Strong profits posted by Beach, Origin, Australian Worldwide, and even tiny Mosaic, followed the pattern laid down earlier by the big boys of oil, Woodside and Santos.
The message in Mosaic’s $2.65 million profit, AWE’s $35.4 million, Origin’s $456.8 million, and Beach’s asset-sale assisted $103 million was that conventional hydrocarbon production is still the best way to make money in energy.
What made that message even more clear was news that biodiesel maker, Australian Renewable Fuels incurred a loss of $33.7 million, the Danish-based wind turbine maker, Vestas, is closing its Victorian factory, and the share prices of other biofuel companies continued to plumb the depths, with Natural Fuels hitting an all-time low on Friday of 33.5c.
For foundation investors in Natural Fuels that new low point should not really come as a surprise. Even though their company has only been listed on the Australian Securities Exchange since December 21 last year it has never traded above its $1.50 a share issue price, having started life in free fall, and continuing.
Rubbishing one company is not the purpose of this ramble from The Slug, though you would have to admit that it’s a bit of fun.
The reason behind looking at Natural Fuels, and the other biofuel makers, is to point out that after a glorious few years as the saviour of the world’s liquid transport fuel shortage they are in deep trouble.
The questions are: what went wrong, will it get better, and why didn’t anyone see it coming?
The Slug, with all due modesty, can claim that he saw the problem right at the beginning of the heavily-promoted biofuel revolution – the availability of feedstock.
What wasn’t so obvious last year when feedstock supplies became a big issue was that the price of them would rise as sharply as they have.
For example, last week in China, the high cost of palm oil, a favourite of the biofuel boys, became a hot political issue.
Why? Because palm oil is also used in the manufacture of instant noodles, and a 70% rise in the price of palm oil, plus a doubling in the price of wheat, has become an issue on the desk of Chinese political leaders.
The Chinese, as is the habit of all dinkum communists, refused to see the rising price of noodles as a function of the market. They accused the noodle makers of price fixing and demanded that prices be cut.
Back on Planet Earth the picture is bit clearer. The biofuels business is hitting the first of what will be a series of problems. First, it is struggling to source sufficient palm oil, wheat, soy, sugar cane, or whatever it needs to make fuel – and hence is driving up the price of those commodities.
Next will come the screams of protest from hungry consumers in poor countries that they are starving because the biofuel makers are either buying all the raw material, or driving the price of noodles and tortillas through the roof.
Nasty stuff.
Meanwhile back in the world of petroleum, it’s business as usual, and while discovery is getting harder, production growth is limited, and the peak oil debate rages on, the evidence is that conventional oil is enjoying a far smoother ride than alternative energy sources.
