Not everyone can see the connection between solid and liquid fuel but there is and it can be found in the overall demand for energy and in the way that demand is shared by a number of raw materials, including coal, oil, gas, nuclear and renewables.
Layered over the sources of energy is an even more important factor – price – and when there is a great disturbance in the price of one form of energy it eventually finds its way into the price of its rivals.
That’s why The Hog is concerned that the 30% fall in the oil price since mid-year, coupled with the prospect of further falls over the next 12-to-24 months could put a blanket over the price of all forms of energy, including coal.
Kenyon-Slaney does not appear to be a subscriber to this theory of all energy being influenced by common dynamics though his remarks about coal finding a bottom were made around the same time the world’s once-powerful oil cartel, OPEC, launched a campaign to drive the oil price down.
He told Fairfax Media, publisher of Melbourne’s The Age and other newspapers, that Rio Tinto was seeing the “beginning of stabilisation” in the coal market, “particularly in respect of price”
“We’re starting to see a correction in the supply imbalance, in that we’re seeing supply being taken out of operation,” Kenyan-Slaney said.
“I’m under no illusions, the tough times are going to continue for some time yet, but the cycle will turn.”
He’s right, of course, but Kenyon-Slaney’s optimism should be tested alongside a few wise words uttered 50 years ago by one of the world’s greatest economists.
John Maynard Keynes is the man worth resurrecting because he had a few things to say about forecasts which don’t have a specific time frame, just a general observation that they will get better in the long run – which is what Rio Tinto’s top coal man seems to be saying.
“In the long run we are all dead,” Lord Keynes said of forecasts that looked too far into the future – and there’s no doubt about the accuracy of that comment.
Kenyon-Slaney obviously believes that coal prices will improve long before we’re all dead but it would be worth pinning the man down to being more specific than hinting at a bottom forming in the market and a recovery somewhere on the horizon.
All the Rio Tinto man can safely say is that an improvement might be underway and that some stability can be detected in the coal market after several very difficult years during which almost $US30 a tonne has been removed from his company’s thermal coal business.
This week’s oil sector massacre could add more time to the depressed coal market conditions because oil, and its close associate, natural gas, are a viable substitute for coal when he price is right.
No one is rushing to install oil-burning systems on the strength of a one-week collapse in the oil price.
But, over time, a low oil price will drag down the price of gas and flow out into the entire energy complex, causing consumers to question what’s best for them.
The challenge is knowing how long it will take before cheap oil starts to affect demand and prices for other forms of energy – and for how long will OPEC be able to survive as the master of the world’s oil industry.
Time really is the issue when it comes to what’s happening in the oil market, and it’s a factor which has The Hog quite worried because the current showdown in the oil industry looks like it could last years, not months.
The core problem is that the world is awash with energy. The often predicted era of Peak Oil has not arrived.
Rather, we have entered an era of Oil Glut, and it’s a glut that could be with us for some time.
