuclear hydro geothermal OECD solar World wind bioenergy
Figure 7:
Annual growth in electricity generation, 20002009

60 50 40 30 20 10 % -10 coal oil gas Australia nuclear hydro OECD solar wind World bioenergy total
although the role of renewables is smaller in Australia

The uptake of renewable energy technologies is expanding, both in Australia and globally, by around 1.5 per cent and 2.3 per cent respectively between 2000 and 2009. However, growth in renewable energy consumption in Australia over the past decade was constrained by the drought and the associated decline in the use of hydro power. The share of renewables in electricity generation in Australia (around 7 per cent in 2009) is significantly lower than the OECD (17 per cent) and global (19 per cent) average (see Table 2). Hydro accounts for a much larger share of OECD and global electricity generation than in Australia, with bioenergy also playing a greater role.
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Table 2:
The role of renewables, 2009

Australia OECD 391.5 7.5 2.4 1809.7 17.4 2.0 World 1592.8 13.1 2.3 3861.1 19.3 3.5
Renewables consumption (TPES) Renewables share of TPES Annual growth in renewables consumption, 20002009 Renewables electricity generation Renewables share of electricity generation Annual growth in renewables generation, 20002009
Mtoe % % TWh % %
7.3 5.6 1.5 19.1 7.3 0.9
Energy production is increasing at a faster rate in Australia

Energy resources are widely dispersed around the world. Some countries are well endowed with a single or multiple energy resources (such as the US, China, the Russian Federation, Canada and Australia), while others have limited domestic resources (such as Japan and the Republic of Korea). World energy production increased at an average annual rate of 2.3 per cent between 2000 and 2009, while energy production in OECD countries declined by 0.1 per cent a year (see Figure 8). By contrast, Australias energy production increased by 3.2 per cent a year over the same period, supported by the development of new coal and gas production capacity. As a result, Australia is the worlds ninth largest energy producer, accounting for around 2.5 per cent of total world energy production. Figure 8: Annual growth in energy production, 20002009
6 5 4 3 2 1 % -1 -2 -3 -4 coal oil gas Australia nuclear hydro OECD geothermal other total
World
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and we can produce most of our energy needs

Production self sufficiency provides an indication of a countrys ability to meet its own energy needs. Between 2000 and 2009, Australias energy production was, on average, sufficient to meet 2.3 times its energy requirements. Over the same period, OECD energy production could only meet around 70 per cent of its members energy needs. The higher self sufficiency ratio for Australia reflects the abundance of energy resources, and Australias relatively lower energy consumption levels compared with other major OECD countries. Given its rich resource endowment, Australia is a major energy exporter and its energy resources plays an important role in meeting regional and global energy needs. Australia is the worlds largest exporter of coal, one of the largest uranium exporters, and is ranked fourth in terms of LNG exports. Australia exports more than two-thirds of its energy production, compared with OECD economies which export 37 per cent of production.
But like other OECD countries, Australia is a net importer of oil

While Australia is more than self sufficient at an aggregate level, it is a net importer of crude oil and refined petroleum products. In line with declining production and growing consumption, Australias oil import dependency has been increasing. However, Australia still exports large quantities of oil relative to its level of consumption. This reflects, in part, the location of Australias crude oil resources and refining capacity. Australia has links to well-established and proven supply chains so increasing import dependency does not necessarily have implications for energy security.
and Australias dependence on oil is growing

In general, the share of oil in TPES has been declining globally, supported by policies to reduce oil dependence (see Figure 9). However, the share of oil in TPES has been increasing in Australia over the last few years supported by strong economic growth, including demand for petroleum products in the energy and resources sectors. Figure 9: Oil as a share of energy consumption
55 50 45 40 35 30 25 % 1974 1979 1984 Australia 1989 1994 OECD 1999 2004 World 2009
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as is Australian dependence on gas

Gas now accounts for around 22 per cent of Australias TPES. The share of gas in the Australian energy mix has been increasing rapidly over the past few decades, driven by environmental concerns, access to large gas resources and ease of use. Gas use in the OECD and world has increased steadily, but at a much slower pace (see Figure 10). With its large gas resources, Australias gas production has exceeded domestic requirements, with the surplus exported to meet growing demand in Asia. The OECD meets around three-quarters of its gas needs through domestic production. This is supported by the output of large gas producers including the US, Norway and Canada. Figure 10: Gas as a share of energy consumption
30 25 20 15 10 5 % 1974 1979 1984 Australia 1989 1994 OECD 1999 2004 World 2009
Conclusions
Many of the recent trends in Australias energy market are also occurring in other OECD countries and globally. This includes growing energy demand but declining energy intensity, and the expansion of gas and wind for electricity generation. But there are also some key differencesmost notably the role of coal in meeting Australias energy demands, a smaller share of renewables in our energy mix, as well as Australias position as a net energy exporter.
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Australia's LNG industry a SWOT analysis

