Major projects associated with Australia’s energy transition and water security are set to drive the nation’s civil construction market forward even as the boom in publicly funded transport work tapers off, a conference has heard.

Speaking at his firm’s Economic Outlook/Building & Construction Conference held In Sydney and Melbourne on September 17 and September 24, Dr Nicholas Fernley, Head of Global Construction Forecasting at Oxford Economics Australia, provided an overview of the outlook for engineering construction activity across the nation.

Overall, Fearnley says that activity is expected to remain at elevated levels throughout the remainder of the decade.

Within individual sectors, however, he says that the boom in road and railway construction is giving way to private sector investment in energy projects.

“As we have been talking about for awhile, the publicly funded transport infrastructure boom is coming to an end,” Fernley said.

“For the engineering construction market, this does mean that transportation activity is going to fall back.

“But what’s I think more interesting is that the utility sector is becoming the largest sector in the engineering construction market. We haven’t seen that since the millennium drought back in the late 2000s.”

During his presentation, Fearnley outlined the areas of opportunity which are expected to drive growth forward.

Leading the way is electricity, where Oxford expects the value of work done to continue to ramp up from already existing record levels as the nation seeks to decarbonise its energy grid.

The biggest component of this is generation, where Fernley talks of a very large pipeline in renewable and storage development.

Withing generation, he says that wind farms are expected to grow more rapidly than solar farms.

This is the case as major solar farm developments typically need to be accompanied by storage (such as batteries) and the additional cost associated with this in order to avoid needing to compete with rooftop solar and other solar farms when prices are depressed during the day.

Critical to enabling new generation capacity is a high level of current investment in building transmission infrastructure to connect renewable generation assets to the energy network.

In relation to distribution (poles and wires in major cities), Fearnley does not expect a near-term upswinging construction activity.

Nevertheless, he says that there is potential for greater investment in this area should significant increases in electric vehicle uptake (and thus corresponding additional demands upon urban electricity usage) materialize.

Next, there is water.

Here, Fearnley suggests that a large wave of current and potential projects will underpin strong activity levels over the next five, ten and fifteen years.

These projects include new and upgraded desalination plants as well as new and upgraded treatment plants, pipelines and water network expansions.

All this is necessary to address long-term water security challenges. These result from climate change (more frequent and more severe droughts), growing population, aging infrastructure (pipes, reservoirs, treatment facilities) and the extensive water requirements (for operations and cooling) which are associated with Australia’s rapidly growing data center industry.

Finally, Oxford expects a reasonable amount of work in mining, where growing levels of exploration activity signal a positive outlook for new development.

In particular, activity in oil and gas will be supported by investment in LNG platforms. That in other minerals will be supported by large iron ore projects such as the $3.5 billion Mulga Downs Iron Ore Mine and the $3.1 billion Nyidinghu Iron Ore Mine.

(Figure 1 A possible upgrade to Sydney Desalination Plant could see the size of the plant double its current capacity to produce up to 500 million litres of drinking water per day. Image source: Sydney Desalination Plant)

Transport to remain at high levels

As this is happening, the value of work in transport is expected to ease back from its peak as major projects move to completion at the same time as new project announcements have slowed.

However, activity levels are set to remain elevated by historic standards across the remainder of the decade.

Moreover, there are still pockets of growth to be found.

For example:

• Whilst major highway projects are winding back, reasonable volumes of work related to roads are expected in subdivisions for residential housing and access roads for mining and renewable energy developments.
• Ongoing elevated levels of road maintenance work are expected in order to maintain an asset base which has grown on account of recent construction.
• Whilst harbours are generally a small component of overall transport work, there will be considerable growth in this area on account of work associated with defence projects.

Shifting focus

Overall, Fearnley says that the focus of opportunities is shifting.

“Putting this all together, you can see that when we look at the winners and losers over the next two years, we’re moving away from transportation being the driver of growth to now more the utilities sector being the driver of growth and also the mining sector,” he said.

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