Thursday, December 24, 2015

Fears of "peak oil" catastrophe fade as global oil glut deepens

With the world awash with too much crude oil at the moment, the fear of an economic catastrophe when fossil fuels start running out is quietly fading in the background.

The prediction is known as "peak oil" - what happens when crude oil extraction hits its maximum and supplies begin a steady and permanent decline creating a global shock.

Listen to my report broadcast on this morning's edition of "AM"

But now the "peak oil" argument is fast losing currency as global supplies of oil vastly outstrip demand pushing the US benchmark price heads toward 30 dollars a barrel.

Shane Oliver, chief economist at AMP capital investors, says the supply and demand table has well and truly turned on the once vocal peak oil advocates.

"They've been talking about a peak in the global production of oil for the last two decades now and it still hasn't happened and I think the reality is that they are going to remain wrong going forward," Dr Oliver told the ABC's AM program.

"Therefore the catastrophe that was predicted by the peak oil advocates where oil production would peak and there would be huge economic impact globally that just won't happen."

The "peak oil" argument has confronted a new global reality - or a new normal - driven by major geopolitical and economic factors rocking both the developed and developing world.

* US shale producers are pumping like never before and adding to stockpiles

* With US sanctions lifted, oil-rich Iran is about to rejoin the global market with US sanctions lifted

* the OPEC oil cartel is refusing to tighten supplies to keep prices high  Iran betting that US producers will produce themselves out of business

Watch the BBC's 2006 docudrama on "peak oil" fears -  "If the Oil Runs Out"  

AMP's Shane Oliver says rather the facing a "peak oil" shock, consumers and industries will move awat from fossil fuels in an orderly manner and renewable technologies get closer to reality.

" What's going to happen is that oil production globally will at some point peak but it's going to be because the world has moved away from oil towards the use of other things," Dr Oliver told AM.

"The electrification of automobiles and greater efficiency in the use of oil will drive a decline in the demand through time anyway."

Dr Oliver says that rather replicating a shock in the 1970s when OPEC restricted supply, the world is on the a revolution that will see the world requiring less oil.

"Only a decade ago I was being told that I've got to get rid of my car and replace it with a horse and buggy. That prospect appears as a less likely," Dr Oliver said.

"The reality is the days of the internal combustion engine using oil are numbered and I won't be getting rid of the car and getting a horse and buggy - I'll perhaps be getting a car with an electric engine."

Dr Oliver points to developments in battery life such as those used in the Tesla electric car.

"The technological innovation that we've seen in batteries and electric cars generally is mind blowing."

This morning, West Texas Intermediate crude had a rare bounce to US$36.66 a barrel but there are predictions the price could dip below US$30 next year as global oversupply deepens.

The focus in 2016 will be on OPEC's resolve in maintaining supply and the the potential impact as China's demand for oil weakens as its economy continues to slow.


Monday, December 21, 2015

Dysfunctional & outdated - has the AGM has it's day?

It's a sacred institution to many shareholders but the days of the annual general meeting could soon become the latest victim of digital disruption.

The Australian Institute of Company Directors (AICD) says the annual general meeting has had its day and the concept is "dysfunctional" in today's online world.

A survey by the business lobby group has found a third of the 5000 company directors surveyed found the AGM is outdated and needs to change with the times.

Listen to Peter Ryan's story from AM here

"The old company AGM is no longer meets its purposes. We're getting fewer and fewer people attending. And many of the decisions are made well and truly before the AGM is opened," chief executive John Brogden told the ABC's AM program.

"The concept that through democratic capitalism shareholders come along to an AGM where they vote and decisions are made is long gone."

Mr Brogden says there are better digital alternatives to preserve the shareholder voice such as online voting and webcasts that were more useful to remote shareholders.

"There are mum and dad investors who do like to chat to the managing director or the chairman after the meeting but if you're in Perth you're hardly going to fly over to Sydney for an AGM." Mr Brogden said.

"I think people used to enjoy a bit of sport at an AGM. I don't know whether that's constructive. But what's very constructive is people having a chance to engage formally and properly that they're by and large not getting at the moment.

"We want shareholders to be engaged in the activities of their company. But we don't want the only time they turn up is when something goes wrong."

 The renewed pressure to overhaul the AGM institution comes as more companies face protest votes over company strategy and a number of "first strikes" against remuneration packages.

For the Australian Shareholders Association the latest attack on the sanctity of the AGM has unleashed the expected response.

ASA board member Don Hyatt says personal shareholder contact - or the human touch - can't be replaced by technology.

"This is the one time of the year that the directors and the chief executive has to face the shareholders," Mr Hyatt told AM.

"It's a great opportunity to actually look the directors in the eye - particularly afterwards over a cup of coffee. You can speak to them and you get a real feel on whether they've got the shareholder interests at heart or whether they're in it for themselves."

Mr Hyatt used the example of News Corporation and other family controlled companies where attempts had been made to limit shareholder dissent or discussion at annual general meetings.

"There are a number of individuals and family owned companies who seem to think they're not accountable to the shareholders," Mr Hyatt said.

But despite calling AGMs dysfunctional, John Brogden says his reform proposal is not about silencing shareholder dissent.

"No. In fact we want to make it easier to people to attend and engage. So if you're a critic it's also certain that changes to AGMs will make it easier for people to be engaged rather than harder."

John Brogden is about to start talks on the future of annual general meetings with big super funds and institutional investors.

But for now the AGM is safe as any plans to reform or dump the shareholder gathering is subject to government legislation being changed.