Long term investment: Avoid the carbon taxers (Australia) and follow the shale gas (US)

It is electricity price – rather than energy price – which is I think the more telling parameter for growth and investment. And it is electricity price which matters fundamentally. Winning “brownie points” for being virtuous and politically correct is irrelevant and often counter-productive.

Historically, a  low (unsubsidised) electricity price has nearly always given high growth, increased exports to regions with higher electricity prices and an attractive climate to invest in. This simple observation will now lead to my shifting my (small) investments away from  Australia for some time – at least as long they continue with their virtuous but meaningless carbon tax. On the other hand, the relatively low electricity prices resulting from the advent of shale gas  in the US augur well for the US economy and for US exporters – irrespective of which party the President comes from.

In my own field of power generation I expect a gas turbine combined cycle boom in the US in 2014/15 (which will also be a boom for steam turbine manufacturers). So my message for the next 5 or 6 years is to shift your investments away from Australia (and other virtuous but economically silly countries) and into countries promoting low energy prices (US and other countries where the environmental regulations and tax regimes allow  production of electricity at the lowest possible cost).

Sydney Morning Herald: 

BHP Billiton head Marius Kloppers has told European investors that Australia’s carbon and mining taxes have helped to render the nation’s coal industry unworthy of further investment at this time. ……. 

In comments that appeared to be more pointed than those given in his Australian media conference, Mr Kloppers put some of the blame on the federal government’s two controversial new taxes.

”What I am seeing on the eastern seaboard in Australia is that the coal industry has been very heavily impacted by lower prices, higher operating costs, carbon taxes and increased royalties,” he said.

Royalties were increased by the New South Wales government as it sought to exploit a loophole in the federal government’s new mining tax, and a similar tactic is now being considered by the Queensland government. ….

Financial Times:

….. Today, few realise that the US stands on the cusp of significant economic gains stimulated by low energy costs. High quality global journalism requires investment.  …..

The consensus view discounts the economic boost from natural gas, arguing that the energy sector cannot generate so many jobs. The doubters wear blinkers; they see nothing but the energy market. They commit the mistake made by forecasters in 1991. They miss the tectonic shifts in trade,  ….

(The shale gas) advantage gives manufacturing plants in the US a 60 per cent, 70 per cent or even 80 per cent cost advantage over those operating in China, Japan, South Korea or European countries.

Read more: http://www.ft.com/intl/cms/s/0/09fbb2ac-87b8-11e1-ade2-00144feab49a.html#axzz24QutnD2A

Tags: , , , , ,

%d bloggers like this: