16/11/2011 - 10:21

Gas leads the way in new energy paradigm

16/11/2011 - 10:21

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A major new source of energy is emerging that could change the way the world economy functions.

A major new source of energy is emerging that could change the way the world economy functions.

AUSTRALIA’S internal debate over whether to embrace natural gas as an essential fuel, or move directly to total reliance on renewable energy, is being overtaken by international events that will enshrine gas as the world’s preferred fuel for the next 100 years.

Price will ensure that gas is the winner in the energy race because gas prices worldwide are poised to tumble as production rises, rendering some rival fuels uneconomic, and doing the same to countries confronting high energy costs.

Why this is happening, and the speed at which it is happening, could have significant consequences for every other form of energy, from coal to renewables such as wind and solar, and some offshore liquefied natural gas projects.

Last week there was a series of developments in the march of gas to the top of the energy pecking order because while the Greens were demanding a full renewable energy future, and the federal government was rejecting that demand, the rest of the world’s attention was elsewhere.

• A major oil and gas discovery in Argentina was made possible by the use of new exploration and extraction technologies developed in the US to tackle unconventional oil and gas deposits previously regarded as permanently ‘trapped’ in hard-rocks such as shale.

• A forecast by the world’s biggest oil company, ExxonMobil, that the world is heading into an oil and gas ‘shale boom’, repeating what has happened in the US where gas prices have crashed from $US11 per million British Thermal Units to $US4/mbtu.

• Germany, China and Poland joined the shale stampede.

• Testing of shales rich in oil and gas at multiple sites in Australia approaching a ‘eureka’ moment, which will flag the launch of a new source of liquid fuel for the country.

• One of Australia’s high-cost LNG developments, the $30 billion Ichthys project of Japan’s Inpex and France’s Total delaying a development decision, possibly because of funding problems, but also because of concern about the future price of LNG in a global gas glut.

Joining the dots in the shale gas (and oil) revolution is emerging as one of the world’s more interesting challenges, because a major new source of energy has the potential to change the way the global economy functions.

Countries rich in conventional oil and gas, such as some of the Arab states, will find that they no longer hold the whip hand in the liquid energy business, and will also discover that falling national revenue quickly translates into political problems.

The news out of Argentina was the biggest of last week’s events, closely followed by ExxonMobil’s gas glut prediction.

The Argentine discovery of almost a billion barrels of oil was made by the Spanish company Repsol in a shale rock unit previously regarded as too tight to flow gas or oil. However, using US developed ‘directional’ drilling and by fracturing the rock with water and chemicals, both oil and gas flowed freely.

More importantly, the billion-barrel estimate covers just 3.5 per cent of the tenement position held by Repsol in southern Argentina, with the company confident that much more oil and gas will be found.

The ExxonMobil forecast about shale was delivered at a conference in Houston with a senior vice-president saying that the shale boom that has changed the energy market in the US will “spread across the globe”.

Mark Albers said in an interview on the sidelines of a shale gas conference that: “We believe there is potential for unconventional oil development from shale resources globally”, adding that the US and Canada would lead the rush because they have the knowledge and established infrastructure, but other countries were sure to follow.

Boiled down, the price of liquid energy (whether oil or gas) is more likely to trend down in the long run, putting pressure on energy alternatives and making long-term government subsidies essential for renewable energy to compete.

Austal offshoring

WESTERN Australia had its maritime equivalent of a ‘Qantas’ moment last week, not that many people seemed to notice, or care.

However, down at the shipbuilding firm Austal, a plan was revealed to buy and expand a factory in the Philippines, which will specialise in making small commercial vessels such as ferries and workboats.

There is, of course, absolutely nothing wrong with what Austal is doing, but isn’t the hunt for cheaper costs in Asia, especially for skilled labour, precisely what Qantas is seeking – and precisely what led to the painful shutdown of the airline?

Boat building is a much less sensitive business than operating a national airline, though when you cut to the core of what makes a business profitable the principles are identical.

The really interesting questions from the Austal decision to invest in the Philippines are:

• who’s next ... which other Australian companies will shift part, or all, of their operations to a lower-cost country: and

• how much of the business Austal has traditionally carried out at its base in Henderson, south of Fremantle, will be shifted to the new low-cost shipyard in the Philippines?

Noble cause

MAKING money from resources, which is what mining companies try to do and what the Australian government hopes to do with its new profit-focused mining tax, can be a lot tougher than simply shipping stuff to China – as a surprise loss demonstrated last week.

Noble Group, a great Hong Kong success story, lost its chief executive after posting its first loss for 14 years, an event that caused the firm’s 71-year-old founder to emerge from semi-retirement to re-take the reins.

How Noble lost money is yet to be revealed, but it was an interesting event because commodity companies that make losses do not pay tax. Food for thought at the Australian Treasury, which assumes we are surfing a boom that will last forever.

***

‘‘The more corrupt the state, the more numerous the laws.’’

Tacitus, AD68


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