Where China’s investing

Statistics shmutistics... while the research apparently says China doesn’t invest disproportionately in resource-rich African countries, a top four of DR Congo (minerals), South Africa (coal and iron ore), Nigeria (oil) and Niger (uranium, and a fresh coup) makes me dubious.

Note also that Australia is number one overall (e.g. here, here, here).

By the way, critical mass has inspired me to add a new label for China in Africa.

Update: OK, on second thought... how is "aid" defined here? If narrowly, then perhaps I buy that Chinese aid specifically is not targeted toward resource-rich Africa countries... but who's to say where building a road, a railroad, a port, an airport becomes investment rather than aid? Building infrastructure frankly has more economic impact than most other foreign aid anyway, in all likelihood.

Update 2: Speaking of Niger, cannot help but pass on this outstanding haiku:

Another colonel
Thinks it’s his turn to spring clean
The big boss – hi coup!

Australia assumes long-term responsibility for Gorgon CO2 capture

This is almost two weeks old (as are many of the things I'm hopefully about to post - I have a long backlog), but still stands as an interesting data point in the aspirational to capture and sequester CO2 emissions.

Largely overlooked amidst all the hoopla over the huge $37 billion Gorgon natural-gas deal in Australia was the thing that may have made it possible in the first place: The Australian government’s willingness to shoulder the long-term liability for storing carbon emissions underground.

That is, one of the reasons that Chevron, Exxon, and Shell finally went ahead with the massive Gorgon project is because they won’t be saddled for centuries with the worry some of the carbon-dioxide could escape, with potentially disastrous consequences.

Under the terms of the agreement, the companies will be responsible for the storage of the carbon-dioxide resulting from the natural-gas project during its operating lifetime and for 15 years afterward, Bloomberg reports. After that, the Australian national and state governments will be responsible.

Releasing companies from the generation-scale liability for stored greenhouse gases certainly makes the project more palatable from an investment point of view (not to mention a short-term political point of view). By the time that liability begins to bite - say 50 years down the road - and the economic benefits have largely been extracted, I doubt voters will look on it so kindly. But ultimately, I have a hard time seeing any carbon sequestration succeed on a commercial basis without the government (or maybe a massive reinsurance firm?) assuming the long tail of catastrophic risk in the scenario that the gas escapes - both environmental, and economic if the world half a century from now effectively measures and prices greenhouse gas emissions.

Also, don't miss Geoff Styles' informed reflections for an insider's perspective on Gorgon.

Not yet beyond anti-trust regulation's reach

An Australian regulator has foiled what seems to be a thinly-veiled attempt to tighten China's already-strong grip on the world market for rare earth metals.

A Chinese company has abandoned plans to take control of the rare-earths explorer Lynas Corporation Ltd after Australian regulators demanded it reduce the scope of the planned transaction.

Market observers say the deal was an example of China's bid to tighten its grip on the rare earths market.

Almost all of the world's rare earths are produced in China.

This reminds me of the time that Russia tried to buy all of Libya's oil and gas. That wouldn't have been good news for Europe. This is a good reminder that there is no infallible anti-trust regulator of last resort in world capitalism.

Lifecycle emissions of LNG

Geoff Styles incidentally tosses off an interesting lifecycle emissions comparison between LNG and gas moved via pipeline:

According to a recent study by Pace Consultants, the emissions from gas liquefaction, LNG transportation, and re-gasification at destination would effectively increase the lifecycle emissions from a combined-cycle power plant by roughly 22%, compared to one running on domestic (pipeline) gas. However, that result would still come in around 40% lower than the emissions from the best coal-fired power technology without CCS, and 60% less than typical coal-fired power plants.

The post is actually on the massive Gorgon gas project in Australia, which Geoff worked on in a previous life, and his comments on mega-projects are also worth reflecting on:

While a variety of factors contributed to Gorgon's requiring something like 33 years from discovery to first production, big energy projects aren't like building a supermarket or office park. Aside from the great patience these efforts require, large sums of money must be spent over a long span of time before the first dollar of revenue can be collected to recoup them. That requires the deepest of pockets and the most meticulous strategic and financial planning. Only governments and the very largest companies--with massive free cash-flow or debt capacity--can pull this off. Moreover, because of the numerous risks associated with geology, permitting and development, a project like this works best when that risk is shared by more than one party, each of which has a portfolio of sufficient size and diversity to absorb the delays that are inherent in such ventures. So while it's true that the oil Super Majors need big LNG projects to bolster reserve replacement and cash flows that are being pinched by the challenges of gaining access to large-scale oil projects in the current environment, the global supply of clean gas from such projects would be much lower, without companies on this scale to develop them.

It is a point well-taken for those who would demonize oil majors - without their ability to execute lengthy projects of incredible technical and economic complexity, our energy supplies would rapidly dwindle and Peak Oil would soon become a genuine concern.

Hungry China

China's voracious appetite for resources continues unabated: securing a $41bn natural gas deal in Australia, restarting oil exploration in São Tome and Principe off the West African coast, and apparently even hoarding rare earth metals.

Update: Apparently the China doesn't have a complete monopoly on rare earth metals, as the linked article suggested - a California mine appears to be reopening and other potential sites and Canada and Australia are being investigated.

Passing cap-and-trade in Australia

Australia has a big vote on cap-and-trade coming up; familiarly, attention is on exactly which compromises are required to bring on the necessary marginal voters:

Opposition leader Malcolm Turnbull has offered to deliver enough conservative votes to pass the legislation, but only if the government agrees to certain conditions. Among other things, he and others want emissions from coal mining and agriculture to be excluded from the proposal. They also have called on the government to delay the design of the Australian carbon program until February or March, after the U.S. Senate has debated its climate bill.

Umm... given that Australia gets 80% of its electricity from coal, that sounds like a dealbreaker.

M&A round-up

I've been out of the office for a week so am reviewing the news. There are three resources M&A stories I found particularly noteworthy:

Sinochem approaches Australian agro-chemical producer Nufarm: With all sorts of M&A and other goings-on around China's quest to secure resources, this multi-billion dollar deal will be worth watching. A joint bid by ChemChina and Blackstone for Nufarm didn't pan out in 2007 - I'd be curious to know why, and if it sheds any light on how this attempt will pan out.

Exelon drops its bid for NRG: This was a long-running saga; Exelon does the right thing by not upping its bid further into value-destroying ranges, but now it may miss even more the federal loan guarantees for new nuclear plants that NRG got and it didn't.

The Suncor/Petro-Canada merger receives anti-trust approval: The way is cleared for the new Canadian national champion in petroleum, and probably not the last consolidating move we'll see in the sector.

China is the ants, West is the grasshoppers

Via The Oil Drum, Dr. Stephen Leeb opines that resource scarcity means commodity-rich countries (the "BRACCs", Brazil/Russia/Australia/Canada/China) are the soundest long-term investment. Not sure I would go quite that far, but I do like this quote on China's recent pursuit of resources:

China has been stockpiling commodities, particularly oil and iron ore. Unlike Americans, the Chinese think long-term. Rather than worry about next quarter or next week, China plans decades in advance – and it has over a billion people to house, clothe, feed, and transport to work each day.

Buying resources makes perfect sense if you have even a broad idea of the resource crisis that's approaching. The problems we have today may seem big, but at least they can be solved by money. The coming resource shortage cannot. China's method of using money to accumulate resources is now one of a few possible answers. As the fable goes, they are the ants, and we unfortunately are the grasshoppers.