Australian major projects: building to a peak?

Australia’s major project pipeline – underscored by Queensland’s electricity and hospital spending boost – is expected to peak at $80.3 billion in the 2026 financial year.

“Queensland is the standout; the state’s potential pipeline over the next five years is more than double that of the past five years.”

The pipeline rose by almost $11 billion to hit $64.9 billion in the 2024 financial year (FY).

The Queensland boost is expected to account for more than a third of the increase in activity over the next five years.

In the latest edition of the Australian Major Projects report, ANZ Research expects a small lift in the potential pipeline in FY2025 followed by another large jump of almost $13 billion in FY2026 to a peak of $80.3 billion.

But what does this new major project pipeline look like and what is driving shifts in what the nation is building?

Queensland’s electricity and hospitals

Major rail and road project investment drove a significant share of activity in recent years, but has now passed its peak, and is likely to contract in the late 2020s.

To offset this an expansion in major electricity and hospital projects is expected.

But Queensland is the standout; the state’s potential pipeline over the next five years is more than double that of the past five years, adding $8 billion each year on average.

The potential pipelines of South Australia and Tasmania are estimated to be four to five times larger than over the past five years, but these states have smaller impacts on the national pipeline.

New South Wales and Victoria could see average activity around 30 per cent higher over the next five years.

Only small lifts are expected in Western Australia and the Northern Territory, reflecting unevenness in the major resources project pipeline that these jurisdictions depend on.

Progress on the next stage of Canberra’s light rail will determine the Australian Capital Territory’s pipeline.

Cost and interest rate challenges

Infrastructure cost inflation appears to be stabilising, but it is still running higher than the 2010s decade average.

ANZ Research suspects elevated cost inflation will be an enduring characteristic of Australia’s infrastructure market.

The projected rise in domestic infrastructure demand and upward pressure on global infrastructure demand ‒ from trends like the energy transition and increased defence investment ‒ will exacerbate competition for skilled labour, materials and equipment in an already tight market.

Australia’s interest rates are unlikely to fall materially in this cycle, which will keep the return-on investment threshold for major projects higher, particularly for private sector projects.

The combination of above-average inflation and structurally higher rates could have offsetting impacts on the pipeline: cost escalations would inflate the pipeline while any project deferrals or cancellations would shrink it.

Expansionary settings

Public sector investment levels are at different points of the cycle depending on the state or territory.

In New South Wales, Victoria and Western Australia, major project investment backed by the public sector - in the form of publicly owned projects or public-private partnerships (PPPs) - appear to be peaking and are expected to end the decade lower.

In contrast, Queensland, South Australia and Tasmania are planning to ramp up public-sector-backed activity.

The level of public and PPP major project investment in Queensland is projected to overtake NSW and Victoria within a few years.

Roads

Major road investment looks to have peaked in FY2024, at around $13.6 billion, but ANZ Research expects annual activity will remain elevated at around $13 billion for the next three years.

Two projects alone will likely account for more than half of major roads investment over the five years to FY2029: the $26.2 billion North East Link in Melbourne and the $15.4 billion final section of the North-South Corridor in Adelaide.

Rail

Major rail investment looks to have peaked in FY2024, as mega projects such as Sydney Metro City and Southwest, Melbourne Metro Tunnel and Perth’s Metronet approach completion.

But Suburban Rail Loop East (Melbourne), Inland Rail (Melbourne–Brisbane) and Sydney Metro West will underpin activity over the forecast horizon.

The cost of Queensland’s Cross River Rail may now exceed $10 billion.

Hospitals

Major hospital investment is expected to ramp up quickly over the next few years to exceed $6 billion in FY2027 from around $2.4 billion in FY2024.

Queensland has allocated more funding over the five-year forecast horizon than any other state, underpinned by its Capacity Expansion Program.

The largest project in the pipeline, Adelaide’s $3.2 billion New Women and Children's Hospital, is under construction.

Water

Major water project investment could expand substantially if the multi-billion-dollar Northern Water desalination plant in SA and Paradise Dam rebuild in Queensland get the go ahead.

Major recreation projects

New and upgraded venues for the 2032 Olympic and Paralympic Games in Brisbane will lift recreation activity substantially. But there will be more clarity following the 100-day review of Games infrastructure due for submission to the Queensland government Imminently.

Despite recreation representing only a small portion of the overall major projects pipeline, the hard deadline for Games infrastructure may exacerbate cost pressures.

In Tasmania, the $775 million Macquarie Point Stadium is scheduled to start in late 2025 and must be completed in 2028, ahead of the 2029 AFL season, in order for the Tasmania Devils team to join the competition. Although an independent review of the project estimated it would cost more than $1 billion.

Electricity project pipeline

Several new or expanded policy measures announced since late 2023 will support the major electricity project pipeline.

The FY2025 federal budget allocated $5 billion in new net-zero spending measures over the forward estimates to FY2028, including $1.9 billion for Future Made in Australia – Making Australia a Renewable Energy Superpower.

The Australian Office of Financial Management launched Australia’s inaugural sovereign green bond in June 2024, the proceeds of which will be allocated to Eligible Green Expenditures, which must align with goals including climate change mitigation.

The expansion of the Capacity Investment Scheme, in which the federal government underwrites renewable generation and storage projects, should improve the probability that planned projects get across the line.

Critically, ANZ Research is expecting transmission infrastructure investment to escalate over the next few years. This will help decentralise Australia’s electricity grid and expand capacity to connect new renewables projects.

Storage investment is expected to almost double to around $2.9 billion in FY2025 and major renewables project investment is forecast to increase progressively over the remainder of the 2020s.

Mining, oil and gas: other minerals to dominate

Major oil and gas project investment is likely to remain elevated over the next two years, underpinned by some megaprojects approaching completion, such as the $17.7 billion Scarborough LNG and Pluto Train 2 project in Western Australia.

But a gap may open in FY2027 and the pipeline late in the decade is highly dependent on the $30 billion Browse project going ahead.

The federal government’s Future Gas Strategy, released in May 2024, details its plan for reliability, affordability and sustainability in the gas sector and outlines how gas fits in with Australia’s 2050 net zero emissions target. The strategy signals a more supportive environment for future gas projects.

Major mining project investment rose sharply in FY2024.

It may slip a little in FY2025 before lifting strongly in FY2026. The composition of the pipeline is changing, with major project investment in other minerals overtaking iron ore and coal in financial year 2023 and set to dominate major mining investment in the second half of the 2020s (Figure 7). These projects are more broadly dispersed across states than iron ore or coal and include gold, copper, nickel and critical minerals projects.

The federal government (and some state governments) has a critical minerals strategy in place to support the development of these projects, which includes a $4 billion Critical Minerals Facility to provide loans to project developers. The construction of mineral processing facilities is contributing to a lift in major manufacturing project activity, although price volatility has seen some projects scaled back or mothballed.

The $6.4 billion urea plant on the Burrup Peninsula in WA is also under construction.

There are a handful of hydrogen and other fuels projects that should support future activity, but most proposed major hydrogen projects are not included in the pipeline yet. If large-scale green hydrogen and ammonia projects are proven viable in Australia, this poses substantial upside to the pipeline in the 2030s.

Catherine Birch is a Senior Economist at ANZ

This is a version of work originally published on ANZ Research on January, 30 2025. Subscribers can access the research here.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.