Coal seam gas boom, petroleum exploration bust: forecast - iMINCO Mining Training Information

Coal seam gas boom, petroleum exploration bust: forecast

A boom year ahead for coal seam gas

A report by analysts IBISWorld forecasts a boom year for coal seam gas, but a downturn for petroleum exploration.

This year sees several new liquefied natural gas (LNG) processing plants come online, including the start of production for one of the Curtis Island LNG plants in December 2014.

Other plants on the island, near Gladstone in Queensland, are also nearing completion, and will soon be processing coal seam gas from the centre of the state into its liquefied form, suitable for shipment.

148 per cent growth in coal seam gas extraction revenue

As the plants progressively ramp up, IBISWorld expects a 148 per cent growth in coal seam gas extraction revenue to $1.83 billion in 2015.

On the other side of the ledger, the forecaster is also expecting petroleum exploration spending in Australia to fall nearly 19 per cent to $3.76 billion as a greater than 50 per cent slide in oil prices last year due to oversupply makes developing new projects far less attractive.

“High oil prices have acted as an incentive for global companies to invest in petroleum exploration over the past five years,” said IBISWorld senior industry analyst David Whytcross.

“However, the subsequent oversupply is going to hamper exploration in 2015, as Australian firms are unable to compete with the low production costs and high production volumes from the world`s major oil producers.”

Fast fashion and online groceries to expand

While some retailers are struggling, IBISWorld said two segments are likely to lead growth in this area.

The report forecasts a rapid expansion in online grocery sales, rising 14.6 per cent to $2.19 billion.

“The increased prevalence of click-and-collect options and greater comfort with purchasing perishable items like fresh fruit online are expected to boost industry revenue over the coming year,” Mr Whytcross said.

IBISWorld also expects continued expansion in so-called fast fashion, dominated by international chains such as Zara, Topshop, H&M, Uniqlo and Forever 21.

The report forecasts 10.4 per cent growth in the segment this year to $1.35 billion as new stores continue to be opened.

“Zara posted exponential revenue growth with extremely high retail profit margins over its first three years of operation in Australia, and IBISWorld expects this growth to continue in 2015,” said Mr Whytcross.

“The rousing success of the grand openings of H&M and Uniqlo in Melbourne in April 2014 is expected to result in similar growth for these stores, which will generate significant growth for the overall fast fashion industry.”

The other top growth sectors are forecast to be private equity, with continued growth in mergers and acquisitions, and hydroponic crop growing due to its water efficiency.

Cigarettes, gold-plated electricity and DVDs under threat

IBISWorld’s report forecasts that, besides petroleum exploration, the other sectors to decline the most this year will be cigarette production, electricity distribution, mining and construction machine manufacturing and film distribution.

In tobacco, Philip Morris last year moved its production away from Melbourne to its factory in South Korea.

The move leaves British American Tobacco as the last major cigarette maker locally, and is expected to see an 11.1 per cent contraction in the industry this year.

Video on demand services are expected to further cannibalise higher-margin DVD and Blu-ray sales locally, resulting in a 3.7 per cent revenue dip for film distributors.

“The introduction of US-based streaming service behemoth Netflix, along with local entrants Stan and Presto, is tipped to be a win for consumers but a loss for distributors,” said Mr Whytcross.

“Consumers will be able to pay monthly subscription fees to view a wide range of content, in contrast to paying a set price for each single film or TV show.”

Long suffering electricity consumers are set to win as electricity companies roll back spending on distribution networks that have seen enormous investment over recent years due to “gold-plating” – where transmission networks were designed to handle much larger electricity demand than ended up eventuating.

The final sector tipped to lose out big time in 2015 is the mining and construction machine manufacturing industry in Australia.

“As the mining boom moves from its investment phase to a production phase, and as falling iron ore prices deter further investment, demand for machinery is likely to suffer in 2015,” said Mr Whytcross, forecasting a 6.1 per cent decline in revenue for the sector.

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