Stranded Assets

The term “stranded assets” is something we’re going to become very familiar with over the next couple of years. It is a fancy term for the well-known idea of creative destruction. We all know and understand in a dynamic economy that new products and processes become available all the time, that consumer preferences might change, and past entrepreneurial decisions may be ex post unprofitable. Investors might lose money. Sunk investments are written off and the like.

Okay.

The environmental movement are making an argument that this is about to happen to fossil fuel investments in general and coal investments in particular. The argument that they make, however, isn’t that nuclear fusion is about to become scientifically and commercially viable and solve the world’s energy needs. Rather they argue that sovereign risk is higher than is being priced in markets and existing fossil fuel reserves will be expropriated and become commercially non-viable as governments force energy companies to leave them in the ground.

Rather than being concerned about investors and investments already been undertaken the environmental movement are engaged in a stand-over tactic.

That’s a nice coal mine you’ve got there. Wait until my mates have monstered your suppliers of finance, your employees and customers. Wait till I lobby government to expropriate your assets. Then we’ll see how nice it is.

When rent-seekers run secondary boycotts we get the kind of campaign we’re currently seeing. What makes me all the more suspicious is that many of the individuals involved in advocating coal divestment are also advocating increased investment in renewable energy stocks. So this looks like an old fashioned stock market manipulation. To the extent that the divestment campaign is encouraging investors to make valuation errors and divest funds from viable activities and invest in activities that only survive due to government subsidy we will see some very poor investment outcomes. It will be very interesting to watch if the government agency created to prevent this sort of behaviour notices and investigates. Of course, my first preference is that ASIC be shut down, but failing that it should at least perform its function.

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28 Responses to Stranded Assets

  1. Megan

    ASIC has not got particularly good track record thus far.

  2. Toiling Mass

    Greenies love to pillage reputable disciplines for terminology to lend their phobias an air of respectability. They don’t even pretend a dilettante’s interest – they despise economics, science, etc.

    Like ‘the precautionary principle’ – as a euphemism for ‘being scared of scary, however remote, scenarios”.

  3. .

    These economic vandals must be cut off from the financial tits they are sucking. If they are funded by foreigners the legality is questionable. If they are on the public payroll, fire them, if they are on welfare make them work.

  4. Bruce of Newcastle

    I strongly suspect a whole bunch of big white towers with trefoil whirlygigs are going to become stranded assets.

    Several million birds and bats will welcome this, and the longer life they get as a result. And numerous Australian consumers and industries will welcome the lower electricity prices they will be paying.

  5. Big Jim

    Green ism is like all revolutionary movements. It’s about inter generational wealth transfer. The bright young things looks at the ‘undeserving’ wealthy above them and think: I could do it their way; but Hell, even if I’m lucky I might not do so well, and even if I did, I’d be old. I want it NOW.

    Fertile ground for radical theories that undermine the legitimacy of what is.

    Communism was the modern template, but it was, er, slightly crude. Many more subtle isms have followed, and more are inevitable. And it works. It’s an agile old codger that can hang on to his hard earned.

  6. tgs

    I thought a ‘stranded asset’ in the mining or energy sector was a tenement or resource that didn’t have the required infrastructure (e.g. rail, port, energy, water, etc) to develop the asset and/or bring the resource to market.

  7. john constantine

    look at the union run super funds,and the massive overweighting they are running in green energy.direct investment in illiquid bets is dangerous for a super fund. no wonder the union super funds sponsor radical lefties,they might need ‘direct action’ to save their positions.

  8. john constantine

    the social licence to operate is a thing the lefties are trying on the farming sector as well. look at the abc/animal liberation/little joe ludwig disaster that crippled the northern australian farming sector overnight.

  9. Infidel Tiger

    I guarantee you that if I invented a reliable and cheap way to make base load power from solar the Greens would be against it.

    They are scum. We must hang them all with piano wire by their “stranded assets”.

  10. john constantine

    lastly,the morwell mine fire–it was deliberately set.

    what happens when coal mine owners are faced with the bills for firefighting precautions ,bulletproof against arson?. leaving a box of matches on the doorstep as a threat instead of a shovel?.

    ‘green lightning’ may well become the slang for unexplained fires that destroy the politically incorrect.

  11. Pyrmonter

    @ John C – a “licence to operate” is hardly something new: occupational licensing is a familiar political tool of left and right, incumbents against outsiders, be they labour or business.

  12. 3d1k

    This from a peak oil climate and economic catastrophic site is the best debunking of the renewable energy rentseeking scam I have encountered. Long but worth the read.

    http://www.theautomaticearth.com/renewable-energy-the-vision-and-a-dose-of-reality/

    Traditional fossil fuel and mineral extraction sector have been a little slow in countering the more ludicrous assertions emanating from the Stranded Assets loon pond however I expect appropriate response in train. Norway has rejected the notion as will all other sensible nations.

    I suggest advocates of this lunacy be compelled to live a fossil fuel free existence: no cars, no flights, no plastics, no smartphones, no computers, no electricity on nearly half the planet, of course no ‘renewables’ as most are manufactured via fossil fuel derived processes.