Alan Copeland2*
Over the next five years, the Australian liquefied natural gas (LNG) industry will undergo a fundamental change that will result in production capacity increasing four fold. In 201617, Australias LNG export volumes are projected to increase to 63 million tonnes, rising from 20 million tonnes in 201011. The value of LNG exports in 201617 is projected to reach $26 billion (in 201112 dollars) compared with a value of $11 billion in 201011. Currently, there are two LNG projects operating in Australia, the North West Shelf and Darwin LNG which have a combined production capacity of around 20 million tonnes a year. By the end of this decade, Australias LNG export capacity is expected to exceed 80 million tonnes a year, which could allow it to be the worlds largest LNG exporter. This expansion of capacity is based on 8 projects which are under construction including: Gorgon, Wheatstone, Pluto, Ichthys, Prelude, Queensland Curtis LNG, Australia Pacific LNG and Gladstone LNG. The Pluto project is scheduled to export its first LNG in March 2012. The scale of the LNG expansion in Australia is embodied by the following statistic: around 70 per cent of the worlds LNG capacity currently under construction is located in Australia (see Figure 1). Figure 1: LNG capacity, existing and under construction
300 250 200 150 100 50 Mt existing Australia under construction World
Source: BREE.
The views expressed in this review are those of the author alone and are not necessarily those of the Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
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Using a strengths, weakness, opportunities and threats (SWOT) analysis as a framework, this review aims to assess what has led to the rapid expansion of Australias LNG industry and what the prospects are for future expansions.
Strengths
Extensive gas reserves, low sovereign risk, established reputation and geographical location relative to other potential LNG exporters can explain why Australia accounts for such a significant proportion of the worlds LNG capacity that is under construction. Australias LNG projects are based on large reserves of gas which are capable of supporting LNG production over a period of 40 to 50 years. Furthermore, economic demonstrated gas reserves in Australia have been increasing over the past decade following a number of successful exploration campaigns. These reserves are far greater than what could potentially be consumed domestically and, hence, companies are preparing to export gas (in the form of LNG) to monetise the reserves. Australia enjoys a stable system of government, high levels of personal security, wellestablished property rights, and consistent fiscal and regulatory frameworks that encourage foreign investment. These factors provide projects in Australia with a lower level of sovereign risk relative to competing projects in Western and Northern Africa, Latin America and the Russian Federation. Nationalisation of oil projects or forced changes in ownership in some of these countries have created uncertainty for companies, which in turn makes it less attractive for them to invest in these nations. Over a period of nearly 25 years, Australia has earned a reputation for being a reliable supplier of LNG. Given that a large part of Australias LNG exports are used for electricity generation in Japan, reliability of supply is critical. This reputation has resulted in Japan continuing to increase LNG import volumes from Australia. It has also promoted access to new markets over the past decade including China and the Republic of Korea. An important factor in maintaining reliable supply of LNG is ensuring that Australias two LNG plants are well operated and maintained, and have well trained, skilled and safety-focussed work forces. The availability of skilled workers with an engrained safety focus contributes to the attractiveness of developing projects in Australia. While a shortage of skills has been identified as a risk, the Australian Government has instituted the Enterprise Migration Agreement that allows for skilled workers to be brought in from overseas if local labour is not available. Geographically, Australia is well placed to supply the large existing markets of Japan and the Republic of Korea as well as the emerging Chinese market. Located in the northern parts of Australia, LNG facilities are generally a little over one week shipping time away from north-east Asia. The benefits of the short distance, relative to exporters located in the Middle East or in the Atlantic Basin are two fold. First, the shorter shipping distance (and time) reduces costs associated with fuel and crew costs. Second, it reduces the impact of boil off where the gas content of LNG decreases over time as a result of being pressurised.
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Weaknesses
The main weakness for Australias LNG sector is that it has relatively high construction costs. For example, the Gorgon, Pluto and Wheatstone projects all have a capital cost of $3 billion per million tonne of annual capacity, while the Ichthys project has a cost approaching $4 billion per million tonne of annual capacity. However, the cost intensity of these projects may decrease if additional trains are added as is planned at Gorgon, Pluto and Wheatstone. By comparison, the PNG LNG project in Papua New Guinea has a capital cost of US$2.3 billion per million tonne of annual capacity, while the soon to be completed project Angola LNG project in northern Africa had a cost of below US$1.7 billion per million tonne of annual capacity. While the high cost of projects currently under construction in Australia partly reflects industry wide project inflation over the past few years, Australia is regarded as a high cost project environment. The high costs are a reflection of high labour costs and the strict conditions state and federal governments place on projects to ensure that the projects are sensitive to environmental and community concerns. The location of some of Australias LNG projects also contributes to high costs. Projects located in northern Western Australia are a significant distance from population centres and project proponents are required to pay workers higher wages to attract them from other parts of the country. LNG projects in the Pilbara (Western Australia) and Gladstone (Queensland) are competing for labour with the iron ore and coal industries, which are also undertaking projects to expand capacity. The distance from major population centres also increases transport costs for domestically manufactured products, such as construction materials, and internationally manufactured project-specific components.
Opportunities
Significant opportunities may present themselves for the expansion of the Australian LNG industry beyond projects currently under construction. These opportunities are largely based on the potential increases in Asian LNG import demand and expansions of capacity based on additional LNG trains being built at existing sites. World gas consumption and LNG imports are projected to increase over the next 25 years, particularly into China. The International Energy Agency (IEA) projects that Chinas gas consumption will increase from 10 billion cubic metres in 2009 to 125 billion cubic metres in 2020, and 210 billion cubic metres in 2035. While pipeline imports and domestic production will account for some of this growth, Chinas LNG imports will increase, providing an opportunity for further exports from Australia. Strong growth in Indian and OECD Asian (Japan and the Republic of Korea) gas imports are also projected, some of which will be reliant on LNG imports.
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Further expansions to Australias LNG production capacity are expected to come from existing projects where land has been set aside for additional trains. This includes Curtis Island, Wheatstone, Gorgon, Pluto and Ichthys. The expansions of these brownfield projects will be more cost effective than the initial greenfield developments as many of the approvals are already in place, which increases the attractiveness of further investment in additional capacity in Australia. Over the next five years, as project construction progresses, a significant workforce will be skilled and trained. Companies, the Australian and state governments are implementing a number of programs to ensure there are sufficient numbers of skilled workers available. If LNG project proponents sought to further increase capacity, they would be able to benefit from utilising an existing and well trained workforce.
Threats
The largest threat to the Australian LNG sector in terms of both export competition and price is from shale gas, either in the form of LNG exports from North America or the development of large domestic reserves in countries to which Australia is a major exporter, such as China. Currently the US exports LNG; however this is based on excess LNG imports which are surplus to domestic requirements. At present there are two LNG projects in the US which have regulatory approval to export LNG using shale gas as a feedstock. One of these projects, Cheniere Energys Sabine Pass, has signed offtake agreements with BG Group and Kogas. There are also a number of other shale gas LNG export projects for which approval is being sought. Despite being distant from the growing Asian market, LNG exports from the US may be price competitive with other suppliers into Asia because of the low cost of feed gas and relatively low capital costs for construction of liquefaction facilities. At present, US domestic gas priced at the Henry Hub is trading below US$3 per MMbtu. This is the price that a liquefaction facility such as Sabine Pass would pay for feedstock. Even allowing for liquefaction and transport costs, US LNG exports at this domestic price would be highly profitable given the current Japanese import price of around US$1617 per MMbtu. This price differential provides a significant incentive for US shale gas to be liquefied and exported into Asian markets. Canada is also likely to become an LNG exporter over the medium term. Gas production in Canada has been affected by low prices in the US, where a significant proportion is sold. Canadian gas producers are also investigating the feasibility of piping gas to their west coast for export into the Asian market. There are significant gas reserves located off the coast of west and east Africa and in Russia and the Middle East. The development of the reserves to support LNG production and exports could also represent a threat to future Australian exports. While these countries/regions have significant export potential, they are likely to be realised in the long term rather than in the immediate future.
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Capital costs of constructing a liquefaction plant in the US are expected to be lower than in Australia. Liquefaction plants which are located along the Gulf Coast will be located among oil refineries and other heavy industries where companies can take advantages of existing infrastructure (i.e. pipelines), availability of skilled labour and support industries. Potential new liquefaction plants could be based on existing LNG import terminals, where there is an existing land footprint, and infrastructure such as pipeline networks and storage facilities. Unconventional gas (including shale and coal seam gas) developments in China also present a threat to further growth of the Australian LNG export market. China is targeting a significant increase in gas consumption over the medium and long term. In order to meet increased gas consumption in the medium term, it will import gas via pipeline from central and south eastern Asia, import LNG (including from Australia) and develop domestic natural gas fields. However, over the long term, there is the potential for unconventional gas to become a source of domestic gas supply. At present, the unconventional gas industry in China is in its infancy. Significant exploration activity is currently being undertaken to understand the size and nature of reserves. Even if exploration is successful and unconventional gas reserves similar to those in the US are found, a sizable amount of infrastructure will need to be built to enable gas to be transported from production sites to consumption centres. Chinas unconventional gas production is unlikely to be significant until the end of the decade. However, if over the next decade unconventional gas emerges as a significant source of gas supply within China, it could reduce the likelihood of further large scale LNG capacity expansions in Australia.
The future
Australia is an attractive destination for investment in LNG capacity. Of the global LNG capacity currently under construction, around 70 per cent is located in Australia. Australias appeal as an investment destination lies in the extensive nature of its gas reserves, low sovereign risk, reliable reputation and geographic location. However, Australias LNG industry is still likely to face a number of challenges. Projects are subject to high costs and are many are situated in remote locations, although these challenges can be overcome with careful project planning and aided by an environment with low levels of sovereign risk. Significant opportunities exist for further growth in the industry, supported by growth in LNG import demand in Asia over the next 25 years. However, there remains uncertainty ass to what role unconventional gas will play in meeting increased gas demand in Asia.
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A short history of uranium

John Barber3*
Australia is one of the largest suppliers in the world uranium market and has a leading role in ensuring the sustainable development and continued responsible use of this important energy resource. Australia contains the worlds largest uranium reserves and is currently the third largest producer. Uranium is expected to be an important fuel for electricity generation over the next 25 years underpinned by consumption in China and India. This review provides a historical overview of the Australian uranium industry and how key events in the world nuclear energy industry have affected it. Three periods are examined which are characterised by different rates of growth in reactor numbers and uranium consumption. These include: one, the start up and rapid growth period from 1900 to 1978; two, a period of weaker growth from 1979 to 1995; and three the nuclear renaissance that has been underway since 1996. Concluding comments are presented on the outlook for uranium consumption, particularly in the wake of the Fukushima Daiichi disaster in Japan in early 2011. The main use for uranium is in electricity generation. Nuclear power plants use steam driven turbines to generate electricity in the same way as coal- and gas-fired plants, but use a different heat source. Nuclear power plants use the heat generated from the fission of uranium atoms to create steam whereas other power plants burn coal or gas. Nuclear power currently produces around 14 per cent of the worlds electricity and consumes around 65 000 tonnes of uranium a year. An advantage of nuclear power is that it produces minimal greenhouse gas emissions and requires much smaller quantities of fuel, by weight, relative to fossil electricity plants.
The beginnings of nuclear power (19001978)

Around the start of the twentieth century, small scale dedicated uranium mining commenced at a number of sites around the world particularly in Africa and Eastern Europe. Radium Hill in South Australia became Australias first uranium mine in 1906. In these early days uranium was valued more for its use in the production of radium than in terms of its energy properties. The price of Radium in 1911 was equivalent to $1.7 million per gram (in 2010 dollars). During World War II uranium was used in nuclear applications and for weapons purposes. Though nuclear weapons production escalated considerably after World War II, peaceful applications for nuclear energy, such as electricity generation, were also developed in the 1940s and 1950s. In 1956 the UK opened Calder Hall 1, the first commercial nuclear power plant. Four years later the US opened its first commercial nuclear power plant, Dresden 1. The next two decades saw a rapid expansion in the number of nuclear reactors with 214 opening around the
The views expressed in this review are those of the author alone and are not necessarily those of the Bureau of Resources and Energy Economics nor the Department of Resources, Energy and Tourism.
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world by the end of 1979. The relatively cheap cost of electricity from nuclear reactors was highly appealing in the 1970s with energy consumers feeling the effect of oil price shocks. The strong growth in nuclear power plants saw a corresponding increase in the demand for uranium in the 1970s, from 1968 to 1979 world uranium consumption increased by over 900 per cent to 27 200 tonnes. To supply this market a number of new mines were commissioned around the world, predominantly in Africa, Canada, Australia and the US. Though its ore grades were considerably lower, policies to promote nuclear self sufficiency lead to the US being the largest uranium producer over this time period. Uranium production in Australia re-commenced in the 1950s to meet demand for uranium in the US and UK. Radium Hill re-opened in 1954 and new mines opened such as Rum Jungle in the Northern Territory and Mary Kathleen in Queensland. However, production from these mines ended in the 1960s as their ore bodies were exhausted or their contract for supply expired. The large increases in world uranium demand in the 1970s led to renewed exploration efforts that resulted in the discoveries of uranium deposits in Australia at Ranger, Roxby Downs, Nabarlek, Koongarra and Jabiluka. It would take nearly 10 years for these mining operations to commence at these locations with the Australian Government commissioning a number of inquiries to inform its policy on the mining and exporting of uranium. Over this time the world uranium price increased rapidly, from around $33 per pound (in 2012 dollars) in 1972 to around $160 in 1977. By the early 1980s the uranium price had fallen to just $50 per pound.
The declining growth period (19791995)

Some energy analysts in the 1970s estimated that in the US alone nuclear electricity generations capacity would increase to over 2000 Gigawatts electric by the year 2000. However, by 2010, nuclear electricity generation capacity in the US had reached only 100 Gigawatts because of two incidents between 1979 and 1986. Public safety concerns and changing attitudes towards nuclear energy following reactor malfunctions, at Three Mile Island in 1979 and then Chernobyl in 1986 dramatically changed the growth trajectory of nuclear power generation. On 28 March 1979 a malfunction in the cooling system of reactor two of the Three Mile Island power station caused a partial meltdown that resulted in a minor radiation leak from the power plant. Measurements at the time of the incident indicated that the radiation released was not considered to be at harmful levels, and this was confirmed in subsequent inquiries. While there was considerable damage to the internal reactor, the containment building worked as intended and prevented any damaged fuel from being released. By the end of the incident not a single person had died and within 18 years the Pennsylvania health authorities had not found any evidence of unusual health trends, such as higher cancer rates, in the area. Nevertheless, the incident generated a large amount of fear about nuclear power in the US and other parts of the world.
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The perception of Three Mile Island changed public confidence in the safety and reliability of nuclear energy. As a result, the US Government introduced new safety regulations that led to the delayed start up of a number of power plants that were already under construction, and also stopped issuing new licences. Between 1979 and 2011 there were no new approvals to build reactors in the US. All reactors that started operation after Three Mile Island had received their approvals prior to 1979 (see Figure 1). Figure 1: US nuclear reactor construction and start up
25 20 15 10 5 number 1965 1970 1975 construction starts 1980 1985 reactor starts 1990
In 1979 and 1980 uranium consumption dropped in response to the pause in US reactor start ups. In the two years following the Three Mile Island incident, the uranium price plummeted from $130 per pound at the time of the incident to $60 per pound (in 2012 dollars) two years later. In 1981 world uranium production peaked at around 44 000 tonnes, however by 1983 it had fallen by 16 per cent to 37 000 tonnes. Lower demand and a falling uranium price saw a number of mines reduce their output levels or even close down. On 26 April, 1986 a series of operator errors and equipment malfunctions during systems testing caused a meltdown in unit 4 of the Chernobyl nuclear power plant in the Ukraine (part of the USSR at the time). Unlike Three Mile Island, two explosions exposed the core, releasing radioactive material into the atmosphere and radiation related fatalities occurred for the first time in the history of commercial nuclear power. The events of Chernobyl were magnified by the effects of the radiation being spread across Europe by prevailing winds and concerns over whether the Soviet Union was disclosing sufficient and accurate information about the disaster. In the five years prior to Chernobyl, the number of nuclear reactor start ups had increased, particularly in France, and with the completion of reactors in the US that had been postponed following the Three Mile Island incident. As shown in Figure 2, the number of reactors that opened dropped rapidly after 1986 and is attributable to a large decrease in investment in nuclear power in Western Europe and the US following widespread public fear over the safety of nuclear power.
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Figure 2:
World nuclear reactor start ups

40 35 30 25 20 15 10 5 1975 1980 1985 1990 1995
As a result of Chernobyl, the uranium market entered a slump in the late 1980s and early 1990s. Uranium demand decreased as a result of a slowdown in reactor start ups and there was an increase in supply of secondary uranium from decommissioned nuclear weapons and re-processed nuclear fuel. In 2012 dollars, the world uranium price decreased from an average of US$36 a pound in 1986 to US$19 a pound in 1989 and then US$14 a pound in 1992 (see Figure 3). The decrease in prices during this period resulted in a decrease in world production, from around 37 000 tonnes in 1986 to 23 500 tonnes in 1993. Figure 3: World uranium production and price
50 40 30 20 10 kt 1980 1983 1986 1989 1992 uranium price 1995 uranium production 100 80 60 40 20 2012 US$/lbs
Sources: BREE; The Ux Consulting Company, LLC http://www.uxc.com/.
Developments in world uranium production had major impacts on the Australian uranium mining industry. In 1984 the newly elected Australian Government led by Prime Minister Hawke implemented a three mine policy to limit the production of uranium. The three locations with approval to operate were Nabarlek, and Ranger in the Northern Territory and Olympic Dam in South Australia. At the time, Nabarlek had ceased production and Olympic
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Dam was not scheduled to start operation until the late 1980's. Australia's uranium production reached 4400 tonnes in 1982 and then subsequently fluctuated between 2000 and 4000 tonnes a year between 1983 and 1995. With world uranium prices averaging around US$16 a pound (in 2012 dollars) between 1989 and 1994, there was very little incentive to increased production. As a result it was not until 1996 that Australia's uranium production exceeded levels achieved in 1982 (see Figure 4). Figure 4: Australian uranium production
6000 5000 4000 3000 2000 1000 tonnes 1980 1982 1984 1986 1988 1990 1992 1994 1996
Source: BREE.
The nuclear renaissance (1996present)

Over the past 15 years, there has been a significant increase in uranium consumption which has largely been underpinned by the start up of new reactors in Asia and Eastern Europe. The growth in world uranium consumption since 1996 was driven largely by nuclear reactor start ups in non OECD economies including China, India and throughout Eastern Europe. Between 1996 and 2011 over 40 new reactors opened in Asia (see Figure 5), which represented 70 per cent of all new nuclear reactor start ups over this period. The increase in nuclear electricity generation capacity in Asia over the past 15 years is due to strong growth in electricity demand, moves to cleaner base load electricity fuels, and in the case of China and India, diversification away from a heavy dependence on coal.
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Figure 5:
Reactors start ups in Asia

7 6 5 4 3 2 1
number 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
While uranium consumption increased strongly between 1996 and 2011, production growth remained week until around 2002. Until then, a large proportion of increased demand was sated with supplies from secondary sources, particularly decommissioned nuclear weapons from the Russian Federation. By 2002, concerns within the market began to emerge about the adequacy of uranium production given expectations of robust growth in consumption associated with new reactor start ups. From 2002 onwards, there has been strong growth in production from Kazakhstan following the start up of a number of mines. During the period 19962011, uranium prices peaked in 2007 at US$111 a pound (in 2012 dollars), a ten-fold increase from the price in 2001. The particularly sharp increase in price in 2005 and 2006 (see Figure 6) reflected flooding at the Cigar Lake mine in Canada during its construction phase. The mine, which is now scheduled to re-commence operations in 2014, will be one of the world's largest operations with a uranium production capacity of 4000 tonnes a year. The decrease in uranium prices over the past three years is a reflection of weaker demand associated with the initial effects of the global financial crisis of 200809 and a rapid increase in Kazakhstan's production. Between 2005 and 2009, 15 uranium mines were opened in Kazakhstan resulting in its production increasing from 4400 tonnes in 2005 to almost 18 000 tonnes in 2010. Kazakhstan is currently the largest uranium producer in the world.
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Figure 6:
Annual uranium prices

