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Energy transitioning countries stand to attract major FDI investment, webinar hears – Creamer Media's Mining Weekly

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JOHANNESBURG (miningweekly.com) – Countries that choose to transition into clean energy stand to attract major foreign direct investment (FDI) flows, as do companies that follow a clear pathway towards decarbonisation responsibly, a global webinar event has emphasised.

The timing of the clean energy leapfrog by transitioning developing countries is seen as being crucial.

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“Really, there are massive opportunities for countries to go ahead and invest in technologies that are cleaner and that are low carbon – and from a finance point of view, this is also going to be quite significant to attract foreign direct investors, or in general to attract investment into companies,” Wood Mackenzie head of carbon energy transition Elena Belletti said during Wood Mackenzie Metals & Mining webcast covered by Mining Weekly.

Moving away from the use of fossil fuels and embracing green fuels will enable countries to get ahead of the curve and position themselves for a better future with the help of FDI, Belletti reiterated.

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The former United Nations Department of Economic and Social Affairs official displayed a COP26 Climate Change Conference slide showing the immediate pledge by 40 countries to scale up clean power generation and to end unabated coal-fired electricity generation, as well as the agreement of more than 100 countries to reduce their collective total methane emissions by at least 30% in the next eight years to 2030.

Regarding methane, green hydrogen protagonist and Fortescue Metals Group chairperson Andrew Forrest earlier this month, in an interview with CNN’s Christiane Amanpour, described oil and gas plants as methane mines, and condemned the opening of new ones as an anathema that failed to take the livelihoods of today’s offspring seriously.

Also, the ‘phase down’ rather than ‘phase out’ of coal power may, according to Belletti, also come under more intense scrutiny going forward, against the background of the world still being on a 2.5°C to 2.7°C temperature trajectory instead of the required 1.5°C.

CARBON MARKETS POISED TO GROW

The use of carbon offsets as a reliable decarbonisation tool for hard-to-abate emissions was said, during the Wood Mackenzie webinar, to be advancing fast under the carbon-market-related Article 6 of the Paris agreement. Greater transparency around these is expected to lead to the growth of the now voluntary carbon market from $1-billion traded in 2021 to an expected $200-billion in 2050.

Governments have several options to integrate international carbon credits in current compliance markets through carbon tax, cap-and-trade and a combination of both.

Delivering metals required to meet the 2.5°C to 2.7°C trajectory is going to be difficult, the webinar heard, let alone the delivery if metals for the accelerated energy transition (AET) target of 1.5°C.

Wood Mackenzie Metals & Mining vice-chairperson Julian Kettle expressed the belief that there is the potential for the metals industry to meet the 2.5°C to 2.7°C trajectory demand targets, “but it’s going to be a stretch”. On achieving a 1.5°C pathway, the metals and mining industry could ultimately be the impediment, in his view. Using the words ‘impossible’ or ‘implausible’ get him into trouble with his colleagues.

“So, I’m just saying, okay, it’s challenging to achieve the growth targets,” said Kettle, in representing the supply gap as a percentage of the market.

“The larger the number, either positive or negative, the greater the stress, so, if we were to take the most extreme case under an AET 1.5°C scenario, the cobalt market is currently by 2030 about 150% under supplied. Put simply, we just can’t see where the cobalt will come from to achieve consumption in that form, because including crafting our demand outlook under an AET 1.5°C scenario, we don’t assume the same sort of consumption.

“We will have to look at a different way of consuming going forward. We cannot have unabated consumption. There is the assumption that the global economy will double in size by 2050 so again, should that be challenged, Kettle asked.

What a doubling of the economy means in terms of  growth and consumption means that there is huge pressure of decarbonisation playing into the gross domestic product (GDP) metric.

Even with a different way of consuming, an allowance for thrifting and changes in electric vehicle battery chemistries, the supply growth required presents a very steep mountain to climb.

“And don’t forget we’re talking about 2030. Even delivering the required tonnages by 2030 becomes challenging on a number of levels.

“One is the lead-time issue. From first discovery to first metal is stretching to between ten and 15 years now for many of the commodities that are going to be required.

“We also have he challenges of financing and investor appetite, and then we have the very fickle nature of the new consumers.

“Also, companies are not going to stand idly by and wait for the mining sector to deliver the tons that they need to deliver their products. You will start to see companies looking at alternatives and technological innovation.

“Also, we must not forget that all of this has to be done in a low-carbon way. We can’t keep producing the way we keep producing, in a high-carbon way. We can’t just buy offsets. We have to actually be abating in some shape or form.

