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BHP, Rio driving big growth for WA

It’s easy to appreciate that states with the largest number of mining and energy projects come up trumps in the economic growth stakes. But just how big the impact is has been revealed by Commonwealth Bank’s (ASX: CBA) latest “State of the States” report, which puts Western Australia in the top spot for retail trade, population growth and equipment investment.

The staggering amount of money being poured into Western Australia through capital expenditure, where projects can routinely cost upwards of $10 billion, has seen a trickle down effect to all corners of the local economy. The combined result is a forecast growth rate of 6.5% for the coming financial year – more than twice the forecast GDP growth for the country as a whole of 3.1%.

The two key areas driving the growth are iron ore and natural gas projects. In October 2012 there were 12 committed iron ore projects worth a combined $26.2 billion. BHP Billiton (ASX: BHP) is one of the companies with a big stake in WA iron ore projects. The company’s facilities in WA are undergoing an expansion worth up to US$6.6 billion to increase production and delivery out of Port Headland. Similarly Rio Tinto (ASX: RIO) is committing $5.1 billion to expand its Cape Lambert Port from which iron ore is transported.

However it is natural gas projects that are increasingly dominating the WA investment landscape.  According to the of Bureau of Resources and Energy, LNG, gas and petroleum projects make up 70% of all committed expenditure in Australia – $195 billion of capital expenditure.

WA is a dominant state for gas exploration and while much of the investment is from international companies like Shell and ExxonMobil, Woodside Petroleum (ASX: WPL) is the biggest Australian company involved in the industry. Woodside has recently completed the company’s Pluto LNG project and are now focusing on developing Browse LNG for which the company is considering several options including floating LNG (FLNG) facilities.

The “State of the States” report has labelled Australia a ‘three tiered economy’ – a reflection of the strong growth in WA and the northern states, but stunted and declining growth for ACT and Tasmania. The term will no doubt become a new media catch-phrase over the next year.

Foolish takeaway

For investors the important point to note is simply that the places where companies are investing money today will likely be the states and regions to also yield the best fruit in the coming years.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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