Victorian Government Extractive Resources Supply and Demand Study 2022-30

DR PETER MARSHALL of PJM Economics and DR ELIZABETH GIBSON, General Manager of the CMPA provides further detail on the Extractive Resources Supply and Demand Study 2022-30 published August 2023 by Department of Energy, Environment and Climate Action.

Background
The Extractive Resources in Victoria: Demand and Supply Study 2015-2050 (2016) (https://earthresources.vic.gov.au/projects/extractive-resources-strategy/extractive-resources-supply-and-demand-study) was found to have grossly overestimated the availability of supply said to be 11 billion tonnes and underestimated the demand for quarry materials. This document was heavily relied upon in VCAT and Planning Panel Hearings by objectors to justify the refusal of quarry approvals due to the supposedly abundance of supply of quarry materials.

Following on from the above the Department of Energy, Environment and Climate Action (DEECA) Extractive Resources Supply and Demand Study 2022-30 (The Study) (https://earthresources.vic.gov.au/projects/extractive-resources-strategy/extractive-resources-supply-and-demand-study) was
conducted during 2021-22 and released in August 2023. Advice from CMPA given to DEECA was to focus on approved reserves i.e., quarry material that was available for extraction as opposed to that needing approvals due to the uncertainty and length of time involved in that process. In 2021/22 interviews were conducted with 20 companies (145 Work Authorities) accounting for approximately 70% of production in Victoria and use of Earth Resources Regulation Annual Statistical Reports (https://earthresources.vic.gov.au/legislation-and-regulations/regulator-performance-reporting/annual-statistical-reports) leads to an estimate of 1.13 billion tonnes held in reserves: a decrease of 874% on the 2015-2050 study. This figure (1.13 billion tonnes) is still considered by CMPA as being an overestimate with the erroneous assumption of the Study being that all rock is homogenous throughout the quarry.

The Study states that:
“… the extractive resources replenishment rate is deteriorating. Competing land uses and changing community attitudes are leading to regulatory uncertainty and longer timeframes for new quarry and quarry variation approvals. As fewer new quarries are developed, there is increasing production in existing approved reserves. This becomes necessary as the alternative is transporting more extractive resources from further afield, incurring increased transport costs and additional emissions.”

Supply
The study found that as of 2021, there are 1.13 billion tonnes of reserves across hard rock, sand, clay and other rock types. They also found that there were 811 million tonnes of resources. Reserves are defined as the extractive resource that is approved and likely to be developed. Resources are defined as extractive material within Work Approvals but are not approved for extraction.

For Hard Rock, the study found that there was 1389 million tonnes of reserves of which 510 million tonnes is within the metro region. Proposed new work authorities or workplan variations for the period 2022-2030 amount to 604 million tonnes of hard rock (563mt for variations and 41 mt for new work authorities).

Of these 604 million tonnes of proposed new reserves only about 30% is estimated to be likely new supply under the Study’s medium scenario where low and medium risk parameters are applied. This suggests new deliverable supply of hard rock by 2030 of 185 million tonnes above the existing level of known resources.

Demand
The Study estimated that the demand for hard rock for the whole of Victoria would increase from 42.7 million tonnes per annum in 2021 to 54.2 million tonnes in 2030. This is an annual rate increase of 2.7% p.a. which is reasonably conservative given that the annual increase in demand over the last 20 years is above 3% and that the annual increase over the last 5 years is over 5%.

As an aggregate over the study period of 9 years, hard rock demand is forecast at approximately 440 million tonnes for the whole of Victoria. The Study estimates that 80% of demand for hard rock is from the metro area which for the 2022-2030 period is approximately 352 million tonnes.

Transport
Transport costs are already a significant component of the extractive resource cost base currently estimated at 25-30% of total costs. The Study has undertaken a regional analysis and under their moderate assumptions, estimate that the average truck distance will increase from 32km to 151km for hard rock an increase of 450% in distance. This is a fundamental change in the way extractive resources are delivered in Victoria leading to higher costs for extractive resource as well as implications for the environment and local amenity as well as increasing road wear and congestion.

Caveats
The Study suffers from the same fundamental problem that the 2016 Report had: the inability to report the exact location of supply due to confidentiality reasons. This means that the analysis at the local level is not very useful as the Study has had to aggregate data to a level that obscures local differences. It also means that the reader has to take at face value the accuracy of the supply data as there is no way of checking the data.

Government Initiatives
The Study highlights some initiatives from the State Government: The Victorian Government is implementing the Extractive Resources Strategy and the Joint Ministerial Statement Extractive Resources to provide greater certainty for industry to invest and supply affordable construction materials to support long-term growth.

There is no indication on the efficacy of these initiatives.

Key points

1. An additional 16 million tonnes of supply will be demanded in 2030 above that supplied in 2022. This additional supply would equate to an extra 32 quarries producing 500,000 tonnes per annum.

2. Using data from Table 5 and Table 6 in the Study, 2021/22 ERR Annual Statistical Report and an estimated increase of 16 million tonnes in demand by 2030 the years of reserves remaining may be estimated (Table 1). In addition, “Victoria’s Housing Statement” released by Government (20 September 2023) sets a target of an additional 800,000 new homes over the next decade (https://www.vic.gov.au/housing statement). This is equivalent to an additional 9 million tonnes of construction material per annum.

Table 1 Years of reserves remaining (from 2021).

Metro Melbourne area has approximately 8 years of hard rock reserves remaining and 2 years of sand reserves remaining (from 2021 when the survey was conducted).

3. The Civil Contractors Federation-Victoria recently released an industry white paper: “Capacity Constraints in the Civil, Land Development and Infrastructure Industries” (https://www.ccfvic.com.au/infrastructure-peak-bodies-urge greatergovernment-collaboration-to-deliver-for-victoria/). A quote
   from an Industry Roundtable states: “Reallocating resources from the State’s regions is a ‘band-aid’ solution that should not be replicated without proactive strategic planning. Further to this, distances travelled to redirect (quarry) materials from the regions are higher, making buildings more carbon intensive than they otherwise would have to be.” The White Paper also reported that there is concern in Victoria that the current quarry capacity will be depleted within the next 5 years.

4. “It takes 10 or more years for the approval to build and ramp-up of a new quarry, even those well outside metropolitan areas. This coupled with increasing difficulty in obtaining consent extensions for existing quarries is creating the real risk of a ‘quarry gap’ in Melbourne’s infrastructure supply chain.” Australian Government “Infrastructure Market Capacity Report” 2022 (https://www.infrastructureaustralia.gov.au/publications/2022-market-capacity-report).

5. Figures 2 and 3 depict the current reserves by Regional Development partnership zones (see page 16).
6. Under assumptions made in the Study with a medium supply replenishment scenario average transport distances would increase by 120 km. At $0.20/tonne/km leads to a transport cost increase of $24/tonne. Approximately over 50% of the cost of quarry material will consist of transport costs.

Conclusion

The Studt states that:

“Without a response, it is likely that Victoria will face significant transport distance and material cost increases up to 2030. Determining the response is complex. The state must balance competing land use policies and priorities particularly in peri-urban areas. It must also consider regulatory reform, to better enable the approval of new quarries and quarry expansions, and to maintain carbon emission reduction targets.”

In conclusion the report highlights that the replenishment rate is deteriorating and that beyond the very short term there will be significant increases in costs without significant reform. It is not clear that the steps the Government has taken are enough to ensure extractive resources located close to use well into the future.

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