Maintaining a growing pipeline of major project work requires shifting currently unfunded projects into the funded category, as well as growing the value of the pipeline overall. While the most likely scenario for major project work excludes “unlikely” projects, these are included to show their potential impact on major project work, particularly later in the forecast.
The analysis is based on a considered view of both funded and unfunded projects. The funded forecast view is similar to a “worst case scenario” outlook, should international developments or public sector finances deteriorate significantly, or the combination of threats to the Queensland construction industry remain unaddressed.
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Projects considered not to occur in the next five years, even if announced. There are $4.6b in unlikely projects in the pipeline.
Projects considered likely to occur over the next five years but not yet formally proposed. There are $7.5b in prospective projects in the pipeline.
Projects that are supported by governments and/or the private sector but still in prefeasibility/business case mode and therefore do not have funding committed. There are $11b in credibly proposed projects in the pipeline.
Projects which have funding support but have not yet entered the procurement stage (as at January 2020). There are $9.6b in announced projects in the pipeline.
Projects in a procurement stage but have not yet started construction (as at January 2020). There are $3.1b in projects under procurement in the pipeline.
Projects under construction or completed 2019/20. There are $14.7b in projects currently under construction in the pipeline.
This is a consequence of improved visibility on upcoming projects, of which most unfunded projects are focused in coal. In transport, the Australian Government’s $1.9bn package announced in November 2019 has expedited project timings and offset the decrease in funded projects in other sectors.
Activity in 2019/20 is expected to reach $6.6bn which is $391m lower than 2018/19. $727m of this figure remains unfunded work for 2019/20, and while this is significant, it is unlikely to be as severe as previously predicted.
Total major project activity rises to 2022/23, with total work done reaching a $12.9bn peak in that year. However, the growth profile is dominated by unfunded works, making up 60% of major project activity at the 2022/23 peak.
After peaking at $7bn in 2018/19, funded work falls to $5.9 billion over 2019/20 and 2020/21. Funded work rises to $6.9bn in 2021/22, driven by rail and resources projects, but eases again in the latter years of the projection.
In 2018/19, around 23% of major project work was on projects valued between $50-200m. By 2023/24, this falls to just 5%, with nearly half of all major project activity based on projects worth over $1 billion. The falling share of $50-200 million projects is cause for concern as these projects tend to support a large number of highly competitive construction contractors which form the backbone for the industry.
Overall declining levels of major project activity indicates industry has the capacity and capability to take on new work, although sectors such as rail may experience constraints earlier than others. A strong upswing in resources-related activity – if it does take hold – also presents capacity and capability risks for regional Queensland.
Work done is expected to increase from $455m in 2019/20 to $3.4bn by 2021/22, led by simultaneous work on Cross River Rail, Inland Rail and the European Train Control System, amongst other projects. 83% of rail work in the 5-year pipeline is currently funded, however capacity and capability is a risk given the national rail investment underway.
Non-water utilities activity, comprising mostly electricity and telecommunications work, is expected to suffer the most. Major project activity declines from $2bn in work done in 2018/19 to just $56m in 2023/24. This is a consequence of major project completions, such as the National Broadband Network (NBN), with no large replacements in the pipeline to compensate.
Water and sewerage major project work rises from $488m in 2019/20 to $1.1bn by 2022/23, with resources and heavy industry activity rising from $1.6b in 2019/20 to $2.99bn by 2022/23. At their respective peaks, however,74% of water and sewerage projects (principally dams) and 91%% of resources and heavy industry projects remain unfunded.
This is because road and rail are the only sectors with more than 50% of activity funded beyond 2021/22. In turn, this highlights the high share of publicly funded work in the pipeline and the need to address constraints which may be holding back private sector investment.
Figures B1.1 and B1.2 highlight the current activity and projections for major project work for the period 2019/20 to 2023/24 based on the 2020 Major Projects List, as well as historical data to 2012/13.
Figure B1.1: Major Project Work Done: All Segments
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figure B1.2: Major Project Work Done by Segment – Funded and Unfunded
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Private sector funding is a persistent weak point in the pipeline. Last year, the value of funded private sector work was $8.3b, compared to $7.6b in this report. More worryingly, the value of privately funded work announced or under procurement has nearly halved from $3.5b last year to just $1.8b this year.
The split of public to private major project activity is almost 50/50 however nearly 80% of publicly-backed major projects are funded compared to 30% for the private sector.
