Aweh dearly beloved fellow ruminants & groupies
122/279 days of load shedding in 2022
Whether you are conscious of it or not everyone except the extremely poor should make investments throughout their lives. You need to do this for the simple reason that barring an early death you will get old and at some point, you may prefer not to work but more importantly, you may be forced into retirement or be unable to work. If you don’t do this, then you will become a burden on the state or your family. In the South African case, if you depend on the state, you will barely subsist in abject poverty on the breadline with an early and unpleasant death a distinct possibility.
Many, if not most, people, prefer to leave their investments to others and let the financial industry look after their finances on their behalf. The financial industry is however not your friend. Surprisingly the financial industry attracts people who like money and particularly making money for themselves. Working in the financial industry and asset management is a very well-paid profession.
On the one side of the pendulum, you have the conservative, heavily regulated asset management, and pension industry and at the other end of the pendulum, you have outright crooks and frauds perpetrating Ponzi schemes and pig butchering scams. A Ponzi scheme is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. They are mathematically guaranteed to fail and cause people to lose money, yet they are persistent and pervasive in almost every country in the world. Pig butchering is a relatively new long-game financial con in which “pigs,” or targets, are “butchered” by people who convince them to invest ever-larger sums in purported cryptocurrency-fuelled trading platforms. The basic ingredients are the same. Gullible and greedy people are convinced to trust a convincing and persuasive con artist and part with their money.
Ponzi schemes and pig butchering are fraudulent and criminal. If one looks at the continuum from fraud on the left-hand side of the pendulum to the (somewhat) respectable and legal pension and asset management industry on the right-hand side, you find a lot of dubious and legal activity in the middle. One needs to look no further than the subprime crisis which caused the financial crisis in 2008. For anyone who has some common sense, some numeracy, and the ability to do a little critical thinking it is obvious the subprime lending escapade was going to end badly. Lending hundreds of billions of dollars to people to buy houses they cannot afford on the assumption house prices always go up. What could go wrong?
The current focus on environmental, social, and governance (ESG) investing has attracted a lot of money and it is now starting to fray at the edges. The ESG concepts are highly fashionable now, and they are what people want to hear. Skilled asset management professionals are the world experts at telling you what you want to hear. If the investments themselves are a bit dodgy they know precisely how to put bright red lipstick on the pig. The Economist has called the ESG approach to investment broken. It’s not that ESG is inherently a bad thing but if skilled investment professionals can put a thin ESG veneer on dubious investments and attract funding then their bonuses get paid long before the investors lose their money. Same old same old.
With climate change now becoming a global emergency, there is an increasing clamour for action. But does all the action make sense? Being in the energy field I am in numerous chat groups where I see energy projects being announced on an almost daily basis and many of them are highly dubious. As an example, I am going to pick a recent press release by the very respectable technology company Haldor Topsoe about how they will supply their technology to HIF Global to make e-fuels in Texas. They call the project innovative, but it involves methanol to gasoline technology which has been around for decades. It has not been very successful for the simple reason that it is not economically attractive. The capacity of the plant at 14 400 barrels per day (bbl/day) of gasoline is small and it will use green hydrogen and “recycled” carbon dioxide as a feedstock. The press release is a bit coy about what recycled carbon dioxide means but to be properly green it should involve direct air capture of carbon dioxide from the atmosphere which is enormously expensive. The US government has recognised that green hydrogen is too expensive to be commercially viable so it is considering subsidising it at up to $3/kg. This would translate to a subsidy of about $268 million per year for this project. Using green hydrogen to make gasoline is also an extremely silly thing to do. This plant will consume 2 GW of green renewable electricity and it would be much more efficient to use this electricity directly for a battery electric vehicle than to use a highly capital-intensive and very inefficient e-fuel process to make a small amount of gasoline.
The large-scale replacement of gasoline using this technology is not going to happen because it’s very inefficient and way too expensive. Any (good and knowledgeable) chemical engineer knows this. From engineers who know this, I have sometimes seen contorted arguments going along the lines that there will be a niche market for “vintage” cars. So ageing hipsters like me will not want to part with their Porsche and will be prepared to pay $10/litre ($38/gallon) for green e-gasoline to drive it on weekends. Really? Perhaps this might be true but it’s not going to make any meaningful contribution to decarbonisation. Good engineers are also very capable of cooking up a good story regarding why they should get paid to do something.
What will happen with this project? Difficult to predict with certainty but my best guess is that feasibility studies and front-end engineering design (FEED) may be completed but financing for a final investment decision (FID) will not be achievable. This could take several years and involve the expenditure of many tens of millions of dollars. If the project somehow achieves FID, then value destruction in the billions of dollars is on the cards.
In all this Haldor Topsoe is just an intermediary. They get paid for the work they do and get license fees for their technology. Other than having their reputation on the line for peddling a dubious project they don’t have much skin in this project. The project owners and funders will bear the risk. I would not recommend you invest your pension money in this no matter how much red ESG lipstick is liberally applied. It will not save the planet.
For the purposes of today’s discussion, I have picked one example but there are many. Investment professionals are extremely skilled at understanding what you want and trying to give it to you.
It looks like many pigs might get butchered in the renewable energy transition. Financial crisis 2.0? Same old same old.
Thank you for all the ideas and comments. I really appreciate them and please keep them coming.
Regards
Bruce
Ruminant Pink Friday 
I must confess to being an evil financial markets practitioner (of the asset management variety) for the last 30 years or so. Although the investment industry is of course dominated by financial professionals with widely varying levels of moral turpitude and greed, I’ve also worked with several engineers who’ve crossed over to the “dark side”, even chemical ones. My point? The level of intellect in an average asset management firm is relatively high and often attracts like-minded professionals regardless of their background. This might be part of the reason outsiders view us with inherent suspicion. Having the finest quality bullshit is definitely also a factor. Yet asset managers are supposed to be responsible for allocating capital according to the well-established rules of capitalism, foremost of which is no real reward without risk, never mind the hue of green or lipstick involved. This is an inescapable law of the universe if you ask me, but so often wilfully ignored.
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