One reader recently asked among other things, for my thoughts on current Hormuz events, and whether I still like Po Valley Energy (ASX: PVE). Given that I disclosed the rare foray into a resource stock a few months ago, it is something I have been thinking about, anyway.
The constant “Iran blah blah blah” emanating from the United States of America definitely gives off the impression that a whole lot might be changing all the time. However, I have reached a state beyond caring about the specific flavour of “blah blah blah” on any given day, because I no longer believe much of it, anyway. Despite all the chatter, at no point since the conflict started has traffic through the Strait of Hormuz reached even 50% of its previous average of over 135 ships per day.
How many times have they declared victory at this point?
So as you can imagine, I’m not very bullish the world economy right now, because energy costs are increasing, and I don’t see the big recipient of investment dollars, artificial intelligence, creating much value for the majority of people in the short term. That view could change, but suffice it to say I would feel more bullish if there were fewer wars going on.
Fortunately, my Small-Cap Mailbag missives are about the stocks, not the politics, and what matters for Po Valley Energy is not so much the conflict in Hormuz, as the price it receives for the gas it sells. Therefore, I prefer to just keep an eye on the price of natural gas in Europe, than to ride the media-cycle rollercoaster.
On the Trading Economics website, you can see that the natural gas price in Europe does remain at a higher level than immediately prior to the Iranian closure of the Strait of Hormuz, given there is now less gas coming out of the Strait of Hormuz, than before.
However, the same website also demonstrates that market forces are capable of bringing gas prices right back down in the event of a supply shock, such as when a scuba-diving Ukrainian booth baddie heroically detonated an underwater pipeline Russia was using to fund its expansionist war machine.
Therefore, I highly doubt any gas price rise above about $80 would be sustained for long. This is particularly true given the ability to reduce gas demand by installing more heat pumps. Many Europeans are already switching to heat pumps, according to the European Heat Pump Association (though note the potential bias).
In any event, the main point of the thesis here is that, due to the obvious possibility of supply constraints from Hormuz persisting, and kinetic sanctions reducing Russia’s ability to export energy, the Italian government will be motivated to allow Po Valley Energy to drill more wells, despite the fact that this comes at a real environmental cost.
Accordingly, late last month Po Valley Energy filed an Environmental Impact Assessment to drill, develop and commission four new wells within the Selva Malvezzi Production Concession in the Po Valley Basin in Northern Italy. The company says, “The four proposed wells are relatively close to the existing Podere Maiar 1 well, which has been in continuous production for Po Valley Operations for three years since July 2023 at approximately 80,000 Scm/day.”
The only reason I own PVE stock is because I think the Italian government will allow Po Valley at least one more well, or maybe more.
However, the Italian authorities are mindful of the environmental risks to the aquifer in the Po Valley, and personally, if it were me making the decision, I’d deny the wells, because they could make flooding worse in the valley.
However, Italy is its own democracy, and I’m not an Italian citizen. From afar, it seems like Italians want to increase gas extraction in the Po Valley, where previously hundreds of wells plundered the landscape, and gas is basically bubbling out of the ground.
Given Russia frequently uses cyber influence operations to cause the polarisation of democratic societies, only a fool or a traitor would deny that economic cooperation with Russia increases existential threats to the democratic processes that make any environmental protection possible. There is a bigger picture here, and as much as I love animals, I love humans more.
Putting aside such pontifications, I do think that probably the Italian government will give the company the go-ahead to drill, given the current Italian Prime Minister Giorgia Meloni supports Italian resistance to Russian aggression in Europe.
Nonetheless, my spirit aches at the destruction of our furry and feathered friends. Would a donation to an environmental cause absolve me? If I save an octopus and ten sugar gliders, does it absolve me for the death of a pygmy cormorant? Out, damn spot!
So there we have it.
I still think that Po Valley Energy will probably succeed in growing, but realistically, I don’t feel great about the investment, and sometimes I wonder if I am wrong to own shares. My current view is Po Valley Energy causes more good in the world than bad, because it helps free Europe from Russia, and in turn, will help alleviate the suffering of the innocent people under attack in Ukraine. So for now, my conscience is clear, but if my conscience becomes heavy, I might sell the shares without warning.
Disclosure: The author owns shares in PVE and will not trade PVE shares for 2 days following this article. This article is not intended to form the sole basis of an investment decision. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
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