BG bid for Origin - July 10

BG's $15.50 bid for Origin Energy may substantially undervalue its 3P and contingent gas reserves. The price ($13.6 billion) will tempt shareholders as it is relatively clear that Origin by itself would have difficulty in building LNG trains to exploit its reserves, but it is also likely that a consortium approach would achieve the same end and satisfy strong regional demand, particularly from China, Korea and India.  

While gas is by its nature costly to transport and liquify, the reality is that the price of all hydrocarbons are converging as mature coal, oil and gas reserves reach the the final period of their productive life. This is not simply a matter of maturity, but scale and maturity. Replacing depleted reserves is the reality of all resource production, but as the scale of new discoveries tends to fall, the cost of development rises as dsiproportionately as the scale of the discovery falls. Saudi oil found for $1 a barrel must be replaced with, for example, off-shore Angolan or Brazilian oil at $40 per barrel.  Higher royalties and production sharing arrangement can further raise the relative cost of discovery of the "profit barrels" remaining. It is a similar story with coal and natural gas, but with significant regional variations.  In many countries "Peak Coal" has long come and gone. The last coal mine will be closed in Germany in 2014 as the ratio of extraction cost to price and the quality of the coal declines. These and similar considerations stand behind BG's bid for Origin's on-shore coal seam gas.   

This in turns puts greater reliance on natural gas reserves and base load nuclear power. Additional demand for base load natural gas arises from the urgent necessity to phase out coal or reduce its emissions. "Carbon capture" technologies are available, at considerable cost, but "carbon sequestration" of liquified C02 remains problematic on large scale even though currently well understood.

It is in this broad context of depletion allied with reserve growth that long-term valuations must be judged. Now that we must add the cost of carbon to power generation, lower carbon fuels such as natural gas power generation will be in greater demand.

Silex Systems - April 2008

Operational update says solar cell products ready mid-year and integrated photonic chip expected by late 2008. Research into the properties of isotopically purified silicon has led to materials which efficiently convert photons (light) to electrons (electricity) and vice versa.  By layering thin films of this material on glass Silex hopes to double the efficiency of solar power devices while reducing production and materials costs.  

The same materials are also the basis of a photonic chip which enables processors to be powered by light rather then electrons. This would simplify computer processing which is now limited by the conversion of broad-band (carried in light waves) to electron driven processing at the device level. Production of these super-fast optic chips is scheduled for late 2009.  These products should have major implications for Silex and add to anticipated royaties from its laser enrichment of uranium and oxygen and carbon "enrichment".  

As coal prices soar the production and thermal advantages of fossil fuels over solar power narrows.  The addition of a carbon tax of  potentially $30-$40 post 2010 also enhances the potential of solar power.