The number and sheer size of unfunded private sector-backed projects in the pipeline means this situation can turn quickly; the public sector is being asked to do more of the ‘heavy lifting’ to maintain the stability of the funded pipeline. As global economic conditions improve through the 2020s (barring further shocks), it can be expected that some of the currently unfunded resources projects will proceed. This highlights the critical importance of finding ways to attract private sector dollars into public infrastructure in Queensland and gaining community acceptance.
The largest driver of engineering construction in Queensland is publicly funded transport projects. Only four of the unfunded public-backed projects are considered unlikely compared to 19 projects originated by the private sector. Much of this difference lies with resources and heavy industry, where return on investment is more volatile and strongly tied to commodity prices and general economic conditions. The long term structural issues facing the thermal coal sector in particular puts a significant portion of the $8.7b unfunded coal pipeline at risk. There are also a large number of unfunded privately backed major projects in electricity.
Figure B1.3: Major Project Work Done Comparison to 2019 QMPPR – Funded & Unfunded
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figures E1 and E2 compare last year’s Major Projects Pipeline five-year outlook to the present forecast (note 2018/19 is now historical rather than forecast, and 2023/24 is added to this year’s pipeline). As per the 2019 QMPPR we include all major engineering construction projects in Queensland above $50 million, as well as significant programs of work in utilities and resources[1].
Figure E1: Major Project Work Done Forecast: 2020 versus 2019
Source: BIS Oxford Economics, QMCA and IAQ Member Knowledge
[1]Programmed work includes estimates of the rollout of the National Broadband Network – Australia’s largest single infrastructure project – as well as works in water, sewerage and upstream oil and gas development to feed Queensland’s LNG processing trains.
Figure E2: Changes to Pipeline by Sector
Source: BIS Oxford Economics, QMCA and IAQ Member Knowledge
Figure E3: Mix of Major Projects by Funding Source: 2019/20 to 2023/24
Source: BIS Oxford Economics, QMCA and IAQ Member Knowledge
[1] Programmed work includes estimates of the rollout of the National Broadband Network – Australia’s largest single infrastructure project – as well as works in water, sewerage and upstream oil and gas development to feed Queensland’s LNG processing trains.
Figure E4: Changes to Pipeline by Region
Source: BIS Oxford Economics, QMCA and IAQ Member Knowledge
There is a growing volume of water and resources project work in the pipeline, although much of it is unfunded. Water and sewerage major project work rises from $488m in 2019/20 to $1.1b by 2022/23. Funded resources and heavy industry major work in the pipeline has declined $800m since last year, but the pipeline rises $3.6b by 2022/23. At their respective peaks, however, 74% of water and sewerage projects (principally dams) and 91% of resources and heavy industry projects remain unfunded.
The gas pipeline major project work is currently very weak – the completion of the North East Gas Interconnector in 2017/18 has left a gap in activity. The minimal construction remaining is mostly supported by the Roma East Gas Project and the Arrow Bowen Pipeline as part of the ongoing development of the coal seam gas fields and LNG processing facilities in Queensland.
Non-water utilities activity, comprising mostly electricity and telecommunications work, is expected to suffer the most. Major project activity declines from $2b in work done in 2018/19 to just $56m in 2023/24. This is a consequence of major project completions, such as the National Broadband Network (NBN), with no large replacements in the pipeline to compensate. It is also reflective of the falling work done on renewable energy generation projects since the 2018/19 peak. The considerable policy uncertainty at the Australian Government level is also likely contributing to the lower levels of investment.
It should be noted that this sector is typically more volatile than sectors such as transport and, as such, the outlook can shift quickly if new projects emerge or are funded. Given the positive outlook for new renewable generation requirements in Queensland as part of Australian Energy Market Operator’s (AEMO) Draft 2020 Integrated System Plan (ISP), it is likely that new projects will originate in this sector in coming years. The Queensland Government has successfully led renewable energy investment, and has recently called on the Australian Government to support more investment in renewable energy via the Northern Australian Industry Fund. Exploring this concept has considerable merit.
With our improving visibility on upcoming projects, the total outlook for major projects has improved compared to the QMPPR 2019. The total activity forecast for 2022/23 is now $4.4b larger than the QMPPR 2019 forecast, with the expansion in major project activity to $12.9b by 2022/23 comprised of $5.2b in funded work and $7.7b in unfunded work.
The previously forecast setback in the current financial year has come to pass and activity in 2019/20 is expected to reach $6.6b. This is $391m lower than 2018/19 and $727m of this figure remains unfunded work for 2019/20. While this is significant, it is unlikely to be as severe as previously predicted.
