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ESG roundup: Impax on shale gas, Schroders on natural gas

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  • ESG roundup: Impax on shale gas, Schroders on natural gas

GLOBAL – The advance of the shale gas industry has created four key investment opportunities, according to Impax Asset Management.

The sectors set to benefit from the growth in shale gas operations are the water and waste treatment industries, the compliance industry and environmental consultancies.

Companies in the water sector are involved either through water supply, sale of water chemicals, fracking pumps or associated wellhead infrastructure.

There is currently no significant treatment of the contaminated water, but this is expected to increase significantly as regulation tightens.

Water recycling can also be expected to increase.

Speaking at a seminar in London earlier this week, Lee Clements, investment manager at Impax, said water treatment amounted to 25-30% of the cost of shale gas.

Testing, meanwhile, is required for the output products from the wells and throughout the refining process. As new regulation comes on stream, these companies will inevitably benefit, Impax says.

Companies involved with the safe disposal of hazardous waste are already seeing some activity through treatment and disposal of the highly contaminated by-products from the shale production process.

This demand looks sets to increase as regulation on the disposal of fracking fluids becomes much stricter.

And finally, with increased regulation, producers will require significant consulting advice to achieve compliance standards in the use of water, environmental assessments, site remediation and other activities such as tracking gas lost to the atmosphere and monitoring well-case linings.

This is another area likely to yield more investment opportunities as further regulations are implemented.

Bruce Jenkyn-Jones, managing director of the listed equity team at Impax, said: "The expanded natural gas production is dramatically changing the US energy and environmental markets and will have major implications for the world's future energy supply and its security.

"Some of the best investment opportunities arising from the shale revolution are in the suppliers helping the industry to operate more efficiently, reduce pollution and meet increasingly strict environmental controls.

"We could be about to witness a modern day equivalent of selling shovels during the gold rush."

In other news, asset manager Schroders has said that natural gas is vital to a climate change solution.

Simon Webber, co-manager of the Schroder global climate change fund, said: "In theory, we could quickly move to a world where all our electricity needs are provided by wind, hydro and solar electricity, supported by large amounts of battery storage to provide power when there is little wind or sun.

"However, as desirable as this may sound, such a solution is just not economically viable."

Clean energy faces challenges. It would require $6trn (€4.6trn) in investment to replace 3,000 gigawatts in global fossil fuel-based power plants with renewables, and trillions of dollars would be needed for storage capacity as well, according to Webber.

"The massive shift to a low-carbon energy system needs to be achieved with a steady mix shift towards true low-emission energy technologies – wind, solar, nuclear, hydro," he said.

"This must be complemented by the most efficient and flexible fossil fuel-based generation, which is gas based.

"Gas is clearly not the end solution for climate change mitigation, as it still produces greenhouse gases. However, emissions are significantly lower than burning coal or oil."

Compared with average emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides and 1% of the quantity of sulphur oxides.

Webber said the marginal cost of producing wind power was close to zero and as such would always be the first power source to be dispatched onto the system.

"Gas power merely allows us to deal with peak demand, and with sufficient capacity allowances for the capital cost, is complimentary to renewables in the mitigation period," he added.

"Gas is certainly not the ultimate solution unless it is implemented with carbon capture. However, this can be done in time, or, alternatively, gas can be phased out further in the future.

"The reality is that, if climate change is to be successfully mitigated, the global carbon budget – in other words, total allowable greenhouse gas emissions through 2050 – implies that equity markets are overcapitalising the reserves and resources of the whole fossil fuel industry."

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