  13. Pyrmonter

    An occupational licensing matter, fought between an LCL South Australian government and the Liberal Country coalition government: still a chief case in the murky area of the scope of commonwealth powers: http://www.austlii.edu.au/au/cases/cth/high_ct/92clr565.html

  14. nerblnob

    no cars, no flights, no plastics, no smartphones, no computers, no electricity on nearly half the planet, of course no ‘renewables’ as most are manufactured via fossil fuel derived processes.

    And no transport to take any of it anywhere. And if you take out hydro-electric power, (remember, greenies are against dams too) which is always added to the number of “renewables” without explanation, it would be a lot more than half the planet without power.

    I always thought the greenie opposition to hydrocarbons was demented enough but their pretence to know something about economics is beyond stupid.

  15. samuel j

    Let’s encourage them to pay another visit to Russia – this time there is no winter Olympics to save them from Uncle Vlad.

  16. Ripper

    The only stranded assets are going to be all the renewable’s that are owned by Industry Super. Hence the reluctance to repeal the carbon tax.

    http://www.pacifichydro.com.au/english/about/about-pacific-hydro-australia/

    Founded in Australia in 1992, Pacific Hydro is wholly owned by the IFM Australian Infrastructure Fund, which is managed by IFM Investors. IFM Investors is a uniquely-structured global fund manager with assets under management across infrastructure, debt investments, equities and private capital. IFM Investors is wholly owned, through Industry Super Holdings, by 30 Australian superannuation (pension) funds.

  17. See Fred McChesney (1999). “Of stranded costs and stranded hopes: the difficulties of deregulation.” Independent Review for a fascinating discussion of the transitional gains trap, the disinterest in deregulation and rent extraction.

  18. nerblnob

    Remember the old “climate change will cause invasions and wars” fear?

    Can we say that the EU’s decision to “strand” its coal and shale gas in favour of “renewables”, and shut down nuclear in Germany, has indirectly led to Russia invading Ukraine? They know Europe can’t do anything while they rely so much on Russian gas.

    “Renewables” cause wars.

  19. nerblnob

    existing fossil fuel reserves will be expropriated and become commercially non-viable as governments force energy companies to leave them in the ground.

    I can’t see that happening with oil & gas: the biggest oil & gas companies are NOCs – i.e, they are governments, or arms of government.
    As for the rest, governments of big oil/gas producing countries rely heavily on the royalties & taxes from IOCs so won’t be stopping them soon.

    So that leaves governments with insignificant reserves who can afford to temporarily shut down oil & gas, which are very few. And any action they take will only force up prices, making oil & gas an even better investment.

  20. john constantine

    the sad gut feeling is that australias massive stranded assett looks like being the national broadband network. the lefties sunk and contracted so much capital that the public service monolith would live like frankensteins monster [or the stranded victorian desalinisation plant]

  21. john constantine

    i also lose track of how many leftie politicians are hoping to retire onto super fund boards. bit of a conflict of interest-when they go to get their board seat,the ones that created and protected the green power rort would expect best treatment from their cronies running the super funds.

  22. AP

    tgs is correct. That is the correct definition. Usually caused by the deposit being too small to pay back the required infrastructure spend. Obviously a deposit like Escondida, or Olympic Dam would be difficult to fall into this category no matter where it was located. There are a bunch of these assets out in the Surat Basin, Qld just waiting on Xstrata to build Wandoan. They will then piggyback on the rail line.

  23. Empire Strikes Back

    It’s time to wage law on the ecomafia.

    Perhaps a few of the legal fraternity, who have benefitted handsomely from the market economy, could sacrifice the putter and the tiller for a while and volunteer for active duty in the service of freedom.

  24. Montgomery Brewster

    The stranded asset argument has no validity when the market moves against one company or another. This is rarely in dispute. Where the issue is of interest is where governments move against investments (in this case coal power) which would otherwise return a profit if not for their meddling. One step further in Australia we have the perversity that renewable lobbyist claim a lack of further taxpayer funds to support their inefficent projects will lead to stranded assets and reduced investment! But these investments were never needed in the first place and only came above through wealth transfers from taxpayers and stranding assets that the market actually signalled a need for. A maddening state of affairs.

  25. Karek

    It’s probably a bit hard to bring an action against the whole “environmental movement” (though I’d love to see it). Any specific names?

  26. .

    Why don’t you suggest a few?

  27. Andrew

    Several million birds and bats will welcome this, and the longer life they get as a result. And numerous Australian consumers and industries will welcome the lower electricity prices they will be paying.

    Bruce, is that true? The capital has already been sunk into these destroyers of wealth and the environment. At the margin, default on subsidies might help a tiny bit. But basically, they are going to run and transmit the very occasional dribble of power into the grid till they catch fire or fall down in a storm, and power prices will remain the world’s highest won’t they?

  28. GeorgeL

    Stranded Assets:

    The NBN
    Desalination plants in NSW, Vic, QLD & SA
    Labor’s defines of Craig Thomson
    he ABC

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