“I charmed a snake,” our brother said, on the phone from the airport in Singapore. He was just back from a visit to Karachi, in Pakistan, where he investigated business opportunities for a major manufacturer of computers and printers.
He was a bit nervous going to Pakistan, although he’s been traveling to places like that for most of his career. Pakistan is what you’d call a “frontier” market. Karachi is a city of 15 million people. That’s a lot of customers. But geopolitically speaking, there’s also a lot of risk.
“What do you mean you charmed a snake?”
“My urdu-speaking guide figured I’d be interested. It was exciting, as if I needed any more adrenaline. He tried to upsell me on a fight between the snake and a ferret.”
“Did you take him up on it? How much did it cost?”
“No, I didn’t go for that. But it sounded like a good match up.”
We mention the story only in reference to our conversation about cane toads yesterday. What we were really after is how things compete and adapt in nature, and the consequences of introducing new species into conditions they are not suited for. The downside, in finance, is a huge bloom of non-performing loans, mis-allocated capital, bankruptcy, misery, and despair.
The upside is that if the cane toad can thrive in Australia, where it did not evolve, older business and entire industries from the industrial age might be able to make the leap to the next century intact, and even thrive. Even the coal industry.
The installed base of coal-fired power plants is so large globally, and coal so integral to electric power generation, that it will not be mothballed or replaced over-night simply to placate Al Gore and the op ed page at the Age. But in the current political….climate…reducing, capturing, or eliminating carbon emissions will be a key objective of coal companies and public policy. So how’s it going to work and who’s going to do it?
That’s a more complicated question that we have time for in superficial notes. But we’re keeping our eye on French company Alstom. Right now, most carbon-capture (sequestration) technology takes place “post-combustion.” That is, no one has figured out how to take the carbon dioxide out of the coal before you burn it. So instead, everyone seems to be working on ways to more efficiently capture, use, or store the CO2 that’s produced from coal-fired power generation.
According to the authors of The Energy Blog, “Alstom’s post-combustion process uses chilled ammonia to capture CO2. This process dramatically reduces the energy required to capture carbon dioxide and isolates it in a highly concentrated, high-pressure form. In laboratory testing, Alstom’s process has demonstrated the potential to capture over 90% of CO2 at a cost that is far less expensive than other carbon capture technologies.
The isolated CO2, once captured, can be used commercially or stored in suitable underground geological sites.”
Bottling up captured carbon dioxide in natural salt caves or other geologic formations seems, well, to be honest, it seems goofy to us. Using that carbon dioxide to enhance the recovery of oil from existing oil wells, definitely less goofy. But all of it is premised on the continued use of coal and the production of coal’s by-products (and by the way, if the Green’s are unhappy about the ecological dangers of uranium mining in Australia, they should take a look at home much uranium is released into the atmosphere as a by-product of coal combustion.)
Another group to keep your eye on is the Babcock and Wilcox Company, which operates as a unit of McDermott International (NYSE: MDR). This company is pursuing what’s called “oxycombustion.” This process reduces the amount of nitrogen oxides released post combustion, making it easier to isolate and capture the carbon dioxide for storage.
We don’t know much about either process really, and this discussion is not a recommendation to buy shares in either firm. We’re simply trying to figure out what the next practical step is in cleaning coal up for wider use. Neither of these technologies, however, is commercially viable yet.
Of the two, the Alstom process has the virtue of being “retrofittable.” You could graft that process on to the existing fleet of coal-fired plants without having to build entire new plants. That would be good for China, America, and India.
What will eventually happen? It’s too early to say. In Outstanding Investments, we’re concentrating on developments in the conventional fossil fuels energy sector. In Australian Small Cap Investigator, we’re taking advantage of the huge amounts of venture capital going into small firms with “alternatives” to fossil fuel (in addition to other small company stories). More on all, plus part two of the Unintended Consequences of 1935, tomorrow!
Markets and Money