120 100 80 60 40 20 2012 US$/lb
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Source: The Ux Consulting Company, LLC http://www.uxc.com/.
In Australia, changes to both state and federal government policies on uranium mining and exports after 1996 and a higher uranium price have led to renewed interest in uranium mining. In South Australia, Heathgate Resources Beverley mine in South Australia commenced operations in 2000 and UraniumOnes Honeymoon mine commenced initial production in late 2011. However, over the past three years, growth in Australias uranium production has been below maximum capacity. A mechanical failure in a shaft at Olympic Dam led to lower production in 2009 and 2010 while production at Ranger as been affected by heavy rainfall in 2010 and again in 2011.
The future of nuclear power and the outlook for uranium

On 11 March 2011 a 9.0 magnitude earthquake off of the east coast of Japan caused a 15m tsunami that resulted in tremendous damage and loss of life in the eastern prefectures on Japans Honshu island. Among the damaged buildings was the Fukushima Daiichi power plant, where the tsunami disabled the power supply and cooling systems. Subsequent overheating led to a core meltdown in three reactors and a hydrogen explosion that damaged a fourth reactor that resulted in the release of radioactive materials into the surrounding air and water. At the time, Japan was the worlds third largest producer of nuclear power and consumer of uranium with over 50 reactors in operation. In response to the accident, and growing public concern over the safety of nuclear energy, the Japanese Government ordered all nuclear reactors to undergo stress tests during the next scheduled maintenance window. If the government does not approve the restart of any of its nuclear reactors by May 2012, all of Japans nuclear reactors will be offline. The impact of the Fukushima Daiichi accident was felt almost immediately in the uranium market. The uranium price dropped by 30 per cent between March and August 2011 in response to a number of countries suspending the construction of nuclear power plants. Following the Fukushima Daiichi incident, Germany revised its energy policy and announced the planned closure of eight nuclear reactors.
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While in the short to medium term some of Japans shutdown reactors are expected to restart, it is less clear what role nuclear power will have in Japanese energy policy over the long term. Prior to the Fukushima incident, new nuclear power stations were scheduled to be built over the next decade. At the very least, it is likely that construction on these projects will be significantly delayed. On a global level, the Fukushima incident is unlikely to prevent further growth in uranium consumption. Prior to the accident, much of the growth was expected to occur in China and India. Both of these countries have since their reaffirmed their commitments to nuclear power. In its New Policies Scenario, the International Energy Agency (IEA) projects that Chinas nuclear power generation will increase from 70 Terrawatt hours in 2009 to 956 Terrawatt hours in 2035. To support this increase in output, nuclear electricity generation capacity is projected to increase from 39 to 125 Gigawatts electric. Indias nuclear power industry is also projected to increase rapidly. The IEA projects Indias nuclear generation to increase from 19 Terrawatt hours in 2009 to 184 Terrawatt hours in 2035. Both India and China are pursuing growth in nuclear generation capacity as a means to meet growing electricity demand and also to reduce the emissions intensity of their respective economies. Increases in nuclear power generation in India and China will be accompanied by growth in nuclear power generating capacity in the Republic of Korea, the Russian Federation and Eastern European countries, such as the Ukraine, Bulgaria, Slovakia and Romania. In addition, other countries, such as Vietnam and the United Arab Emirates, are expected to develop a nuclear power industry. The projected increases in nuclear energy production are likely to see strong growth in the demand for uranium. Australia, as the world's largest holder of uranium reserves and the world's third largest uranium producer, has the opportunity to play an expanded role in the uranium market. In particular, there are several large uranium deposits scheduled to be developed over the medium term, most notably Olympic Dam, currently the largest uranium deposit in the world. Government policy, at both the federal and state level, will continue to have an important role in determining the future of Australias uranium industry. Recent announcements, such as the Federal Governments proposal to permit uranium exports to India and the government of New South Wales intention to allow uranium exploration, indicate support for the expansion of the uranium industry. Australia's uranium production and exports are projected to increase to 13 700 tonnes in 201617 from a forecast 7000 tonnes in 201112. Further details on the outlook to 2017 for world and Australian uranium production, consumption and prices are available in the uranium note.
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Statistical tables
vol 1 no 3
Contribution to GDP
Australia
2000-01 $975.5b
Services Building and construction Manufacturing Mining Agriculture, forestry and shing 74% 5.3% 10.3% 7.8% 2.6%
2010-11 $1319b
Services Building and construction Manufacturing Mining Agriculture, forestry and shing 74.4% 7.7% 8.2% 7.4% 2.3%
Principal Markets for Australian Imports in 2010-11 dollars 2000-01 2010-11
Total
$157.2b
United States Japan China Germany Malaysia Singapore New Zealand Other
18.9% 13% 8.4% 5.2% 3.5% 3.3% 3.9% 43.9%
$214.1b
United States Japan China Germany Malaysia Singapore New Zealand Other
10.8% 7.8% 19.2% 4.8% 4.1% 5.3% 3.4% 44%
Resources & Energy
$19.0b
Indonesia Malaysia Singapore Vietnam Other Asia Middle East New Zealand Other
11.9% 6% 6.7% 14.9% 14.4% 20.1% 4.6% 22%
$44.3b
Indonesia Malaysia Singapore Vietnam Other Asia Middle East New Zealand Other
8.2% 9.2% 17.1% 3.6% 15.1% 7.7% 5.2% 33.9%
160
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Principal Markets for Australian Exports in 2010-11 dollars 2000-01 2010-11
Total
$158.8b
Japan China Korea, Rep. of United States New Zealand India Other
19.7% 5.7% 7.7% 9.7% 5.8% 1.7% 38%
$245.7b
Japan China Korea, Rep. of United States New Zealand India Other
19.1% 26.4% 9.2% 3.7% 3.1% 6.4% 24.8%
European Union 27 11.9%
Resources
$43.9b
Japan China Korea, Rep. of Other Asia Thailand India Other
16.2% 6.8% 9.3% 19.7% 2.1% 1.4% 36%
$109.5b
Japan China Korea, Rep. of Other Asia Thailand India Other
12.9% 39.3% 9.2% 8.4% 3.0% 5.7% 16%
Energy
$34.1b
Japan Korea, Rep. of China India Other Asia Other 38.4% 11.4% 2.1% 3.3% 19.4% 18.3%
$69.7b
Japan Korea, Rep. of China India Other Asia Other 35.5% 13.1% 12.9% 11.6% 13.4% 7.2%
vol 1 no 3
Principal markets for Australian resources and energy exports

in 2010-11 dollars, $m
2000-01
2010-11
Thermal Coal
Mexico Malaysia China Chinese Taipei Korea, Rep. of Japan 0 1400 2800 4200 5600 7000
40 63 35
Metallurgical Coal
Brazil Netherlands Chinese Taipei China Korea, Rep. of India Japan 0 1800 3600 5400 7200 9000
58
Oil and Gas

New Zealand Thailand Singapore Korea, Rep. of China Japan 0 1900 3800 5700 7600 9500
15 188
Gold
Hong Kong China Singapore Thailand India United Kingdom 0 900 1800 2700 3600 4500
0
Iron Ore
United Kingdom France Chinese Taipei Korea, Rep. of Japan China 0 8000 16000 24000 32000 40000
87 80 466
Aluminium
Malaysia Indonesia Thailand Chinese Taipei Korea, Rep. of Japan 0 600 1200 1800 2400 3000
Copper
Chinese Taipei Malaysia Korea, Rep. of India Japan China 0 500 1000 1500 2000 2500
162
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Annual Export Summary, Balance of Payments Basis