“The inconvenient reality is that we are going to have to emit more carbon to build up that low-carbon world. There’s very, very little way around that right now,” said Kettle.

CARBON TAXES SET TO IMPACT ALUMINIUM PRICE

One of the major drivers of change is going to be carbon taxes and if many of the commodities that are part of the energy transition solution grow too fast without abatement, they become part of the problem from a carbon tax perspective.

As aluminium requires large quantities of electricity to produce, the use of fossil fuel power to produce it could attract carbon taxes that would send its price sky high.

“If you look at a carbon tax regime that we believe would be alive with a 1.5°C pathway, we are looking at an increase in the marginal cost of pricing aluminium of something like $1 800/t, almost a doubling of the long-term aluminium price, which will be transformative.

“If you look at the low end of the curve, we see significant opportunities for corporates and investors to move to the low end of the curve.

“What that means is that low-carbon equities will be favoured. They will outperform because supply and demand will be in balance but also the financial importance of those equities will be enhanced quite significantly by carbon taxes, at least until the industry abates,” said Kettle.

Once there is abatement at the margin, then prices come down. Aluminium is carbon-tax sensitive and copper is relatively carbon-tax insensitive.

Those looking to optimise their portfolios would want to be in copper rather than aluminium at the margin. Being in low-carbon aluminium would pose a different question – “so quite significant variation but also the bulk commodities sit in the middle of the equation”. These include thermal coal, metallurgical coal and iron-ore.

Wood Mackenzie VP Metals & Mining Robin Griffin pointed out that what set coal apart is the problem of fugitive emissions – methane that sticks to the surface of coal and is released during mining. This is a particular problem for metallurgical coal.

Because metallurgical coal is a higher value product and continues to be mined at increasing depth in underground mines, some of which are very heavy emitters, unless they are abated.

With metallurgical coal having a marginal cost of $130-odd dollars per tonne, a carbon price puts a $150-plus increase on that marginal tonne.

“There are opportunities there for opencut miners, because they typically are producing much lower fugitive emissions. But even for Australian miners that can be quite high emitters, the abate of 65% is probably best practice for those fugitive emissions. They do well if there are marginal producers who don’t abate.,” Griffin said.

Some miners are producing more than a tonne of emissions per tonne of coal produced, and that is many times what an opencut metallurgical coal miner emits.

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Pandemic darlings face the boot as investors eye return to normal life

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Stay-at-home market darling Netflix slumped on Friday, joining a broad decline in shares of other pandemic favourites this week as investors priced in expectations for a return to normal life with more countries gradually relaxing COVID restrictions.

The selloff, which began after Netflix and Peloton posted disappointing quarterly earnings, spread to the wider stay-at-home sector as analysts judged the new Omicron coronavirus variant will not deliver the same economic headwinds seen in the first phase of the pandemic in 2020.

“This a confirmation that the economy is gradually moving towards some sort of normalisation,” said Andrea Cicione, head of strategy at TS Lombard.

France will ease work-from-home rules from early February and allow nightclubs to reopen two weeks later, while Britain’s business minister said people should get back to the office to benefit from in-person collaboration.

“With a return to the office and travel lanes opening, darlings of the WFH (work from home) thematic are reflecting the growing reality that the world is moving slowly but with certainty towards a new normalcy,” said Justin Tang, head of Asian research at United First Partners in Singapore.

Netflix tumbled nearly 25% after it forecast new subscriber growth in the first quarter would be less than half of analysts’ predictions.

The stock, a component of the elite FAANG group, was on track for its worst day in nearly nine-and-a-half years following rare rating downgrades from Wall Street analysts.

“It is hard to have confidence that Netflix will return to the historical +26.5 million net subscriber add run rate post the 2022 slowdown,” MoffettNathanson analyst Michael Nathanson said.

“The decay rate on streaming content is incredibly rapid. ‘Squid Game?’ That’s so last quarter. ‘The Witcher?’ Done on New Year’s Eve!”

Exercise bike maker Peloton lost nearly a quarter of its value on Thursday, leading at least nine brokerages to cut their price target on the stock.

The selloff erased nearly $2.5 billion from its market value after its CEO said the company was reviewing the size of its workforce and “resetting” production levels, though it denied the company was temporarily halting production.

Peloton’s shares were up nearly 5% on Friday morning, bouncing back somewhat from a 23.9% drop on Thursday, its biggest one-day percentage decline since Nov. 5.

HOME DELIVERY

Both companies were part of a group, along with others such as Zoom and Docusign whose shares soared in 2020, and in some cases 2021 as well, as people around the world were forced to stay at home in the face of the coronavirus.