The Australian Government’s $1.9b transport package announced in November 2019 has expedited project timings and offset the decrease in funded projects in other sectors.
All segments except roads and bridges saw an increase in unfunded work since last year, however 71% of the increase in unfunded work ($6.7b) is from the resources and heavy industry sector, and includes major additions to the pipeline across coal, gas and minerals projects. Consequently, the large increase in resources-related unfunded work also impacts heavily on the unfunded pipeline and outlook volatility for key resources regions including Mackay-Isaac and Outback.
The strong increase in unfunded resources-related works points to work done in previous years to bring projects to feasibility stages. Although, the uncertain outlook for global growth, commodities demand and prices continues to drive delays in investment decisions. While the lack of funding is concentrated heavily in resources and heavy industry, rail, roads and water projects see a similar decline in funding in the five-year pipeline. The major project construction decline in the final year of the five-year pipeline is not unusual because the infrastructure project funding horizon is closely tied to Government and large corporation budget cycles. The 2020 Pipeline reveals a number of challenges and risks, but there are also substantial opportunities and potential.
Figure B1.1 illustrates the outlook for major project activity based on the subcategories of funded and unfunded work.
Key features of the of the funded vs unfunded outlook are:
The expansion in major project activity to $12.9bn by 2022/23 is comprised of $5.2bn in funded work and $7.7bn in unfunded work. The total activity forecast for 2022/23 is now $4.4bn larger than the 2019 QMPPR forecast. This large disparity is driven by a much higher volume of unfunded resources and heavy industry activity.
The number of major projects considered unlikely has reduced from 42 to 23, a less risky proposition than a year ago.
Funded major project activity is forecast to rise to $6.9bn in 2021/22, just below the level seen in 2018/19 – but could end up much higher. Unfunded activity in that year also rises to $5.9bn, of which there are $2.8bn in work for existing, credibly proposed, projects. Funding some of these projects could see funded work rise back above 2018/19 levels – and potentially much higher.
Total major project work falls in 2023/24 to $8.6bn, of which almost 58% is unfunded. This lack of funding is concentrated heavily in resources and heavy industry, but also rail projects. Roads and water projects see a similar decline in funding. The major project construction decline in the final year of the five-year pipeline is not unusual because the infrastructure project funding horizon is closely tied to Government and large corporation budget cycles.
Private sector funding is a persistent weak point in the pipeline, with average funded work decreasing $754m per annum from 2019/20. The split of public to private major project activity is almost 50/50 however 79% of publicly-backed major projects are funded compared to 30% for the private sector. For unfunded projects, only four public-backed projects are considered unlikely compared to 19 projects originated by the private sector. Much of this difference lies with resources and heavy industry, where return on investment is more volatile and heavily tied to commodity prices and general economic conditions. There are also a large number of unfunded private-backed major projects in electricity.
Figure B1.4: Pipeline Funding Mix by Sector and Year
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
82% of the Road and Bridge pipeline is funded, although this sector has seen a sharp setback in major project activity in 2019/20 and lower levels of activity are projected over the next five years. The decline has been driven by the completion of very large roads projects in 2018/19 including (noting their estimated engineering construction value):
There has also been a significant winding down on projects due for completion in 2019/20 and 2020/21:
Figure B1.5: Roads and Bridges Major Project Work Done Compared to 2019 QMPPR
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figure B1.6: Roads and Bridges Major Project Work Done by Funding Status
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Despite this, the road and bridge major project outlook has improved since a year ago with the Australian Government expediating already allocated funding for projects that were previously unfunded, such as the Rockhampton Ring Road, Saltwater Creek Upgrade and the Tiaro Flood Immunity Upgrade within the Bruce Highway Upgrade Program.
The improved outlook is further supported by several new projects such as the Cairns Ring Road ($251m, commencement in 2022/23) and the Mt Isa to Rockhampton Corridor Upgrade ($238m, commencement in 2022/23). Other projects driving this increase include the Brisbane Metro ($650m), Pacific Motorway: Eight Miles Plains to Daisy Hill ($493m) and Varsity Lakes to Tugun ($470m), and a number of projects along the Bruce Highway.
Rail activity is projected to rise by just over $400m in 2019/20 on the back of very large passenger and freight projects, while harbours work is projected to increase by just over $200m through cruise terminal dredging projects and activities at the Ports of Gladstone and Townsville.
Overall, the rail sector continues to have the strongest outlook for any engineering construction segment in the pipeline, with very strong growth in activity supported by several key funded projects including:
The combination of these funded projects is expected to produce a strong upturn in funded work over the next four years, with several currently unfunded projects – Gold Coast Light Rail Stage 3B and the Mt Isa to Townsville Rail Upgrade – adding potential upside. The main risk to the outlook is the strong competition for construction resources, particularly skilled labour, with a huge boom in transport infrastructure in New South Wales, Victoria, South Australia and Western Australia.
Meanwhile, harbours major project work is relatively small over the pipeline but remains in line with the positive outlook that was reported in 2019. There have been some project additions to the back-end of the pipeline due to improved visibility such as Abbot Point Dredging ($240m), Urangan Boat Harbour ($200m) and the Hay Point Berth Upgrade ($150m), although they remain unfunded.
The growth in harbours project work is supported by the Brisbane International Cruise Terminal ($120m), the Townsville Port Expansion Project: Channel Capacity Upgrade ($150m) and the RG Tanner Coal Terminal upgrade as part of the Port of Gladstone ($200m). There are numerous harbour projects which remain unfunded, which could further underpin activity if they are realised. This includes the previously mentioned project additions, as well as the Second Shipping Lane at the Port of Gladstone ($196m) and the Outer Harbour Expansion at the Port of Townsville ($150m).
Figure B1.7: Railways and Harbours Major Project Work Done Compared to 2019 QMPPR
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figure B1.8: Railways and Harbours Major Project Work Done by Funding Status
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
The sector has a high proportion of unfunded work in the pipeline – reaching 59% in 2021/22 and then steadily increasing to 84% in 2023/24. The total figures are substantially boosted by these unfunded projects which include:
The pipeline also identifies $859m in funded water major project work between 2020/21 and 2022/23. Driving much of this are projects in central, northern and outback regions of the state including:
Sewerage major project activity is not set to experience the same boost as water, with work done forecast to decrease from $146m in 2019/20 to $125m in 2020/21 and then stabilise for the remainder of the pipeline. The lack of volatility in construction is driven by the few major projects which are evenly spread through the pipeline including: The Northern (Inner Brisbane) and Southern (Ipswich) Wastewater Treatment Plant projects, worth a combined $311m.
Figure B1.9: Water and Sewerage Major Project Work Done Compared to 2019 QMPPR
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figure B1.10: Water and Sewerage Major Project Work Done by Funding Status
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
In last year’s pipeline, 2018/2019 was expected to be the peak due to the large number of renewable energy projects, Roma East Gas Project and the continuation of the NBN. However, adjustments to project timings have spread the work across both 2018/19 and 2019/20. The most significant changes are related to the Wandoan South Solar Project ($420m) and the Bulli Creek Solar Farm ($525m) which are currently under construction.
The pipeline for non-water utilities indicates a stepwise decrease in activity beyond 2019/20, with total work done (funded and unfunded) expected to decline to $1.2bn by 2022/23 and then just $56m the following year. The decline in funded work is just as sharp, falling from $1.8bn in 2019/20 to $775m in 2020/21 and to $56m in 2023/24. The fall-off in major projects is worse than what was expected from last year’s QMPPR, owing to a faster than anticipated decline in work done for the NBN and solar projects which were brought forward in the pipeline. There is also considerable policy uncertainty at the Australian Government level which is likely contributing to the lower levels of investment.
However, it should be noted that this sector is typically more volatile than sectors such as transport and, as such, the outlook can shift quickly if new projects emerge or are funded. Given the positive outlook for new renewable generation requirements in Queensland as part of Australian Energy Market Operator’s (AEMO) 2020 Integrated System Plan (ISP), it is likely that new projects will originate in this sector in coming years. Furthermore, the Queensland Government recently called on the Australian Government to support more investment in renewable energy via the Northern Australian Industry Fund. Exploring this concept has considerable merit.
Gas pipeline major project work is currently very weak – the completion of the North East Gas Interconnector in 2017/2018 has left a gap in activity. The minimal construction remaining is mostly supported by the Roma East Gas Project ($113m) and the Arrow Bowen Pipeline that supports the ongoing development of the coal seam gas fields and LNG processing facilities in Queensland.