Australia
200607 $m At current prices Resources and energy Coal, coke and briquettes Other fuels Metalliferous ores and other minerals as Gold Other metals bs Total s Total commodities sector s Other merchandise s Total merchandise s Services Total goods and services Chain volume measures c Resources and energy Coal, coke and briquettes Other fuels Metalliferous ores and other minerals as Gold Other metals bs Total s Total commodities sector s Other merchandise s Total merchandise s Services Total goods and services
200708 $m
200809 $m
200910 $m
201011 $m
201112 f $m
21 928 15 641 36 137 10 740 21 773 106 220 136 619 33 001 169 620 47 175 216 795
24 603 18 889 41 930 12 272 18 211 115 904 145 875 37 047 182 922 50 891 233 813
54 954 20 706 52 733 17 508 14 358 160 259 194 176 37 447 231 623 52 948 284 571
36 777 18 964 54 082 14 300 14 031 138 154 168 630 33 121 201 751 52 011 253 762
44 099 23 619 79 765 14 256 15 963 177 703 212 069 34 884 246 953 50 546 297 499
49 284 25 869 88 462 18 906 14 974 197 494 233 151 na na na na
27 855 16 680 43 588 16 001 14 107 118 231 149 918 28 256 178 174 51 135 228 443
29 585 16 568 47 367 16 500 13 907 123 928 153 155 31 088 184 243 53 651 236 965
30 951 17 523 46 991 18 348 14 358 128 171 159 801 28 175 187 976 54 023 241 051
36 777 18 964 53 994 14 300 13 668 137 703 169 473 32 277 201 750 52 011 253 761
35 277 20 048 55 572 12 767 14 356 138 020 170 972 33 855 204 827 49 540 254 367
37 433 20 268 62 723 14 141 15 227 149 793 188 829 na na na na
a Includes diamonds, which are not included in the balance of payments item by the ABS. b Includes BREE estimates for steel and nickel, which are retained as confidential by the ABS. c For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 200910. s BREE estimate. f BREE forecast. na Not available. Sources: BREE; ABARES; Australian Bureau of Statistics, Balance of Payments and International Investment Position, Australia, cat. no. 5302.0, Canberra.
vol 1 no 3
Exports
Unit export returns

Australia
Annual indexes a Metals and other minerals Energy Total resources and energy
200506 161.9 226.0 186.7
200607 201.5 206.6 204.3
200708 199.8 235.8 214.3
200809 225.8 398.3 290.6
200910 210.3 258.9 229.3
201011 281.2 317.0 295.5
201112 f 265.1 337.8 292.8
a In Australian dollars. Base: 198990 = 100. s BREE estimate. f BREE forecast. Sources: BREE; ABARES.
164
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Exports Exports
3 5
Contribution to exports by sector, balance of payments basis Contribution to exports by sector, balance of payments basis
Australia Australia
Proportion of merchandise exports 201011

other merchandise 14.1% rural a 13.9%
Proportion of exports of goods and services

services 17.0% other merchandise 11.7% rural a 11.6% mineral resources 59.7%
mineral resources 72.0%
200910
other merchandise 16.4%
rural a 15.1%
services 20.5% other merchandise 13.1%
rural a 12% mineral resources 54.4%
mineral resources 68.5%
200809
other merchandise 16.2% mineral resources 69.2% rural a 14.6%
rural a 11.9% mineral resources 56.3%
200708
other merchandise 20.3% mineral resources 63.4%
rural a 16.4%
200607
other merchandise 19.5% mineral resources 62.6%
a Includes farm, forest and sheries products. Sources: Australian Bureau of Statistics; BREE.
rural a 17.9%
vol 1 no 3
Industry gross value
4
Mining
Industry gross value added a, b

Australia
unit 200607 23 138 78 935 7 783 86 446 23 160 9 262 8 400 5 048 18 652 5 673 20 408 19 257 108 703 86 469 26 798 89 888 1 1 201 563 200708 24 742 79 923 8 632 88 193 23 127 9 695 8 071 5 174 19 114 5 926 22 719 19 884 113 062 92 517 26 866 91 668 1 1 246 899 200809 29 109 82 209 8 656 90 508 22 404 8 688 7 457 4 268 17 200 5 890 21 993 18 760 106 363 95 291 27 894 90 827 0 1 263 934 200910 28 764 87 796 8 309 96 106 23 953 7 150 7 736 4 088 17 807 5 783 21 310 19 881 107 707 95 804 28 623 90 335 0 1 293 380 201011 30 854 88 243 9 171 97 413 23 576 6 647 7 567 4 101 17 907 5 608 22 673 19 552 107 633 101 793 28 893 91 106 4 741 1 318 960
Agriculture, forestry and fishing mining (excludes services to mining) exploration and mining support services total Manufacturing food, beverage and tobacco product textile, clothing and other manufacturing wood and paper products printing and recorded media petroleum, coal, chemical, etc, product non-metallic mineral products metal products machinery and equipment total Construction Electricity, gas, water and waste services Taxes less subsidies on products Statistical discrepancy Gross domestic product
$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m
a Chain volume measures, reference year is 200910. b ANZSIC 2006. Source: Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, cat. no. 5206.0, Canberra.
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Production, employment
Volume of production indexes

Australia
200607 Mine a Energy Metals and other minerals Total resources and energy 118.2 124.3 121.1
200708 116.9 124.1 120.4
200809 122.6 119.6 121.1
200910 125.5 123.2 124.4
201011 121.8 138.8 130.3
201112 f 130.6 146.6 138.6
a Uranium is included with energy. s BREE estimate. f BREE forecast. Note: The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers ideal index with a reference year of 199798 = 100. Sources: BREE; ABARES; Australian Bureau of Statistics.
Employment a, b
Australia
200506 000 200607 000 352 27 10 46 53 136 215 51 77 51 92 36 161 342 1 025 8 876 10 388 200708 000 355 26 11 47 62 146 230 50 70 54 98 42 159 360 1 063 9 144 10 708 200809 000 362 35 15 49 72 170 226 48 67 51 90 40 157 348 1 028 9 332 10 892 200910 000 369 41 15 52 66 173 228 46 64 52 88 37 147 343 1 006 9 479 11 027 201011 000 351 48 13 69 75 205 229 45 57 56 85 37 147 336 992 9 806 11 355
Agriculture, forestry and fishing Mining coal oil and gas extraction metal ore other mining (including services) total Manufacturing food, beverages and tobacco textiles, clothing, footwear and leather wood and paper product printing, publishing and recorded media petroleum, coal and chemical product non-metallic mineral product metal product other manufacturing total Other industries Total
348 29 9 42 49 129 205 56 77 52 88 38 161 347 1 025 8 587 10 089
a Average employment over four quarters. b ANZSIC 2006. Caution should be used when using employment statistics at the ANZSIC subdivision and group levels due to estimates that may be subject to sampling variability and standard errors too high for most practical purposes. Source: Australian Bureau of Statistics, Labour Force, Australia, cat. no. 6291.0, Canberra.
vol 1 no 3
Business, banks
Business income
Australia
200607 $m Company profits in selected industries a Mining Manufacturing food, beverages and tobacco textiles, clothing, footwear and leather wood and paper product printing, publishing and recorded media petroleum, coal and chemical product non-metallic mineral product metal product machinery and equipment other manufacturing total Other industries (including services) Total (including services) 40 311 4 532 548 1 085 578 3 859 1 108 10 004 1 640 762 24 116 88 856 153 272
200708 $m 40 184 5 757 501 1 184 620 6 192 1 359 7 924 1 937 851 26 325 99 836 166 325
200809 $m 67 402 6 166 245 667 170 2 159 978 3 781 2 695 637 17 498 73 102 157 986
200910 $m 49 889 8 168 409 615 439 3 676 1 155 2 662 3 383 712 21 219 98 834 169 932
201011 $m 76 563 na na na na na na na na na 20 344 103 016 199 645
a Company profits before income tax, based on ANZSIC 2006. Sources: BREE; Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, cat. no. 5206.0, Canberra; Australian Bureau of Statistics, Company Profits, Australia, cat. no. 5651.0, Canberra; Australian Bureau of Statistics, Business Indicators, Australia, cat. no. 5676.0, Canberra; Australian Bureau of Statistics, Australian Industry, cat. no. 8155.0, Canberra.
All banks lending to business a

