Fossil Fuels to Drive Record Australian Resources Revenue

James Thornhill

21 Dec 2021, 01:47 AM IST

(Bloomberg) -- Australia has revised up its forecast for resources and energy export revenue on the back of strong coal and liquefied natural gas prices, even as the world tries to wean itself off heavy-polluting fossil fuels.

Exports are expected to hit a record A$379 billion ($271 billion) in the year to June 30, 2022, revised up by 9% from the September estimate, the government’s Department of Industry, Science, Energy and Resources said in a quarterly update.

Prices for coal and LNG, both of which Australia vies to be the top producer of, were forecast to remain elevated, “supported by ongoing shortages and strong demand,” the department said in a statement.

Fossil Fuels to Drive Record Australian Resources Revenue

Demand for copper and nickel -- key inputs in the clean energy transition -- boosted the outlook for base metals earnings. Strength in those areas is tipped to help offset lower iron ore earnings, as supply from key competitor Brazil recovers and global demand growth slows. Iron ore accounts for around a third of the nation’s total export revenue.

This year is likely to be the peak for Australia’s resources sector, with revenue tipped to fall to A$311 billion in fiscal 2023 as the post-pandemic global economic recovery starts to wane.

Risks to its outlook for the current year were also skewed to the downside, the department said, and included a further spike in global inflation, new coronavirus variants, and a faster-than-expected decline in coal prices.

Australia’s center-right government continues to strongly support the coal and gas industries, despite a growing clamor at home and abroad for the country to transition from fossil fuels. Prime Minister Scott Morrison bowed to pressure to commit to a net-zero emissions target ahead of the COP26 Glasgow climate summit, and has adopted a technology-based approach to reducing carbon pollution with incentives for the development of hydrogen and carbon capture and storage projects.

Investment in major Australian resources projects grew significantly, as developers look to take advantage of opportunities presented by the decarbonization process, a separate report from the department said. The inclusion of hydrogen in its figures helped boost the value of committed projects by 24% in the past year.

Australia Resources Quarterly - Key Points
Iron ore prices, which have about halved since May, are set to average $79 a ton in 2022, down from $142 this year. The forecast for iron ore export revenue in fiscal 2022 was lowered by 11% to A$118 billion. Metallurgical coal earnings have been revised up by over A$15 billion in fiscal 2022 to A$54 billion. The Australian premium hard coking coal price is forecast to peak at an average $227/ton in 2021, before cooling to $162 by 2023. Thermal coal revenues are seen more than A$10 billion higher in fiscal 2022 than the previous estimate, at A$35 billion. Newcastle benchmark prices are forecast to average $134 a ton in 2021, up from $101 estimated in the September report, before easing to around $90 a ton by 2023. Global pressure to phase out the use of coal in power generation, likely to gain momentum following the COP26 summit, is deterring new investment, with tightening supply set to force prices higher. “High prices may in turn reduce competitiveness of coal relative to other energy sources, risking potential reductions in its share of global power use,” the report said. LNG export earnings are forecast to more than double to A$63 billion in fiscal 2022 following a surge in oil-linked contract prices. Still, easing demand from top LNG buyer Japan is seen as a long-term headwind as the country prioritizes growth in nuclear and renewable power to meet a target of net-zero emissions by 2050. Gold prices are expected to moderate in 2022 as rising interest rates sees investors seek better returns elsewhere. Forecast revenues from copper and nickel were revised higher on the strong price environment for base metals.

Australia Resources Quarterly - Key Points

Iron ore prices, which have about halved since May, are set to average $79 a ton in 2022, down from $142 this year. The forecast for iron ore export revenue in fiscal 2022 was lowered by 11% to A$118 billion.
Metallurgical coal earnings have been revised up by over A$15 billion in fiscal 2022 to A$54 billion. The Australian premium hard coking coal price is forecast to peak at an average $227/ton in 2021, before cooling to $162 by 2023.
Thermal coal revenues are seen more than A$10 billion higher in fiscal 2022 than the previous estimate, at A$35 billion. Newcastle benchmark prices are forecast to average $134 a ton in 2021, up from $101 estimated in the September report, before easing to around $90 a ton by 2023.
Global pressure to phase out the use of coal in power generation, likely to gain momentum following the COP26 summit, is deterring new investment, with tightening supply set to force prices higher. “High prices may in turn reduce competitiveness of coal relative to other energy sources, risking potential reductions in its share of global power use,” the report said.
LNG export earnings are forecast to more than double to A$63 billion in fiscal 2022 following a surge in oil-linked contract prices. Still, easing demand from top LNG buyer Japan is seen as a long-term headwind as the country prioritizes growth in nuclear and renewable power to meet a target of net-zero emissions by 2050.
Gold prices are expected to moderate in 2022 as rising interest rates sees investors seek better returns elsewhere.
Forecast revenues from copper and nickel were revised higher on the strong price environment for base metals.