Posts Tagged ‘investment’

Time to invest in fossil fuels as China discovers vast new reserves

April 21, 2015

There is a campaign in the western “do-gooding” and deluded “green” community (exemplified by The Guardian) to pressurise investors to disinvest from fossil fuels. Fortunately there is no shortage of investors in Asia who would be only too happy to see the European financial institutions and pension funds selling off their shares in oil, shale and coal producing and using companies. There are few better investments than snapping up artificially depressed energy shares. I am watching closely to pick up any bargains that might appear if this campaign has any impact. So far it has had little effect.

In the 1970s and 1980s the alarmist view was that coal, oil and gas would run out catastrophically. Now that peak-oil and peak-gas have been pushed out into the indeterminate future and further new shale reserves are found, the alarmism has shifted to the use of these resources being catastrophic! The campaign itself is rather idiotic (“leave it in the ground”) and counter-productive, since any success can only shift ownership of energy companies eastwards. Supposedly – but misguidedly – it is about climate but the campaign has no measurable or relevant objectives. (Note that no “climate policy”  ever has a climate parameter as an objective and which can be measured.) It will certainly not reduce the consumption of fossil fuels at all – which will instead continue to grow as developing countries develop. In fact the competitiveness of the fossil fuel using countries will be further emphasised as the “do-gooding” countries entrap themselves into a very high-cost electricity production regime based on intermittent solar and wind energy. (It is worth noting that Germany which has installed more renewable energy than any other European country now has an electricity cost which is the highest in Europe and more than twice that of the US. And yet Germany burned more coal last year than they have ever done! The German Energiwende has been a fiasco for all other than those who have milked the subsidies available)

There is – again fortunately – no prospect of India, China and other developing countries in Asia and Africa reducing their use of all the fossil fuels they have available. If I could I would be investing directly in coal and oil and natural gas and shale gas in India and China and Indonesia. At present I must satisfy myself with some indirect investment.

History will be contemptuous of the irrational demonisation of fossil fuels by the alarmists and the “do-gooders” during the late 20th and early 21st century.

Xinhua reports:

China continued to be increasingly successful at discovering crude oil and natural gas reserves last year, new data from the Ministry of Land and Resources indicated on Thursday.

The country discovered nearly 1.06 billion tonnes of new crude oil deposits in 2014, up from 1.1 billion tonnes the previous year, marking a stable increase and the eighth consecutive year in which the amount discovered surpassed 1 billion tonnes. More than 1.1 trillion cubic meters of new natural gas reserves were also discovered in 2014, a record high.

Of the new discoveries, 187 million tonnes of oil and 474.9 billion cubic meters of natural gas can be exploited with current technology, according to the ministry.

New shale gas reserves discovered amount to 106.75 billion cubic meters, with 26.69 billion exploitable.

This is the first time that proven reserves of shale gas have been publicized since the Chinese government approved the listing of shale gas as an independent mineral resource in 2011.

Discoveries of coal-bed methane, an unconventional gas, amounted to 60.2 billion cubic meters, up 155.3 percent year on year.

shale basins China (The Diplomat)

shale basins China (The Diplomat)

The Indian sub-continent too has large shale reserves waiting to be exploited. The shale basins extend into Pakistan and Bangladesh and offers Pakistan the possibility of actually becoming self-sufficient for energy.

shale gas basins India

shale gas basins India

My top 10 investment and disinvestment areas for 2014

January 2, 2014

I am relatively new to the world of personal investments and these are just based on my personal gut-feel:

  1. Oil and Gas companies – but only if they also have – or acquire – fracking reserves. I am staying away from those  gas producers who are overly dependent on “conventional” natural gas and have not embraced shale gas. If the economic recovery (globally) is confirned by Q2 then the “blue chip” oil companies become attractive again.
  2. I shall get out of wind and solar energy developers. Subsidies are declining and developers and plant operators are going to be hard pushed to retain their advantages. On the other hand manufacturers of unconventional energy equipment (off-shore wind, fuel cells, batteries, geothermal ….) and who are really spending their own money on R & D (as opposed to spending government grants) are attractive in the long term.
  3. Even with a solid economic recovery, there will be a time lag before the demand for special steels and other metals picks up. Metals and mining may becoming interesting again but only at the end of the year. Australian mining becomes attractive if the “green” burdens are lifted.
  4. Cement and bulk steels will respond first and manufacturers well established in Asia and Africa seem particularly interesting. I like cement in India for the second half of 2014.
  5. Rare earths will remain in short supply and economic recovery will give prices which justify development of new mines and new resources. Investing in China has its own risk profile though. Japanese rare earth development companies could be of interest.
  6. Big Pharma’s evergreen and predatory patenting will come under further attack not only from India and China but also from Indonesia and Africa. The whole IPR model is flawed which makes for uncertainty. I shall avoid new investment but hold what I have.
  7. Social media monopoly positions will be weakened and new media will grow. I haven’t the faintest idea of how to pick any winners from the newcomers here. There has to be a backlash against intrusive advertising and I think this will cap revenue growth.
  8. There is a battle brewing between tablets and mobile devices. A single device which is as small as a mobile and which can expand to the size of a large tablet (perhaps even as large as a desk-top through glasses) would be a winner.
  9. Large retailers are due for a boom in the second half of 2014 and especially those with positions in the developing world.
  10. There are going to be new winners from Africa and Brazil but I don’t know how to pick them and therefore must wait and see.

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

August 24, 2012

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.

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