You can still find oil, energy, and raw materials. But you have to take risks to get it. Risks that involve huge sums of money. Some of those risks are political, like doing business with African kleptocracies. Some are physical, like drilling for oil offshore. And then there are your normal business risks – that prices will fall and all your assumptions based on a higher price turn out to be worthless.
Take the example of Canada’s tar sands. Turning heavy bitumen into usable liquid fuel requires huge injections of energy and water, not to mention labour and capital. Yet much of Alberta now resembles a mechanised-Mordor, as a project that was once un-economic makes a little more sense in the global energy environment.
The world will go on looking for energy in unlikely and unwelcoming places because it needs it. And it will also look to substitutes. Which brings us to coal.
Yes, coal is a dirty little four-letter word these days. Combusting coal to produce electricity produces the dreaded carbon dioxide, the planet killing greenhouse gas (we are told). Any discussion of energy today involves not just the energy returned on energy invested (EROEI), but greenhouse gas production too. In that sense, the attempt to reduce coal’s carbon footprint – which is a very long and difficult race indeed – may yield up a few investment winners – or at least a few good punts.
Here’s a question: what if you could turn underground coal into liquid fuel by actually burning it underground? That would be a neat trick. And there are a few Aussie companies doing just that. They’re demonstrating that stranded coal seams that were uneconomic to mine for use as coking coal or thermal coal are quite useful indeed if you gasify them under the ground and then capture the gas to turn into a diesel or jet fuel.
Again, it sounds quite elaborate and hellish, burning coal underground to capture the gas which is then turned into a liquid fuel, or used to generate electricity. But a lot of things that seemed quite absurd twenty years ago when oil was cheap are going to get a much closer look from investors as oil prices remain high.
At one end of the spectrum, we’ll continue to look at alternative and renewable energies. These things – wind, solar, fuel cells – will never fully replace hydrocarbons. But a portfolio of energy solutions will make their way into your life. We want to know the companies that are going to provide them.
And in the hydrocarbons sector, oil, gas, and coal are still centre stage in the global economy. Coal, despite its raspy cough and shabby appearance, exists in abundance. We think it will play a starring role in the production of liquid fuels in the not too distant future. And in the meantime, it doesn’t hurt to own Woodside either…which has been in the portfolio of Outstanding Investments since we first arrived in Australia.
Markets and Money
What will be the future of energy in Australia? Leave a comment below.