However, thanks to vaccine rollouts and the spread of the less severe Omicron strain of COVID-19, life is returning to normal in many countries, leaving companies like Netflix and Peloton struggling to sustain high sales figures.

According to data from S3 Partners, short-sellers doubled their profits by betting against Peloton in 2021, the third best returning U.S. short.

Direxion’s Work from Home ETF has fallen more than 9% in first three weeks of the year, compared to a 6% drop in the fall of the broader U.S. stock market. Blackrock‘s virtual work and life multisector ETF has weakened more than 8% this year.

In Europe, lockdown winners are also going through a rough patch as rising bond yields pressurise growth and tech stocks.

Online British supermarket group Ocado, Germany’s meal-kit delivery firm HelloFresh and food delivery company Delivery Hero which emerged as European stay-at-home champions in the early days of the pandemic have underperformed the pan-European STOXX 600 so far in 2022.

(Reporting by Alun John and Julien Ponthus; Additional reporting by Nivedita Balu, Anisha Sircar and Chuck Mikolajczak; Editing by Saikat Chatterjee, Alison Williams and Saumyadeb Chakrabarty)

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Bitcoin falls 9.3% to $36,955

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Bitcoin dropped 9.28% to $36,955.03 at 22:02 GMT on Friday, losing $3,781.02 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is up 2.4% from the year’s low of $36,146.42.

Ether, the coin linked to the ethereum blockchain network, dropped 12.27% to $2,631.35 on Friday, losing $368.18 from its previous close.

 

(Reporting by Jaiveer Singh Shekhawat in Bengaluru; Editing by Sriraj Kalluvila)

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Oil, gas investment forecast to rise 22% in Canada – Investment Executive

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It’s positive news for an industry that has now essentially recovered to its pre-pandemic levels, after a disastrous 2020 that saw oil prices collapse due to the impact of Covid-19 on global demand.

But CAPP president Tim McMillan pointed out that in spite of the fact that oil prices are at seven-year highs and companies are recording record cash flows, capital investment remains well below what it was during the industry’s boom years. In 2014, for example, capital investment in the Canadian oilpatch hit an all-time record high of $81 billion, capturing 10% per cent of total global upstream natural gas and oil investment.

“Today we’re at $32 billion, and we’re only capturing about six% of global investment,” McMillan said. “We’ve lost ground to other oil and gas producers, which I think is problematic for a lot of reasons . . . and it leaves billions of dollars of investment that is going somewhere else, and not to Canada.”

Investment in conventional oil and natural gas is forecast at $21.2 billion in 2022, according to CAPP, while growth in oilsands investment is expected to increase 33% to $11.6 billion this year.

Alberta is expected to lead all provinces in overall oil and gas capital spending, with upstream investment expected to increase 24% to $24.5 billion in 2022. Over 80% of the industry’s new capital spending this year will be focused in Alberta, representing an additional $4.8 billion of investment into the province compared with 2021, according to CAPP.

While the 2022 forecast numbers are good news for the Canadian economy, McMillan said, it’s a problem that companies aren’t willing to invest in this country’s industry at the level they once did.

He said investors have been put off by Canada’s record of cancelled pipeline projects, regulatory hurdles and negative government policy signals, and many now see Canada as a “difficult place to invest.”

However, Rory Johnston, managing director and market economist at Toronto-based Price Street Inc., said laying the decline in the industry’s capital spending at the feet of the federal government is overly simplistic.

He added while current “rip-roaring, amazing” cash flows and a period of sustained high oil prices will certainly give some producers the appetite to invest this year, Johnston said, it will likely be on a project-by-project basis and certainly on a smaller scale than the major oilsands expansions of a decade ago.

“You have global macro trends across the entire industry that have begun to favour smaller, fast-cycle investment projects – and most oilsands projects are literally the polar opposite of that,” he said.

One reason capital spending isn’t likely to return to boom time levels is because companies have become much more cost-efficient after surviving a string of lean years. And that’s not a bad thing, Johnston said.

“The decade of capex boom out west was tremendously beneficial for Canada and Albertans, but it also caused tremendous cost inflation,” he said.

“While what we’re seeing right now is not as construction-heavy and not as employment-heavy – and those are two very, very large downsides – the upside is that you’re much more competitive in a much more competitive oil market,” Johnston said.

In a report released this week, the International Energy Agency (IEA) hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day.

According to the IEA, global oil demand will exceed pre-pandemic levels this year due to growing Covid-19 immunization rates and the fact that the new Omicron variant hasn’t proved severe enough to force a return to strict lockdown measures.

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