Australia
200910 Mar $b Agriculture, fishing and forestry Mining Manufacturing Construction Wholesale, retail trade, transport and storage Finance and insurance Other Total 57.8 14.1 40.8 29.4 91.9 128.7 310.4 673.0 Jun $b 59.1 12.1 39.2 28.2 90.5 133.0 307.3 669.3 Sep $b 58.7 11.3 38.6 28.3 89.3 132.0 306.6 664.7
201011 Dec $b 58.8 11.2 38.2 28.2 92.0 125.0 303.9 657.2 Mar $b 58.6 11.0 40.1 28.7 92.6 121.2 309.0 661.2 Jun $b 60.4 12.1 39.9 28.4 92.5 114.8 307.1 655.2
201112 Sep $b 60.5 13.2 42.1 27.7 95.2 120.1 306.4 665.2 Dec $b 60.1 14.1 42.0 26.8 96.8 120.1 315.3 675.2
a Includes variable and fixed interest rate loans outstanding plus bank bills outstanding. Source: Reserve Bank of Australia, Bank Lending to Business Selected Statistics, Bulletin Statistical Table D8.
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Capital expenditure
Capital expenditure of private enterprises

Australia
200607 $m At current prices Gross fixed capital formation a All sectors New capital expenditure Mining b Manufacturing food, beverages and tobacco textiles, clothing, footwear and leather wood and paper product printing, publishing and recorded media petroleum, coal and chemical product non-metallic mineral product metal product machinery and equipment other manufacturing total Total surveyed industries Chain volume measures c Gross fixed capital formation a All sectors New capital expenditure Mining Manufacturing Other selected industries Total surveyed industries 313 197 25 459 12 662 49 852 88 092
200708 $m
200809 $m
200910 $m
201011 $m
299 100 23 621 2 256 139 759 353 1 767 467 4 761 1 436 58 12 106 87 475
336 357 29 201 2 596 112 928 396 2 126 474 4 137 1 110 164 12 340 96 833
351 111 37 977 2 492 118 897 450 2 239 609 4 608 1 160 108 12 682 113 201
356 035 35 185 2 566 140 719 452 2 207 731 3 689 1 112 126 11 743 107 104
371 147 47 247 2 882 70 610 187 2 320 806 4 017 1 340 111 12 343 119 741
343 308 30 542 13 030 54 930 98 505
348 082 37 627 12 627 60 500 110 709
356 034 35 184 11 743 60 177 107 106
370 528 47 313 12 712 62 051 122 077
a Estimates taken from ABS national accounts, which include taxation-based statistics. b ANZSIC 2006 Division B. c Reference year is 200910. Sources: BREE; ABARES; Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, cat. no. 5206.0, Canberra; Australian Bureau of Statistics, Private New Capital Expenditure and Expected Expenditure, Australia, cat. no. 5625.0, Canberra.
vol 1 no 3
Mineral exploration
10
Private mineral exploration expenditure

Australia
200506 $m At current prices Energy Petroleum onshore offshore total Coal Uranium Total Metals and other minerals a Gold Iron ore Base metals, silver and cobalt b Mineral sands Diamonds Other Total metals and other minerals a Total expenditure
200607 $m
200708 $m
200809 $m
200910 $m
201011 $m
355.8 906.1 1 261.9 166.4 56.1 1 484.4 399.6 161.3 356.7 29.2 22.6 48.8 1 018.2 2 502.6
498.2 1727.3 2 225.5 193.2 114.1 2 532.8 455.9 285.4 555.0 37.3 26.9 46.8 1 407.3 3 940.1
493.8 2 541.1 3 034.9 234.8 231.5 3 501.2 592.6 449.8 783.2 37.0 21.7 110.8 1 995.1 5 496.3
492.3 3 318.4 3 810.7 297.3 185.2 4 293.2 438.0 588.7 519.1 30.6 10.0 154.3 1 740.7 6 033.9
748.6 2 745.5 3 494.1 321.2 169.1 3 984.4 575.4 524.1 457.2 na na 147.2 1 742.3 5 726.7
756.5 2 558.9 3 315.4 519.7 213.9 4 049.0 652.2 665.0 669.5 na na 196.2 2 217.7 6 266.7
a Uranium is included with energy. b Base metals include copper, lead, nickel and zinc. Source: Australian Bureau of Statistics, Mineral and Petroleum Exploration, Australia, cat. no. 8412.0, Canberra.
170
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March quarter 2012
World prices
11
Annual world indicator prices of selected commodities

unit 200607 200708 200809 200910 201011 201112 f
Energy Crude oil Dubai West Texas Intermediate Brent dated Uranium (U3O8) a Minerals and metals b Aluminium Copper Gold c Iron ore (negotiated) d Lead Manganese (negotiated) e Nickel Silver Tin Zinc
US$/bbl US$/bbl US$/bbl US$/lb US$/t US$/t US$/oz USc/dmtu US$/t US$/t US$/t USc/oz US$/t US$/t
61.2 63.4 64.0 81.15 2 692 7 087 639 73 1 693 258.2 37 909 1 274 11 455 3 723
90.4 96.8 95.2 80.75 2 665 7 791 823 80 2 904 540.9 28 564 1 544 18 529 2 606
68.5 70.3 68.8 51.25 1 781 4 936 874 145 1 459 1 340.1 13 322 1 289 13 576 1 403
74.2 75.2 74.5 43.81 2 017 6 634 1 092 97 2 093 544.9 19 390 1 688 16 202 2 066
92.2 89.3 96.0 57.13 2 379 8 665 1 372 180 2 392 768.0 23 963 2 880 23 960 2 243
104.7 96.6 112.8 51.88 2 286 8 301 1 715 230 2 185 na 20 171 3 465 20 011 2 046
a Average of weekly restricted spot prices over the period, published by Ux Consulting. b Average LME spot price unless otherwise stated. c London gold fix, London Bullion Market Association. d Australian hematite fines to Japan (fob) for Japanese Fiscal Year commencing 1 April. BREE AustraliaJapan average contract price assessment. e Japanese Fiscal Year commencing 1 April. f BREE forecast. na Not available. Sources: BREE; Australian Bureau of Statistics; International Energy Agency; ISTA Mielke and Co.; London Bullion Market Association; The London Metal Exchange Ltd; Reuters Ltd; Ux Consulting Company; Platts Oilgram; US Department of Energy; World Bureau of Metal Statistics.
vol 1 no 3
World
12
World production, consumption, stocks and trade for selected commodities a

unit 2007 2008 2009 2010 2011 2012 f
Energy Crude oil Production world b OPEC c Consumption b Coal Production hard coal d brown coal Exports metallurgical coal thermal coal Uranium (U3O8) Production es Consumption Metals Bauxite production Alumina production Aluminium production consumption closing stocks g Iron and steel Production iron ore h pig iron crude steel Iron ore trade Gold Mine production Supply Fabrication consumption i
mbd mbd mbd
85.7 34.9 86.5
86.5 35.8 86.2
85.6 34.1 85.6
87.4 34.8 88.3
88.5 35.8 89.1
89.8 36.2 89.8
Mt Mt Mt Mt
5 306 954 227 696
5 653 965 234 704
5 842 913 220 721
6 020 930 273 794
6 225 935 271 836
6 443 954 297 872
kt kt
48.6 77.7
53.5 76.2
53.3 77.2
55.2 79.8
56.6 73.8
58.2 77.3
kt kt kt kt kt
209 014 74 120 38 186 37 409 2 961
217 469 77 564 39 669 36 904 4 709
193 038 73 667 37 198 34 764 6 485
203 460 81 023 41 093 39 657 6 501
243 673 87 026 43 513 41 795 7 098
247 478 88 385 44 192 43 603 7 687
Mt Mt Mt Mt t t t
1 699 946 1 344 823 2 476 3 942 3 102
1 693 927 1 330 889 2 408 3 959 3 023
1 588 900 1 220 955 2 589 4 318 2 511
1 815 1 020 1 415 1 055 2 689 4 261 2 779
2 080 1 133 1 511 1 073 2 752 3 934 2 766
2 144 1 193 1 585 1 138 2 842 3 914 2 784

