Exxon shareholders have submitted a resolution at the 2016 AGM : Shareholders request that by 2017 ExxonMobil publish an annual assessment of long term portfolio impacts of public climate change policies, at reasonable cost and omitting proprietary information. The assessment can be incorporated into existing reporting and should analyze the impacts on ExxonMobil’s oil and gas reserves and resources under a scenario in which reduction in demand results from carbon restrictions and related rules or commitments adopted by governments consistent with the globally agreed upon 2 degree target. The reporting should assess the resilience of the company’s full portfolio of reserves and resources through 2040 and beyond and address the financial risks associated with such a scenario.
Sub-critical Australia - Risks From Market Imbalance in the Australian National Electricity Market | IEEFA
Climate reality check - After Paris, counting the cost | David Spratt
See Earth’s Temperature Spiral Toward 2°C | Climate Central
Sunlight on the fog of carbon risk | AFR
World's carbon dioxide concentration teetering on the point of no return | The Guardian
Is this the end of the centralised energy network? | Renew Economy
Oil discoveries slump to 60 year low | AFR
The other budget | The Monthly, Michael Lucy
Steven Chu: Mexico's Energy Auction Reveals True Price Of U.S. Renewables
Peabody Energy 1Q2016 Results - losing US$80m per month | IEEFA, Tim Buckley, Director of Energy Finance Studies
Peabody Energy reported its 1Q2016 results today (Peabody Energy SEC filings). The company lost US$228m for the three months to March 2016 (before a notional tax credit), a more than doubling of the pretax loss relative to 1Q2015. How management could defer Chapter 11 as long as they did seems bizarre given the company has been losing $80m pretax every month and where net debt rose by US$462m in just the last three months. We review this result given it shows that the momentum in the coal mining sector is still deteriorating, rapidly.
Peabody Energy’s 1Q2016 results highlight the magnitude of the problems facing the US domestic and export coal industries.
Revenues dropped 33% year on year (yoy) to US$1.02bn, consistent with the US Energy Information Administration reports that total US coal consumption is down 33% yoy year-to-date (link to EIA report).
Net interest expense rose 22% yoy to US$125m for the 1Q2016.
But even if the entire US$6.5bn of net debt was written off by the global banking sector, Peabody would still be losing money. At the EBIT level, Peabody lost US$103m in 1Q2016. As such, the report from McKinsey & Co suggesting massive ongoing financial distress for the US coal mining sector looks a fair assessment, as is their conclusion that 75% of the total US$100bn of sector liabilities in place at the end of 2014 could be lost by the end of this decade (link to IEEFA report).
Peabody’s net debt rose by US$462m in just the last three months to US$6.44bn, not discounting another US$2.15bn of unfunded post retirement benefits et al.
IEEFA would question how the Australian business of Peabody Energy can remain in a ‘business as usual’ position. The Australian holding company has yet to lodge its 2015 annual results, even though business as usual (as we understand it) requires lodgement of these accounts with ASIC by end April 2016. Given the 2014 accounts said the company only remained solvent due to ongoing financial support, but with the ultimate parent in Chapter 11, there must be some serious legal or accounting gymnastics involving opaque offshore structures that is allowing the Australian unit to have to-date avoided administration. Given the financial leverage and number of Australian jobs involved, maybe this is something our Energy Minister could investigate rather than taking management’s word for it?
Turnbull and Morrison’s 2016 federal budget let-down | The Saturday Paper | Paul Bongiorno
Twelve seconds into Scott Morrison’s budget night speech, it looked as though the Turnbull government would finally begin delivering the promised excitement and vision. “Australians,” he said, “know that our future depends on how well we continue to grow and shape our economy as we transition from the unprecedented mining investment boom to a stronger, more diverse, new economy.” He could not have summed up the situation better when he said everyone knows that “their jobs and those of their children and grandchildren depend on it”.
But from there, the vision was lost in a fog of platitudes and a repetition of the word “plan” 21 times. Morrison, we were told in this motherhood statement, was all about “jobs and growth”. But completely ignored was the reality of climate change and the imperative the rest of the world sees in responding to the transition from black energy to green energy. This was more than an opportunity missed, it was a wilful blind eye to an emerging central economic reality.
Energetics report on potential abatement | Department of Environment
Modelling and analysis of Australia's abatement opportunities - meeting Australia's 2030 emissions reduction target.
Today the Commonwealth Department of the Environment released a landmark report written by Energetics. The work assesses the contribution that can be made by a range of emissions reduction opportunities across the Australian economy towards Australia's 2030 target.
Insurance companies feel activists' heat for underwriting fossil fuels | The Guardian
Indian Reserve Bank tightens loan availability; implications for Adani's Carmichael | Tim Buckley, Director of Energy Finance Studies, IEEFA
The Reserve Bank of India (RBI) has recently tightened loan availability; forcing the Indian banking sector to recognise and provide for loans from corporates in financial distress, rather than the historical approach of kicking the can down the road, effectively ignoring the issue. This was clearly evident in ICICI Bank (the second largest bank in India) reporting a 1Q2016 result of Rs7Bn, down 76% year on year and only a fraction of the market expectations for a profit of Rs31bn.
The implications for Adani Enterprises Ltd and Adani Power Ltd are significant. Both companies are having trouble servicing their interest costs and loans and an increasing portion of the Adani Group is under financial stress. Historically the RBI has not had a mandate sufficient to allow it to start to rectify this issue, one that is in our view crippling the financial sector, primarily due to the massive financial distress evident across the Indian power sector.
Opportunities of a warming planet | Motif
Saudi Arabia approves ambitious plan to move economy beyond oil | The Guardian
China curbs plans for more coal-fired power plants | The Age
Coal producer Peabody Energy files for bankruptcy | Business | The Guardian
Stranded assets in the fossil fuel industry and why they are important
What are stranded assets?
CTI introduced the concept of stranded assets to get people thinking about the implications of not adjusting investment in line with the emissions trajectories required to limit global warming. There have been a number of interpretations, including:
- Regulatory stranding – due to a change in policy of legislation
- Economic stranding – due to a change in relative costs / prices
- Physical stranding – due to distance / flood / drought
The concept has warranted a new programme at the Smith School of Oxford University which considers stranded assets across a range of sectors from an academic perspective. From a financial perspective, accountants have measures to deal with the impairment of assets (eg IAS 16) which seeks to ensure that an entity’s assets are not carried at more than their recoverable amount.
Why are they important?
CTI says: Stranded assets are fossil fuel energy and generation resources which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return (i.e. meet the company’s internal rate of return), as a result of changes in the market and regulatory environment associated with the transition to a low-carbon economy.