A nuclear energy crisis of global proportions. Political turmoil in the Middle East. Floods in Queensland’s coal country. Each of these largely unpredictable recent events has shaped the energy sector, both in the short-term and the extended horizon. Joseph Stanislaw, an independent senior adviser on energy issues to Deloitte, observed that “in the past year the world has experienced an unpredictable series of catastrophic events that the “probabilities” said would not happen. We had some of these events in the past, but not to the degree and sequence that we do now.”
Stanislaw was reluctant to commit to a vision of a new paradigm for the sector, saying “I think the only constant of any paradigm is that change and uncertainty are facts of life. Grand plans that try to lay out each step for the next 40-50 years are impossible, but it is important to try to have a vision of where the world might go. Vision needs to incorporate the uncertainties and possibilities for the unexpected to happen.” However, Stanislaw was certain about one thing: “Whether it is nuclear or oil or coal or natural gas, the message is clear: the public, and thus the politicians, are going to be stressing more vigorously about environmental risks, costs and social impacts.”
Rumours of Woodside Takeover Squashed, Sort of
Uncertainty also clouds the future of oil/gas giant Woodside Petroleum (WPL). Last week, Woodside was the subject of takeover rumours, as BHP Billiton was said to be preparing a $47 billion offer for Royal Dutch Shell’s remaining 24% stake in the company. Although BHP and Woodside both denied that formal talks were taking place, their public comments left room for speculation. BHP told shareholders that the market was “currently informed of all material information” – a statement that leaves a loophole for BHP’s advisers to be in informal talks with their counterparts at Woodside. Likewise, Woodside’s chief executive, Don Voelte, said “Woodside does not respond to market or media speculation on these types of things.” Not exactly a resounding, absolute no.
Western Australia Premier Colin Barnett told reporters that BHP had asked him about a possible move on Woodside. Barnett replied that he did not mind the proposed buy of Shell’s shareholding interest, but would oppose a full takeover of Woodside. Woodside needs to remain an independent, Australian company, Barnett said, describing the company as the face of the country’s LNG industry. If Woodside were taken over, the industry would lose “a closeness to government that you would probably not be able to recreate” the premier said. “I just urge you – hands off Woodside.”
Woodside Demands Carbon Pricing Exemption
Woodside’s Voelte, while cagey on the takeover issue, wasn’t hesitant to express his position on the carbon pricing debate. Voelte says that LNG helps to cut global greenhouse gases and should be exempt from the proposed carbon tax. “Gas is good and Australia is penalising it,” says Voelte. “We don’t get it.” At a recent Lateline forum, Piers Verstegen of the Conservation Council of WA disagreed. “In Western Australia…the LNG industry have overtaken coal as the state’s biggest pollution source and we’re likely to see a doubling in West Australia’s emissions, principally due to increases in the LNG industry in this state.” Responded Voelte: “The stoush has just begun.”
Meanwhile, Australian Greens leader Bob Brown has rejected the possibility of a $20 carbon price, a figure mentioned in a recent speech by Climate Change Minister Greg Combet to illustrate how the government could use carbon tax revenue to compensate households for price increases. Senator Brown said, “What we are aiming at is to get a price which is going to have a real impact in reducing carbon pollution and is going to be able to stimulate those sunrise industries.”
Uranium Stocks Tumble
Although uranium stocks – and the arguments of nuclear power advocates in Australia – have taken a severe hit since the Japan nuclear disaster in March, analysts have counselled against hasty selling. Says Raymond James mining analyst Bart Jaworski, “We have updated our outlook on uranium supply/demand fundamentals and, after revisiting our reactor model and making adjustments to our projected reactor build-out per region, our outlook beyond 2011, to our surprise, remains fairly bullish.”
Jaworski’s top picks in the sector are Hathor Exploration (HAT) and Paladin Energy (PDN), predicting improved performance in uranium toward the end of the year. “We continue to believe that the uranium industry will again find its legs and that the public perception of nuclear power will shift positively,” Jaworski wrote in a recent report. Adam Schatzker, an analyst at RBC Dominion Securities, also rated Paladin as a top pick, as well as Uranium One (UUU) and Cameco Corp. (CCO). All four companies are listed on the Toronto Stock Exchange.
Australian Renewable Energy Agency Announces Strategic Directions
In its recently issued “Strategic Directions” paper, the Australian Centre for Renewable Energy (ACRE) proposed a new integrated technology funding initiative called the “Emerging Renewable Program.” The program proposes support for those initiatives which either have globally applicable opportunities or exploit available resources in Australia. ACRE’s review of renewable energy technologies concludes that solar energy “will take some years to become viable even under a carbon price.” ACRE supports regulatory regimes and pilot projects for tidal technology, and urges geothermal energy developers to focus on resource discovery and proving. ACRE also supports R&D and pilot projects for second-generation bio fuel projects (including algae), biopower, bioheat, and hybrid bio projects. It does not propose any significant support for wind or hydropower.
Victoria’s auditor general Des Pearson criticized the state’s record on renewable energy. Pearson said renewable energy generation had increased from 3.6% of total power to only 3.9% between 2002 and 2010. In 2002, the Victorian government had declared its intention of delivering 10% of its power from renewable sources by 2010. Despite the unimpressive performance, Pearson said, more than A$270 million in taxpayer funds had been pumped into renewable programs. Pearson was particularly critical of two solar projects which received A$150 million in public funding: the Solar Systems/Silex project and TRUenergy’s project south of Mildura.
Bullish Outlook for Australia’s Energy Companies
Andrew Lally, Senior Portfolio Manager/Analyst for Australian Equities at AMP Capital, says that the energy sector is now facing “more opportunities than threats.” Profits are rising on higher oil prices, elevated by recent political unrest in the Middle East. However, Lally emphasised the importance of LNG in Australia’s long-term energy outlook. “According to the Australian Bureau of Agricultural and Resource Economics (ABARE),” said Lally, “the search for lower carbon intensive energy sources will see Liquefied Natural Gas (LNG) move to our highest growth energy export, with gas exports likely to grow on average 7.7% a year and account for 60% of total gas production in Australia by 2030.”
Lally also noted the impact of the Fukushima crisis, saying “The use of gas as a viable alternative to coal and nuclear energy is gaining momentum. The recent tragic disasters in Japan are likely to raise questions about the safety and ultimate cost of nuclear power globally, and could alter preferences in how countries meet growing energy demand.”
“The abundance of natural gas, relatively low carbon emission, and well proven technology creates sound long-term fundamentals for the LNG industry,” Lally concluded.