Continued
172
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March quarter 2012
World
12
World production, consumption, stocks and trade for selected commodities a

continued
unit Base metals Copper production j consumption closing stocks Lead production j consumption closing stocks Nickel production j consumption closing stocks Tin production j consumption closing stocks Zinc production j consumption closing stocks Mineral sands Production ilmenite k titaniferous slag rutile concentrate zircon concentrate
2007
2008
2009
2010
2011
2012 f
kt kt kt kt kt kt kt kt kt kt kt kt kt kt kt
18 044 18 143 682 8 351 8 367 268 1 419 1 326 125 349 357 35 11 345 11 232 638
18 497 18 138 845 9 075 9 072 307 1 382 1 278 155 332 337 32 11 778 11 565 820
18 605 18 153 1 125 9 054 9 069 390 1 322 1 241 234 333 322 46 11 286 10 920 1 217
19 222 19 204 1 017 9 682 9 683 447 1 446 1 464 213 352 368 16 12 830 12 572 1 562
19 578 19 508 957 10 372 10 216 623 1 600 1 572 172 369 375 5 13 062 12 709 1 915
20 329 20 420 866 10 653 10 556 720 1 690 1 656 207 369 375 45 13 480 13 345 2 050
kt kt kt kt
12 117 2 670 610 1 367
11 422 2 695 615 1 282
9 881 2 247 572 1 067
11 470 2 749 708 1 338
11 310 2 545 679 1 442
11 614 2 610 639 1 376
a Some figures are not based on precise or complete analyses. b 1 million litres (1 megalitre) a year equals about 17.2 barrels a day. c Includes OPEC natural gas liquids. d Includes anthracite and bituminous coal, and for the United States, Australia and New Zealand, sub-bituminous coal. e World production data have been revised to exclude reprocessed uranium. g LME and producer stocks. h Chinas iron ore production adjusted to world average. i Includes jewellery consumption. j Primary refined metal. k Excludes some small producers and large tonnages produced from ilmenitemagnetite ore in the Commonwealth of Independent States. s BREE estimate. f BREE forecast. na Not available. Sources: BREE; ABARES; Australian Bureau of Statistics; Consolidated Gold Fields; Economic Commission for Europe; Gold Fields Mineral Services; International Atomic Energy Agency; International Energy Agency; International Iron and Steel Institute; International LeadZinc Study Group; International Nickel Study Group; ISTA Mielke and Co.; Metallgesellschaft A.G.; UNCTAD Trust Fund on Iron Ore; United Nations; World Bureau of Metal Statistics.
vol 1 no 3
Australia production
13
Commodity production
Australia
unit 200607 200708 200809 200910 201011 201112 f
Energy Coal black, saleable black, raw brown Petroleum crude oil and condensate petroleum products a gas b LPG (naturally occurring) Uranium (U3O8) Metalliferous minerals and metals Aluminium bauxite alumina aluminium (ingot metal) Copper mine production d refined, primary Gold mine production d Iron and steel ore and concentrate e iron and steel Lead mine production d refined g bullion Manganese ore, metallurgical grade metal content of ore Nickel h mine production d refined, class I s refined, class II i total ore processed j
Mt Mt Mt ML ML Gm3 ML t
325.4 417.0 65.6 27 651 k 38 795 40.8 4 550 9 589
326.2 422.8 66.0 25 610 k 39 575 41.7 3 971 10 123
339.6 446.2 68.3 26 407 k 39 546 44.5 3 930 10 311
362.5 466.9 68.8 25 583 k 37 200 50.1 4 097 7 109
344.8 s 453.4 s 65.7 24 752 k 38 393 53.1 3 907 7 069
378.0 500.9 na 23 690 37 993 55.9 3 915 7 079
Mt kt kt kt kt t Mt Mt kt kt kt kt kt kt kt kt kt
62.7 18 506 1 954 859 435 250.8 287.7 8.0 642 191 114 5 046 2 037 191 104 15 225
63.5 19 359 1 964 847 444 229.7 324.7 8.2 641 203 152 5 428 2 188 190 105 15 222
64.1 19 597 1 974 890 499 217.9 353.2 5.6 596 213 155 3 730 1 504 185 95 15 213
67.8 20 056 1 920 819 395 239.7 423.4 6.9 617 189 148 5 795 2 365 157 114 6 196
68.5 19 544 1 938 952 485 265.1 450.0 7.3 697 190 133 6 784 2 756 195 90 10 232
71.0 20 474 1 936 1 025 487 268.0 504.3 5.3 707 194 152 7 204 2 960 219 110 15 269
Continued
174
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Australia production
13
Commodity production
Australia
unit
continued
200607
200708
200809
200910
201011
201112 f
Metalliferous minerals and metals (continued) Silver mine production d t refined t Tin mine production d t refined t Titanium kt ilmenite concentrate s kt leucoxene concentrate s kt rutile concentrate s synthetic rutile s kt titanium dioxide pigment s kt Zinc mine production d kt refined kt kt Zircon concentrate s Other minerals Diamonds Salt 000 ct kt
1 674 618 2 061 321 2 383 169 279 729 207 1 375 496 564 24 632 11 229
1 867 605 1 767 na 2 205 153 332 672 201 1 571 507 563 16 528 9 826
1 764 751 4 045 na 1 932 117 285 732 214 1 411 506 485 15 169 11 314
1 809 701 19 829 na 1 398 123 361 553 222 1 362 515 408 11 138 11 772
1 792 712 18 410 s na 1 275 200 467 542 204 1 479 499 674 8 027 11 562 s
1 905 883 9 202 na 1 298 228 482 519 204 1 574 521 698 10 168 11 413
a Excludes production from petrochemical plants. b Includes ethane, methane and coal seam gas. c Uranium is included with energy. d Primary production, metal content. e Excludes iron oxide not intended for metal extraction. g Includes lead content of lead alloys from primary sources. h Products with a nickel content of 99 per cent or more. Includes electrolytic nickel, pellets, briquettes and powder. i Products with a nickel content of less than 99 per cent. Includes ferronickel, nickel oxides and oxide sinter. j Includes imported ore for further processing. k Energy Quest. s BREE estimate. f BREE forecast. Sources: BREE; ABARES; Australian Bureau of Statistics; Consolidated Gold Fields; Coal Services Pty Limited; Department of Resources, Energy and Tourism; Energy Quest; International Nickel Study Group; Queensland Government, Department of Natural Resources and Mines.
vol 1 no 3
Export volumes
14
Volume of commodity exports

Australia
unit 200607 200708 200809 200910 201011 201112 f
Resources and energy Resources Metalliferous minerals and metals c Aluminium alumina kt aluminium (ingot metal) kt Copper kt ore and concentrate d refined kt t Gold e Iron and steel iron ore and pellets Mt iron and steel g kt Lead ores and concentrates kt refined kt bullion kt kt Manganese d kt Nickel es Titanium kt ilmenite concentrate h leucoxene concentrate kt rutile concentrate kt kt synthetic rutile s titanium dioxide pigment kt Refined silver t t Tin e Zinc kt ores and concentrates d refined kt kt Zircon concentrate i Other minerals Diamonds Salt Energy Crude oil a LPG LNG bs Petroleum products Metallurgical coal Thermal coal Uranium (U3O8) 000 ct kt ML ML Mt ML Mt Mt t
15 056 1 638 1 493 290 400 257 2 648 422 215 112 4 667 207 999 134 307 508 171 431 1 867 1 948 374 555 24 632 10 749 15 965 2 824 14 1 752 132 112 9 519
15 739 1 650 1 694 296 382 294 2 131 308 193 169 5 105 211 894 69 399 513 175 335 3 079 2 323 411 637 16 528 10 686 15 975 2 589 14 1 807 137 115 10 139
16 395 1 748 1 797 361 437 324 1 741 381 261 147 3 226 194 1 538 61 550 512 141 423 4 159 2 101 451 685 16 279 10 978 16 588 2 500 15 1 164 125 136 10 114
16 653 1 624 1 928 271 335 390 1 549 491 186 151 5 648 221 1 763 18 575 513 181 420 6 031 2 271 425 748 10 355 11 185 18 064 2 776 18 850 157 135 7 555 s
16 227 1 686 1 750 375 301 407 1 785 494 213 93 6 190 210 1 804 27 491 517 195 198 5 431 2 317 410 963 9 900 11 162 19 638 2 471 20 760 140 143 6 950 s
16 816 1 701 2 020 383 331 473 1 185 475 233 147 6 841 243 2 045 31 356 562 189 353 5 343 2 312 449 849 11 526 10 884 18 944 2 281 20 804 148 162 7 079
a Includes condensate and other refinery feedstock. b 1 million tonnes of LNG equals aprroximately1.31 billion cubic metres of gas. c Uranium is included with energy. d Quantities refer to gross weight of all ores and concentrates. e Quantities refer to total metallic content of all ores, concentrates, intermediate products and refined metal. g Includes all steel items in ABS, Australian Harmonized Export Commodity Classification, ch. 72, Iron and steel, excluding ferrous waste and scrap and ferroalloys. h Excludes leucoxene and synthetic rutile. i Data from 199192 refer to standard grade zircon only. s BREE estimate. f BREE forecast. Sources: BREE; ABARES; Australian Bureau of Statistics, International Trade, Australia, cat. no. 5465.0, Canberra; Australian Mining Industry Council; Department of Foreign Affairs and Trade; Department of Resources, Energy and Tourism; International Nickel Study Group.
176
vol 1 no 3
March quarter 2012
Export values
15
Value of commodity exports (fob)

