Large investments mooted to avoid global energy crunch

September 17, 2009: A global energy supply crunch, despite the current worldwide economic slowdown, is imminent if leading companies do not continue to make large investments, chairman of Shell Australia, Russell Caplan, said recently.

"There's a danger that if we don't make enough large investments soon, the world will face an energy supply crunch around the middle of the next decade," Caplan was quoted as saying by Western Australia Business News.

All potential sources of energy should be employed to their maximum potential, including conventional fossil fuels such as oil, coal and gas as well as uranium and renewable energy, he said.

"Each of those sources will need to grow to meet all that extra demand; we will need it all," Caplan said while addressing the Committee for Economic Development of Australia.

Meeting increasing energy demands while also lower greenhouse emissions will require a "truly massive investment" of trillions of dollars, Caplan pointed out. To invest on this scale requires access to capital and sufficiently stable market conditions that allow reasonable assumptions about returns over the very long lives of these expensive energy-creating assets," he said.

With a massive expansion of Australia's liquefied natural gas industry involving Western Australia's large natural gas reserves and coal gasification capabilities in Queensland, Australia has the potential to be a major player in supplying energy to the entire Asia-Pacific region, he added.

"There are some who argue that by exporting our energy resources, Australia diminishes its own energy security. This is a short-sighted position in my view. In supplying LNG to our neighbors, we can lead in enhancing Asia's energy security and stability, and that's good for Australia as well," Caplan said.

Alluding to the Australian government's amendments to condensate taxes on the North West Shelf joint venture, Caplan pointed out that a favorable tax regime is important to investor confidence.

"Changes to fiscal arrangements after the upfront investment in an LNG project has taken place can fundamentally alter the economic viability of assets. They can also alter the perceptions of risk associated with future investments -- which potentially means the loss of new investment opportunities to Australia," he said, adding that if investors do not have long-term confidence in the stability of the tax regime, potential investments in major projects will be severely compromised.

Source: Coal Insights