Consultant Dan
15 April 2010
Do investors know enough about coal, oil and gas stocks?
Can you trust an oil company to be honest about its reserves?
Perhaps not, according to the country’s leading stock exchange, the Australian Securities Exchange (ASX).
Earlier this week it was reported in the Australian Financial Review that the ASX is going to tighten up the rules that govern how companies report their oil and gas reserves.
Today’s print edition of the Review published a letter from me. Here is the full text I submitted:
Everyone who understands resource scarcity and global warming will welcome the news that the ASX is reviewing the reporting rules for energy projects (13 April). Fossil fuel companies have a significant incentive to exaggerate the size and profitability of their reserves. This mis-information fuels irrational investment decisions, that distort the market and suck funds away from CleanTech stocks.
The Energy Watch Group (EWG) was founded by European legislators to remedy the same information deficit that the ASX is confronting. It provides Governments with objective information about energy reserves and related issues.
EWG’s revised coal reserve estimate suggests that the world will hit Peak Coal around 2025, after which production will decline. A new mathematical model by the University of Newcastle predicts the peak will come by 2048 at the latest.
If these scenarios are accurate then Australia is over-investing in coal on conventional economic terms, without even taking into account global warming liabilities. The ASX would therefore be advised to expand the remit of its reforms to include the coal industry.
The less that we leave Australia’s asset base stranded in fossil fuel projects, the more capital we have to prime the clean energy sector. This will support our energy security, lifestyle and environmental aspirations. If the ASX takes responsibility for the information environment under its control, then regulators, Government, investors and citizens can make informed, rational decisions.
What extra reporting responsibilities should coal, oil and gas companies have, as the world runs out of readily available fossil fuels (Peak Coal and Peak Oil) and climate change accelerates?
Postscript
Here is an article I wrote about this issue in Crikey in 2008 Peak Oil Schmoil. Why is no-one talking about Peak Coal?.
If you are very numerate you will want to explore the new mathematical modeling from the University of Newcastle in Forecasting coal production until 2100 by Steve Mohr and Professor Geoffrey M Evans.
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