Macro impact of high energy prices

https://www.nytimes.com/2022/04/23/opinion/oil-gas-energy-pr…

**Welcome to the Disorderly, Dangerous World of Expensive Oil and Gas**
**By Helen Thompson, The New York Times, April 23, 2022**

**...**

**What lies ahead promises to be more disorderly — and ultimately transformative — than the events of the 1970s. This is, indeed, a bigger disruption. During the geopolitical upheaval of the 1970s, the physical supply of oil from the world’s reserves was never the issue. Now, with Asian energy demand vastly higher than it was, it is. And demand for gas and coal may well also exceed worldwide output over the next few years. We appear to have entered a time when countries will have to compete for the world’s remaining accessible fossil fuels and governments openly choose geopolitical alliances to secure them....** [end quote]

This article mentions complex issues and unrest in countries all over the world from Europe to Peru to Nigeria. China’s demand for gas imports grew by 20 percent over 2021, helping push European gas prices up nearly sixfold between March and December.

There’s no quick, simple solution to the problem. Rising energy prices (and fertilizer prices, since nitrogen fertilizer uses methane as part of the process) are critical flash points for countries all over the world.

The issue interesects with the renewable energy sector but this is not a near-term solution.

The next year will probably see continuing rising energy costs and possibly political unrest (even revolution) in countries around the world.

As an investor, the clearest way to profit is to invest in energy producers, at least in the near to moderate term. Many of these pay a decent dividend as well as recent upward trend. The stock prices may drop if there is a recession or a stock market crisis but the underlying thesis remains. The world needs more energy than it can produce in the short term.

Fidelity® Global Commodity Stock Fund (FFCGX) contains oil majors as well as food, fertilizer and metals.

Wendy

8 Likes

During the 1993 Asian melt down, OPEC recognized that high oil prices were a tax on economies. In response they increased oil production and drove oil prices down to $12/bbl.

OPEC is well aware of their impact on economies around the globe. They do know how to respond.

Of course the leaders in OPEC in 1993 are gone. Current leaders may have different priorities.

1 Like

We can discuss commodities in dollar terms, but no matter how good the NYT is without discussing an appreciating dollar half the cake is unbaked.

Of course the leaders in OPEC in 1993 are gone. Current leaders may have different priorities.

They also may have different (lower) levels of “surplus” supply capacity. And they also have larger populations to mollify with social programs. That takes money.

The past few years of under investment in new supply haven’t yet been corrected. And folks seem to continue to overlook that existing fields decline in production every year - somewhere around 4-6% a year. That must be made up with new supply to just stay even.

The world’s reaction to the Russian invasion of Ukraine can take a lot of Russian supply off the market. I earlier assumed that what didn’t go to Europe would just go to India and China at reduced prices. I learned today that pipelines to that area aren’t connected to those supplying Europe. That, combined with blockages at the few ports that Russia has to export from means they face serious transportation issues.

I’m no expert, but I don’t see the O&G supply correcting quickly unless a major depression slams demand. Maybe even then.

3 Likes

During the geopolitical upheaval of the 1970s, the physical supply of oil from the world’s reserves was never the issue. Now, with Asian energy demand vastly higher than it was, it is…We appear to have entered a time when countries will have to compete for the world’s remaining accessible fossil fuels

Is this another ‘peak oil’ story?

DB2

1 Like

<Is this another ‘peak oil’ story?>

Maybe…but the last peak oil story (2007) dissolved in the the increased supply from a new technology, shale oil. I think the current story probably has legs until supply increases.

Wendy

So since there is only one enormously successful company that is completely dedicated to the transition away from fossil fuels, I assume you must be a big supporter. And heavily invested. I know I am.

https://www.tesla.com/about

Tesla’s mission is to accelerate the world’s transition to sustainable energy.

Lots more at the web site.

-IGU-

1 Like

I own small scale never developed mineral rights at over twenty locations scattered along the Eagle Ford Shale from the Oklahoma border down to the Rio Grande border with Mexico. Offers to buy my rights got a little hysterical back in early days of fracking and then went dead by 2017. Now I am getting offers every other week. Hysteria is building.

david fb

7 Likes

Is this another ‘peak oil’ story?

Some one mentioned that the Germans could greatly reduce their dependence on Russian oil & gas if the US would only send them heat pumps.

https://electrek.co/2022/03/08/how-us-made-heat-pumps-could-…

intercst

1 Like

As an investor, the clearest way to profit is to invest in energy producers, at least in the near to moderate term. Many of these pay a decent dividend as well as recent upward trend. The stock prices may drop if there is a recession or a stock market crisis but the underlying thesis remains. The world needs more energy than it can produce in the short term.

===================================================================

The clearest way to profit is to use less energy by becoming more energy efficient. Reduce several trips to the store in one day - combine all shopping into a thought out plan and only getting essentials. Do more walking to do your shopping. Buy an EV vehicle to reduce dependence on inefficient ICE vehicles and to save money on maintenance and fuel costs. Change home lighting to LEDs. Buy battery operated tools for construction, house/garden/yard/auto maintenance …

Using and investing in fossil fuels just makes the economy and world worse.

Jaak

1 Like

Europe is already in the heat pump business:

Almost 180 million heat pumps were used for heating in 2020, as the global stock increased nearly 10% per year over the past 5 years. Although some are reversible units that only partially cover space and water heating needs, growth is evident across all primary heating markets – North America, Europe and Northern Asia. Heat pumps have become the most common technology in newly built houses in many countries, but still only meet 7% of global building heating demand.

In the Net Zero Emissions by 2050 Scenario, the installed heat pump stock reaches 600 million by 2030. Further policy support and innovation will be needed to reduce upfront purchase and installation costs, remove market barriers for renovations, improve energy performance and phase out refrigerants with high global warming potential.

The EU market is expanding quickly, with around 1.8 million households purchasing a heat pump in 2020 (12% annual average growth since 2015, and 7.5% growth relative to 2019, despite the pandemic). In 2020, Germany replaced Spain as one of the top three markets, thanks to 38 000 new sales. Together with France and Italy, it was responsible for nearly half of all sales in the European Union, while Sweden, Estonia, Finland and Norway have the highest market penetration rates, with more than 25 heat pumps sold per 1 000 households each year.

https://www.iea.org/reports/heat-pumps

Jaak

1 Like

Global energy security concerns likely drive supply expansion, diversification
www.spglobal.com/commodityinsights/en/market-insights/latest…
Concerns over energy security as a result of the ongoing Russia-Ukraine war may spur capacity expansion and diversification of oil and natural gas supplies in the next few years, which could prompt more longer-lead projects which industry has shied away from in recent years, the top executive of oil services giant Schlumberger said April 22.

A half dozen years of oil prices that hovered around $45/b-$50/b beginning in 2015 eventually led upstream producers to focus on so-called short-cycle projects that provided a relatively quick payback starting roughly six to 24 months after being greenlighted.

But longer-cycle, pricey projects that take years or even a decade to produce first oil could also make a comeback as the thirst for supply diversity and security become major priorities for upstream producers, Schlumberger CEO Olivier Le Peuch said during his company’s first-quarter 2022 earnings conference call.

DB2