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Investors hit the brakes on resources projects

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Adam Creighton
From: The Australian
November 29, 2012 12:00AM

RESOURCES investors are increasingly scrapping tentative investment plans and cost blowouts are artificially inflating Australia’s resource pipeline, a new report reveals.

Although the total value of committed resource projects rose a little to $268 billion in October, the number of committed projects fell to 87 from 98 six months earlier, the Bureau of Resources and Energy Economics said yesterday in its six-monthly update of Australia’s investment pipeline.

“The increase is primarily a result of the approval of a second train for the Australia Pacific LNG project and cost increases to projects that were already under way,” the bureau said.

Eleven “mega projects”, costing more than $5bn each — mainly liquefied natural gas facilities such as the Gorgon, Ichthys and Wheatsone projects — account for three-quarters of all committed investments.

Only 10 projects worth $13.2bn progressed to the “committed stage” of development, compared with 21 projects worth $45bn in the six months to April.

“Even on the most conservative estimate provided by the bureau, the total potential investment in the resource sector sits at a mammoth $650bn,” Wayne Swan said, pointing out the OECD’s remarks earlier this week that mining in Australia should “continue to expand vigorously” next year, based on current plans.

The bureau said the total committed expenditure on Australia’s oil and gas projects was “comparable to the total cost of the Apollo moon program in 2012 prices”.

But concerns about the longevity of Australia’s resource boom, which intensified earlier this year after BHP’s decision to shelve its multi-billion-dollar Olympic Dam project in South Australia, and Fortescue Metals Group’s decision to retrench 1000 workers in Western Australia, are still worrying investors, who cancelled 18 projects in the very preliminary stages of development in the six months to October.

“The decrease in the number of projects is attributable to the removal of projects that have not progressed as scheduled and because information could not be sourced that confirmed a clear intention to progress to development,” the bureau said.

Nevertheless, more than 170 projects worth about $290bn — mainly coal and gas projects slated for Queensland — remain in the “feasibility stage”, having passed commercial viability tests.

“Due to restrictions on exploration and production, there have been few uranium projects progressing along the investment pipeline,” the bureau added, although it pointed to regulatory changes that should improve their prospects.

Separate data from the Australian Bureau of Statistics showed the value of construction completed over the three months to September rose 1.7 per cent to $51.3bn, and increase underpinned almost entirely by engineering construction work.

Source

Westshore Shipbrokers: A Closer Look at Vessel Scrapping and Attrition in the OSV Market

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Offshore vessel market has been one area of the business that has had little to do with vessel scrapping. It was notable therefore that in the first quarter results for US-owner Tidewater that an announcement was made regarding the intention to scrap eleven vessels from its large fleet. Tidewater is arguably the largest offshore support vessel owner in the world, but the fleet is an ageing one so it is perhaps unsurprising that the news comes from this particular source.

Moreover a significant part of its fleet is already laid up in areas of the world where the standard of vessel is generally lower and older than anyway what’s seen in the North Sea.

When we take a look at the oldest vessels still in existence around the globe the majority of those over 30 years are AHTS vessels of an average of 6,300 bhp and are located largely in the Middle East, South East Asia and West Africa. About half as many are PSVs with an average of 1,200 dwt and are largely sitting in the US Gulf of Mexico.

Despite the deluge of older tonnage sitting in ports around the world owners are reluctant to send these old girls to the scrappers. An industry wide increase in required operating standards of vessels – even in regions such as the Middle East where traditionally these vessels could find employment, has seen a diminishing need for this older tonnage. Moreover the order books for new vessels is swelling again and as these brand new and higher spec vessels deliver everything else gets pushed further and further to the back of the queue.

Vessels that were scrapped over the last couple of years were largely 60s and 70s built and very much at the end of their useful lives. In addition many had been working in the US Gulf where a post-Macondo industry is at long last showing an  increased focus on safety and this extends to the support vessels. It’s easy for an analyst to sit and look at the figures, around 15% of the global AHTS fleet is over 30 years old and 13% of PSVs – so let’s get the burners out and keep the fleet in renewal. But it’s rarely as simple as that, as this older tonnage is fully paid up, cheap to run and in depressed markets often the only ones that can go low enough to get a charter, for an individual owner there’s simply no need to remove them. Moreover remuneration for the scrap of a vessel is calculated on the weight of the steel (light deadweight tonnage) but unlike tankers for example, the value of an offshore vessel is in its equipment and capability rather than the volume of steel that could be melted down. For the time being, arguments for not scrapping your older vessels may outweigh those for doing so, but in an increasingly safety and environmentally conscious industry that will soon change.

Written by Inger Louise Molver, Offshore Analyst at Westshore Shipbrokers AS

Original Article

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