Australia
200607 $m Resources Metalliferous minerals and metals Aluminium bauxite s alumina aluminium (ingot metal) Copper c ore and concentrate refined Gold c Iron and steel iron ore and pellets iron and steel Lead c ores and concentrates refined bullion Manganese ore s Titanium ilmenite concentrate d leucoxene concentrate rutile concentrate synthetic rutile s titanium dioxide pigment Nickel s Refined silver Tin c Zinc c ores and concentrates refined Zircon concentrate e Total metalliferous minerals and metal Other minerals Diamonds s Salt Other Total other minerals Total resources
200708 $m
200809 $m
200910 $m
201011 $m
201112 f $m
108 6 243 5 650 3 914 2 612 10 320 15 512 1 743 855 457 268 482 113 42 259 361 408 7 912 221 25 2 590 1 707 478 62 280 726 239 4 843 5 808 68 088
206 5 809 4 967 4 151 2 579 10 903 20 511 1 562 757 674 595 1 532 104 23 277 305 375 5 412 187 42 2 031 1 319 421 64 745 625 232 6 169 7 026 71 771
192 6 015 4 724 3 618 2 245 16 146 34 239 1 363 645 560 432 1 406 171 37 335 258 396 2 717 245 70 935 923 540 78 212 676 237 4 778 5 691 83 903
178 4 969 3 838 4 526 1 980 12 996 35 075 1 120 998 425 409 1 395 197 11 382 269 448 3 875 254 101 1 237 977 370 76 031 471 247 5 241 5 959 81 990
229 5 218 4 178 5 130 3 292 13 016 58 387 1 303 1 301 511 248 1 407 198 17 390 315 527 4 096 164 126 1 479 893 532 102 955 366 251 5 969 6 586 109 541
282 5 970 3 803 5 942 3 106 17 265 59 708 886 1 167 510 410 1 312 225 22 256 309 584 4 012 375 106 1 280 895 340 108 764 421 245 12 509 13 175 121 939
Continued
vol 1 no 3
Export values
15
Value of commodity exports (fob)

Australia
continued
200607 $m Energy Crude oil a LPG LNG Bunker fuel b Other petroleum products Metallurgical coal Thermal coal Uranium (U3O8) Total energy derived as sum of above on balance of payments basis (excl. bunker fuel) Total resources and energy exports Derived as sum of above On balance of payments g Total agricultural exports At current prices On balance of payments g Total commodity exports h Derived as sum of above On balance of payments g 8 317 1 038 5 222 1 295 1 098 15 039 6 758 660 39 427 37 569 107 515 106 220 31 748 30 400 139 263 136 619
200708 $m 10 484 1 182 5 854 1 457 1 323 16 038 8 365 887 45 591 43 492 117 362 115 904 31 340 29 971 148 702 145 875
200809 $m 8 757 1 044 10 079 1 537 788 36 813 17 885 990 77 892 75 660 161 796 160 259 35 905 33 917 197 701 194 176
200910 $m 9 534 1 105 7 789 1 315 566 24 526 11 886 757 s 57 478 55 741 139 468 138 154 32 082 30 476 171 551 168 630
201011 $m 11 772 1 068 10 437 1 508 526 29 793 13 956 610 s 69 670 67 718 179 211 177 703 36 079 34 366 215 290 212 069
201112 f $m 12 621 1 040 11 647 1 672 601 31 094 17 845 707 77 227 75 153 199 166 197 494 38 017 35 657 237 183 233 151
a Includes condensate and other refinery feedstock. b International ships and aircraft stores. c Value of metals contained in host mine and smelter products are not available separately and are included in the value of the mineral product or metal in which they are exported. d Excludes leucoxene and synthetic rutile; data from 199192 refer to bulk ilmenite only. e Data refer to standard grade zircon only. g As derived in table 1. h Sum of resources, energy and agricultural commodity exports. s BREE estimate. f BREE forecast. Sources: BREE; ABARES; Australian Bureau of Statistics, International Trade, Australia, cat. no. 5465.0, Canberra; Department of Resources, Energy and Tourism.
178
vol 1 no 3
March quarter 2012
Import values
16
Value of selected commodity imports

Australia
200607 $m Resources and energy aluminium (ingot metal) diamonds ferroalloys gold (refined and unrefined) ingot steel iron ore petroleum crude oil a natural gas petroleum products b phosphate rock phosphates silver other Total resources and energy 11 397 116 5 309 2 479 338 13 360 800 7 784 32 267 98 707 31 698
200708 $m 10 444 154 7 311 2 225 311 17 149 724 12 730 80 778 80 483 42 479
200809 $m 10 417 181 11 250 3 191 269 14 727 2 166 13 129 193 549 223 794 47 098
200910 $m 27 442 118 7 739 1 889 259 15 031 1 219 11 296 10 347 107 1 183 39 666
201011 $m 18 397 127 5 426 2 121 417 19 578 1 929 12 050 57 628 490 859 44 097
a Includes condensate and other refinery feedstock. b Includes LPG. Sources: BREE; Australian Bureau of Statistics, International Trade, Australia, cat. no. 5465.0, Canberra.
vol 1 no 3
BREE Contacts
Executive Director / Chief Economist BREE Quentin Grafton Micro & Industry Performance Analysis Theme Leader Macro & Markets Analysis Theme Leader Resources Program Program Leader Alan Copeland alan.copeland@bree.gov.au (02) 6243 7501 Jin Liu jin.liu@bree.gov.au (02) 6243 7513 Arif Syed arif.syed@bree.gov.au (02) 6243 7504 quentin.grafton@bree.gov.au (02) 6276 1000
Quantitative Economic Analysis Program Leader Energy Program Program Leader Data & Statistics Program Program Leader Geoff Armitage geoff.armitage@bree.gov.au (02) 6243 7510 Allison Ball allison.ball@bree.gov.au (02) 6243 7500 Nhu Che nhu.che@bree.gov.au (02) 6243 7539
Resources and Energy Quarterly, March Quarter 2012

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Resources and Energy Quarterly

March Quarter 2012

Resources and Energy Quarterly

March quarter 2012

2 Resources and Energy Quarterly

March quarter 2012

Quentin Grafton Executive Director/Chief Economist March 2012

Resources and Energy Quarterly

March quarter 2012 3

4 Resources and Energy Quarterly

March quarter 2012

Acronyms and abbreviations

Resources and Energy Quarterly

March quarter 2012 5

Macroeconomic outlook and energy and minerals overview

The global economy: stalled recovery in Europe and elevated risks

6 Resources and Energy Quarterly

March quarter 2012

World economic growth

Sources: BREE; ABARES.

Resources and Energy Quarterly

March quarter 2012 7

Key macroeconomic assumptions for resources and energy

7.9 16.0 15.7

2.8 3.5 9.9

3.0 7.1 8.8

4.2 6.7 9.5

4.6 6.5 9.4

4.6 4.8 9.5

4.5 4.4 9.5

4.5 4.4 9.5

8 Resources and Energy Quarterly

March quarter 2012

Economic prospects in Australias major mining export markets

Resources and Energy Quarterly

March quarter 2012 9

Economic growth in Australias major resource and energy export markets

f BREE forecast. z BREE projection. Source: BREE

10 Resources and Energy Quarterly

March quarter 2012

Box 1: Fiscal consolidation: Implications for economic growth and demand

Resources and Energy Quarterly

March quarter 2012 11

12 Resources and Energy Quarterly

March quarter 2012

Resources and Energy Quarterly

March quarter 2012 13

Quarterly index of bulk commodity prices

index Dec-00=100 2001

2017 Iron ore

Demand for resources and energy commodities

14 Resources and Energy Quarterly

March quarter 2012

Supply of resources and energy commodities

Australias economic prospects

Resources and Energy Quarterly

March quarter 2012 15

16 Resources and Energy Quarterly

March quarter 2012

The Australian mining sector

Resources and Energy Quarterly

March quarter 2012 17

Investment in private new capital expenditure

BRE Resources & Energy Quarterly (March 2012)

BRE Resources & Energy Quarterly (March 2012)