16/09/2010 - 00:00

The high cost of opposing gas projects

16/09/2010 - 00:00

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Are calls to stop proposed gas projects leading to an accident waiting to happen?

It would be going too far to suggest that the environmental movement has formed a partnership with the coal mining industry, but a visitor to Australia would be forgiven for assuming that is the case.

The reason for making the connection is the consistency with which environmentalists have been criticising plans to increase the production of natural gas, the least polluting fossil fuel.

Over the past few weeks, three gas projects have been deemed unacceptable by the Greens Party, and its pro-environment friends.

WA’s plans to develop the James Price Point liquefied natural gas is one project. A gas exploration project off the NSW coast is another, and the coal-seam gas industry of Queensland is the third.

There is a pattern here that simply does not make sense because the principal beneficiary of reduced gas production is coal, and if you want to make a pound-for-pound pollution comparison then coal wins by a country mile – it is the world’s dirtiest energy source.

The really curious aspect to the environmental protests is that they are consistent – if you regard stupidity as a constant.

Back in the 1970s and ’80s the arch villain of the environmental movement was the nuclear power industry, and its close associate uranium mining.

The end result of slowing the development of a nuclear power industry around the world was a dramatic increase in coal production, increased carbon dioxide emissions, and the start of the great global warming debate.

Would more nuclear power have been a global warming deterrent? That’s something we’ll never know.

What we do know is that a massive mistake was made in slowing nuclear power, and that the world is now running to catch up as seen in China’s nuclear power building boom and a decision in Germany last week to extend the life of its 17 nuclear power stations by an extra 12 years because there is nothing to replace them except more coal – and the promise of giant wind farms sometime in the future; maybe.

Gas is today’s target for the Greens as seen in the three latest protests that include:

• A call late last month to ban a plan by Advent Energy to drill for gas off the NSW coast because it might damage the marine environment;

• Objections to the expansion of Queensland’s coal-seam gas industry; and

• Calls for the rejection, on environmental grounds, of the James Price Point LNG project.

Caring for the environment is an admirable quality that we should all take seriously, but mindless objections to uranium mining and gas production are among the world’s best examples of trying to bite off your nose to spite your face.

If the latest protests about the NSW gas exploration project, Queensland coal-seam gas, and WA’s latest LNG proposal are successful there will be only one winner, coal, because it is still the only reliable power source to satisfy consumer and industry demand.

Sour grapes

If stopping gas projects falls into the category of tomorrow’s accident waiting to happen then last week’s attempt by a private equity group to buy the wine division of Foster’s provides a useful valuation tool for one of yesterday’s great accidents.

Cerberus Capital was reported to have offered Foster’s around $2.5 billion for Treasury Wine Estates, the re-named wine division of the big beer maker. No deal eventuated, largely because Foster’s values Treasury at $3.1 billion.

Interesting as those numbers are, because the relatively modest gap indicates that a deal is possible, there is an even more interesting number in the background, and that is the estimated $8 billion that Foster’s spent assembling its sprawling wine operations that include some of the best-known names in Australian wine.

What the numbers show is that Foster’s looks like getting $3 billion back on an $8 billion investment, or 37.5 cents for every dollar invested over the past 10 years.

Unpleasant as it might seem, but that miserable return to one of the biggest players in the wine game provides a ratio for valuing all other wine investments.

Once you factor in a value of 37.5 cents in the dollar you understand why it is no longer fashionable to talk publicly about money you might have invested in a southwest vineyard.

It gets worse because there is no end in sight to the collapse in wine-industry values because there are so few barriers to entry in the wine business, and Australian wine is being priced out of the export market by the rising value of the dollar.

Sovereign risk

Gas and wine are not alone in the gloom department this week. There is a third sector that might be heading for future trouble even if no one will admit it yet, and that’s the African mining rush.

The exodus of Australian miners to Africa has been caused by the twin appeals of rich pickings in previously closed countries, and the threat of Australia’s MRRT spreading from iron ore and coal to all minerals.

But waiting for the innocent Aussies is politics African-style, which First Quantum Minerals, the company behind the re-birth of the Ravensthorpe nickel project, knows all about.

Until a few months ago First Quantum owned the Kolwezi copper project in Congo. Then the government of that country took it off them and sold it to another company, Eurasian Natural Resources.

First Quantum reckons it will sue for “billions of dollars in compensation”. Eurasian says it isn’t aware of any legal action – and the Congo government is saying nothing.

In Australia we recently had a debate about sovereign risk with the mining industry incorrectly calling higher taxes an example of sovereign risk

Real sovereign risk is when a government rips an asset out of your hands and sells it to someone else, which is how old Africa operated and perhaps how new Africa will also operate – after all that well-known African animal, the leopard, doesn’t change its spots.

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“My reading of history convinces me that most bad government results from too much government.”

Thomas Jefferson

 

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