On the day that world leaders gather in Egypt for COP27, Indian Coal Bed Methane production company, Great Eastern Energy Corporation (GEEC) LON:GEEC published its half-year results. Conspicuous by his absence in Sharm el-Sheikh was India’s Prime Minister, Narendra Modi, which could be seen to have negative connotations as to India’s commitment to making moves in terms of climate action.
The UK’s own prime minister, Rishi Sunak, was also nearly a no-show too, but was ultimately pressured into attending and arrived in Egypt with a pretty-similar message to his predecessor of ‘Growth, Growth, Growth’, but with the prefix of (Clean) and a package of just over GBP200m of new funding to protect forests and invest in sustainable energy technologies in developing nations.
However, GBP200m won’t go very far – it might buy you 200MW to 300MW of new solar energy, about enough to supply 30,000 to 50,000 homes – which compared to the expectations of the developing world is quite underwhelming.
Climate reparations
The developing nations at COP27 came together to lobby the developed nations to pay more both to future-proof the world against more global warming, but also – and this is the crux of discussions at COP27 – set up a reparation mechanism to pay for ongoing and historic damages caused by climate change in developing countries, as a result of ongoing, and historic carbon emissions from developed nations. In June this year a report estimated that climate-linked losses in 55 vulnerable countries totalled around USD525bn over the past 20 years, close to 20% of their collective GDP. The report also estimated that by 2030, developing nations could be faced with a bill of USD580bn annually to deal with just climate change losses – never mind the additional costs of transitioning to cleaner energy. Devastating floods this year in Pakistan, the Philippines and Nigeria, along with drought and famine in Central and East Africa and record hurricanes in North America have highlighted the issue.
However, given the economic turmoil currently affecting global markets – in part created by the War in Ukraine and its effect on the price of oil, gas and soft commodities – state budgets in Europe and North America are going to be stressed, as governments try to tackle domestic economic issues. So being asked to provide extra money from a dwindling pot of resources for foreign countries might receive short shrift. The visit to Egypt by Sunak has given him temporary respite from domestic concerns, but he will return (by ‘plane) to deal with a new economic strategy to mitigate an incoming two-year recession in the UK and will likely respond by increasing taxes and cutting public expenditure.
The developing nations aren’t holding out much hope for an influx of finance. The developed nations have already failed to deliver on USD100bn of climate-related finance to the developing world by 2020, and incoming funds from richer to poorer nations have been intermittent and tied-up in conditions. Little hope is held out to any significant package – just more discussions on agreeing the mechanism for a package – with the governments of semi-autonomous regions Scotland and Wallonia being the only developed nations to sign up to any compensation mechanism for developing nations. All the while – to paraphrase UN Secretary-General António Guterres – the world is on the highway to climate Hell, in a collective suicide pact.
The question of coal
One can empathise with Modi and his peer, Xi Jinping of China being no-shows at COP27, as they might see it as a monumental waste of time. That said, neither China nor India have signed up to the previous protocols on limiting use of hydrocarbons – specifically coal – or agreed to cut deforestation significantly as they argue that this would hamper their own economic growth. And with a combined population of more than three billion, nearly a third of the world’s population the need to provide ‘Growth, Growth, Growth’ now, regardless of any future implications are pressures that the respective governments cannot ignore if they still want to retain a modicum of control over their vast nations.
China is the world’s largest carbon emitter, closely followed by the United States, with India not much behind the frontrunners. But India’s population growth will inevitably see it increase its emissions (at 2,654 million tons of CO2 as at end-2019 compared to the US’ 5,416 million tons of CO2) as India’s population and emissions dramatically in the next decade.
So, eyes are turning towards India, and how it will become a carbon-free leader, a country that recorded extreme weather events on 241 of the 273 days from 1st January through to 30th September of this year, according to a new report. These natural disasters included heatwaves, coldwaves, cyclones, lightning, heavy rainfall, floods and landslides. Although Modi’s government have made few binding commitments and is looking for economic growth by any means necessary, the variables at play make predicting what optimal growth is compared to the maximum pollution. So, if you were being fair, it is hard for a government of a vast country like India to make a binding commitment in 2022 that will constrain its development in 2023, or 2043, by which time the population in the country will probably have doubled.
A country with an already relatively small population which is stable, or even declining, like Bulgaria or Lithuania can more accurately predict growth requirements and therefore can be more open to making binding commitments on emissions. Also, in much of North America and Europe, most of the basic economic needs are accounted for, and these countries have access to the financial systems that allow them to build cleaner energy technology.
India hasn’t ignored the need to limit its emissions and invest in cleaner technologies. As of March 2022, the largest solar farm in the world is Bhadla Solar Park, in the Rajasthan desert region of India. The solar farm covers an enormous area of 14,000 acres. It has an energy generating capacity of 2,245 MW, or 2.2 gigawatts, which is nearly three times the capacity of US’s current biggest solar farm, Copper Mountain.
