Trilobite – another fossil.
Everyone from John Campbell to Gareth Hughes has been dumping on Don Elder over the last week. Not only did he oversee the now disastrous diversification of Solid Energy that has been deemed responsible for significant redundancies in the coal mining industry, but he also continues to draw his rather large salary while on gardening leave. John Key has been less than complimentary about the performance of the SOE which Bill English has assured will not be allowed to fail.
Regardless of who was running the show, Solid Energy was certainly facing the prospect of a grim future. Here we had a multi-billion dollar enterprise based on operating coal mines (Waikato, West Coast and Southland) and billions of tons of undeveloped lignite in Southland. As the reality of climate change begins to hit home, it is starting to dawn on even the energy companies, that their share market valuations are based on coal, oil and gas reserves that can never be developed. Current modelling suggests that the listed global Reserves of fossil fuels exceed what can safely be mined by a factor of 5.
We have not yet got to the stage where questions are being asked as to which reserves should not be mined and therefore which companies are grossly overvalued, but we are starting to see some manoeuvring as gas muscles into the power market in the U.S.A. at the expense of coal. The abundance of gas is also a factor in driving down coal prices which is hurting the bottom line at Solid Energy.
This is not the time to have a portfolio chock full of lignite; the dirtiest fossil fuel and perhaps the one most likely to be scratched from the Environment’s dance card. This is where Don Elder comes in. It was almost as if Solid Energy’s diversification strategy was to build up an industry around lignite, as quickly as possible, so that it is too big and too advanced to suffer in any subsequent environmental rationalisation. Hence the dash to develop diesel, fertiliser and briquette industries even though they were heavily criticised by the Parliamentary Commissioner for the Environment in 2010.
It would appear that Don Elder was trying to save his (our) coal company by making Solid Energy too big to fail and thus insulate it from inevitable rationalisations in fossil fuel use. This dinosaur strategy of following short-term profits/lift in company value at the expense of long-term consequences is prevalent in today’s economic growth models. The cynicism of this strategy is exemplified by the lack mitigation measures associated with the lignite projects.
Fortunately this grand gamble was laid low by a strong dollar and low coal prices. Lignite is now off the agenda and the coal mines face downsizing or mothballing. The employment crisis facing the laid off coal miners was always inevitable and the Government’s role should be to facilitate their transition from the industry rather than prop it up through cost-cutting measures such as allowing mining in the Conservation Estate.