Figure B1.11: Electricity, Pipelines and Telecoms Major Project Work Done Compared to 2019 QMPPR
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figure B1.12: Electricity, Pipelines and Telecoms Major Project Work Done by Funding Status
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Activity should also be boosted by the Australia – Singapore Military training initiative. Training facilities will be redeveloped at the Fitzroy’s Shoalwater Bay, which will first be remediated, as well as a training facility further north in Townsville.
Total major project activity in the five-year pipeline is estimated at approximately $1bn, with the $730m funded portion of that comprised of the projects listed above. The outlook for funded projects is identical to the 2019 QMPPR, with the following (unfunded) projects added to the pipeline:
Figure B1.13: Defence Major Project Work Done Compared to 2019 QMPPR
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figure B1.14: Defence Major Project Work Done
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
The total level of resources and heavy industry major project activity over the five-year pipeline is estimated to be $17.6bn, underpinned by $4bn in funded work mostly related to oil and gas projects including:
The volume of unfunded major resources and heavy industry project activity is the largest amongst the sectors: $13.5bn of work is yet to be funded – roughly double that of last year’s pipeline. Within the unfunded projects, 50% of this value is from projects which are credibly proposed, 29% prospective and the remaining 21% considered unlikely.
The lack of funding is dominated by coal (65% of total unfunded project value) whereas oil and gas and other mineral projects constitute 20% and 11% of the total unfunded. The coal projects included in the unfunded total include:
Resources and heavy industry major project activity is entirely driven by the private sector and the large proportion of unfunded work adds considerable volatility to the forecast. The proportion of unfunded major project work for resources and heavy industry rises to 90% in 2022/23 and then 100% in 2023/24.
Figure B1.15: Resources and Heavy Industry Major Project Work Done Compared to 2019 QMPPR
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
Figure B1.16: Resources and Heavy Industry Major Project Work Done by Funding Status
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
On top of the volatility in unfunded work, currently funded work is either flat or falling from here. Funded coal work drops to just $50m in 2022/23 and then zero in 2023/24. This abrupt stop in activity is driven by the project phase construction estimates for Adani’s Carmichael mine (assumed construction value $978m) from 2019/20 to 2021/22, the Cameby Downs Expansion ($225m) from 2020/21 to 2022/23 and South Walker Creek ($100m) from 2019/20 to 2021/22.
Other mineral projects also suffer from a high proportion of unfunded activity, with only 9% of the $1.64bn activity in the pipeline funded. Further, within the currently unfunded projects, there is a high representation of projects considered unlikely including the $250m Merlin Molybdenum-Rhenium Phase 2 Project and the $300m Paradise Phosphate South Project. Projects such as Red Dome Mungana, Cannington Expansion, Roseby Copper, SCONI Scandium project and Gladstone Energy and Ammonia Project could add substantial value to the funded projects if they were to go forward as expected.
The major project workforce estimate reflects labour demand, the estimates for FTE roles should therefore follow overall construction estimates. However, the ratio of labour to project value for a particular sector of construction (e.g. rail as opposed to water) will be varied with respect to both project management and construction labour. As such, the growth in major project work will not be perfectly matched to growth in labour demand. This is illustrated in Figure B1.11, where the labour force outlook loosely follows the total major project work in Figure B1.1.
The high proportion of unfunded major project work is reflected in the labour force outlook, should a ‘worst-case scenario’ occur with respect to all unfunded projects, then the workforce outlook becomes negative with an expected drop in employment in the later years of the pipeline. In this scenario, workforce demand would not surpass the peak of 15,800 FTE roles in 2019/20 and would drop to 8,506 FTE roles by 2023/24. In a ‘best-case scenario’ wherein all unfunded projects were funded, the estimated workforce requirements would increase by 40% from 2019/20 to 2021/22. An optimistic scenario like this may present labour resource constraint issues for planned major project construction, considering the tight national labour conditions from the expected record-breaking levels of transport infrastructure construction. In particular, shifting the more specialised, ‘white collar’ skills required from traditional areas such as roads and bridges to rail could be a challenge given demand for similar resources in other states.
The sectors which have the strongest potential growth in workforce requirements will roughly match the strongest growing sectors in major project activity. This includes an increase between 2019/20 and the 2021/22 peak for roads and bridges (+1200 FTE), rail (+4800 FTE), water (+1,900 FTE), coal (+2,000 FTE) and a decrease between 2019/20 and 2021/22 for electricity (-900 FTE) and telecoms (-2,100 FTE).
Figure B1.17: Major Project Workforce Profile
Source: BIS Oxford Economics, QMCA and IAQ member knowledge