Natural carbon sinks
In Egypt this week, India has shown its willing. The government is concerned about deforestation, and says it wants to plant more trees to act as natural carbon sinks, pledging to plant more trees and cover at least a third of its land mass with forest. However, as it is planting trees in one part of the country, it is rapidly cutting them down elsewhere. The government said that in the 20 years to 2021, it had increased its forest by 5.2%. However, NASA and Global Forest Watch said that it has actually lost nearly 20% of its forest in the same period. The discrepancy has arisen as to how India counts trees – or forested areas. In the local audit, tea gardens, coconut plantations, urban gardens, and grasslands invaded by invasive trees and deserts were counted as ‘forest’ by the government, according to academic critics.
On energy, India said it is willing to reduce the intensity of hydrocarbons it uses by 45%, which is a step in the right direction, but not an actual reduction in overall emissions and is looking at a date of 2070 to reach net zero emissions – 40 years later than the recommendations set out in the Paris Accord, and 20 years later than the targets set by the rest of the non-Paris Accord nations. The country’s commitment to renewable energy generation has also been watered down since COP26 in Glasgow. India has also sidestepped any commitments on methane production, and although it is increasing the energy it produces from renewable sources, it is also increasing its coal consumption at the same time. However, this week India has at least bought a ticket for the low carbon express, as to when it will board is another issue.
Coal-bed Methane
And companies like GEEC also claim that they are on the lower-carbon train, a position that is held by some in government circles. The company is a methane producer, operating two projects: the Raniganj (South) Block in West Bengal, a 210km2 project with a reserve of 10.6 trillion cubic feet (Tcf) of gas which is in production; and the Mannargudi Block in Tamil Nadu, a 667km2 with nearly 1Tcf of gas in reserve.
The argument made in certain quarters is that burning natural gas is less harmful for the environment than burning coal by up to 50%. However, counterarguments claim that the actual process of coal gasification is more harmful to the environment than burning coal, as although it emits about half of the CO2 than burning coal directly, which is good for localised pollution, the process of gasifying coal uses up a lot of energy, which net-net makes coal gas more polluting than coal which is not good globally.
Coal-bed methane (CBM) is extracted by drilling holes into a coal seam and releasing water from the rock which allows the depressurised methane contained in the rock to escape, which is then captured, compressed, and bottled. Methane, as an open gas in the environment, is more harmful in terms of global warming that CO2 but remains in the atmosphere for less time. CBM is often extracted prior to the coal seam being exploited and it is inconceivable that this will not be the next stage for GEEC’s projects.
GEEC reported 1H23 (for the six months ending 30th September 2022) revenues of USD13.13m, marginally down on the USD13.4m for the corresponding period the previous year. EBITDA was USD5.9m, down from USD6.75m in 1H22 and the company had net debt of USD35.6m, compared to USD48m in the six months ending 30th September 2021.
Natural decline
Despite gas prices ramping up significantly in 2022, profits remained fairly flat at USD3.3m, compared to USD3.6m for the year previous. However, the company said in a statement that it expects the price per million thermal units to rise from USD12.77 to USD16.47 by the end of the full financial year. One of the impacts on profitability, said GEEC, was a reduction in production from 15.86 million standard cubic feet per day(mmscfd) to 15.58mmscfd between the start and the end of the period, as a result of the natural decline in coal bed methane as the company drilled deeper. The statement said: “…to mitigate this decrease […] the company plans to undertake an efficiency capital expenditure program of USD20m in the next financial year. This is expected to increase gas production from the existing CBM wells.”
The company also announced that it is planning to open up 144 new wells in the next year, with a further 506 planned, if the project gets government approval on expanding Raniganj and start exploring the options of fracking shale gas at the project. However, the company also noted that it is on a fundraising drive to help finance the new drilling programme.
GEEC shares closed trading on 7th November at 18.5p, rising from 15p at the start of play. The company has offered a year-to-date return of -37.9%, and a one-year return of -14.2%, with shares ranging from 17p to 43.3p over a 52-week period. The company has a market capitalisation of GBP20.9m.
COP27 has unearthed a quandary. How can the world achieve Trussian/Sunakian ‘Growth, Growth, Growth’ in a time of recession and at the same time support developing countries grow responsibly, but deprive them of the same opportunities that developed nations took full advantage themselves to industrialise and modernise?
It is truly the Kobayashi Maru test of the twenty-first century, and will only be resolved should – to paraphrase Guterres again – humanity cooperate; if not we are composing a collective suicide note. However, when the chairs are stacked up at the Tonino Lamborghini International Convention Centre after the delegates have left the building, the world’s leaders (or their junior ministers) will return to their own countries and just go back to their electoral cycles, ensuring the jam tomorrow promises of growth and prosperity (never mind the rest of the world) to ensure that they get an invite to COP28, in Abu Dhabi – one of the world’s biggest oil producers, who has stated that it is accelerating its plan to increase production to at least 5 million barrels of oil a day by 2025.
