global oil demand

Energy Crisis: The Best Way to Profit from Rising Costs

September 28, 2022 By admin Leave a Comment

(Russian) Winter Is Coming

During the summer, the European Union (EU) announced plans to ban seaborne imports of Russian crude oil from December 5. And it said it will impose a ban on petroleum product imports starting on February 5 next year.

If and when these bans are implemented, they will have a knock-on effect on all energy prices across the globe.

But there’s more…

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Recently, the leaders of the EU and other G7 nations decided to try to limit Russia’s oil revenues. They proposed a price cap of between $40 and $60 a barrel on Russian oil. This would also come into effect on December 5.

The Group of 7 – or G7 – comprises Canada, France, Italy, Germany, Japan, the United Kingdom, and the United States.

To say that Russia doesn’t like these proposals would be putting it mildly.

Russian President Vladimir Putin said he will make Europe freeze and turn off the gas valves to any country that imposes price caps.

It remains to be seen whether he makes good on his promise if a price cap is imposed. After all, Russia is no stranger to empty threats.

For example, about six months ago, it demanded that all payments for natural gas be made in its local currency, the ruble, or it would cut supplies. This was to prop up its then-falling currency.

The EU countries refused. This caused a spike in natural gas prices.

In the end, however, Russia backed down… silently. Why? Because it couldn’t afford to cut off the flow of those juicy gas dollars.

It’s very hard to predict how this will play out. If Russia’s war in Ukraine has shown us anything, it is that Putin can be unpredictable.

And the EU and G7 must tread a fine line between forcing Russia to abandon its “special operation” in Ukraine and keeping the lights on in Europe and around the world.

Heads of government from almost every country in the world have gathered in New York this week for the 77th United Nations General Assembly. The energy crisis and the situation in Ukraine are top of the agenda.

Unsurprisingly, Vladimir Putin is not in attendance, although he has sent his foreign minister to the event.

Energy Prices Will Continue to Rise This Winter

The way things currently stand, the rise in natural gas prices is unlikely to be fully resolved in the short term.

And it’s destined to build into a crisis here this winter.

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According to the U.S. Energy Information Administration, we generate 38% of our electricity from natural gas.

When the weather gets colder, demand for natural gas-fueled electricity will rise. And in general, colder weather increases demand for natural gas for heating. This is true in both the residential and commercial sectors. That puts upward pressure on prices.

And if the weather becomes unexpectedly cold or harsh, price spikes can intensify.

This means less natural gas would be available for storage. And this, in turn, would lead to higher prices as countries scramble to replenish their depleted natural gas reserves. It’s a vicious circle.

And I’m sure we all remember what happened in February 2021, when extreme weather conditions in Texas closed down U.S. oil refineries and plunged millions of Americans into darkness. Energy prices across the country soared as a result.

What This Means for You and Your Money

The good news is that the EU has already managed to fill 85% of its natural gas storage from alternative sources. As a result, natural gas prices there have pulled back somewhat from their recent peak.

But they still remain more than double where they were in January 2022, before Russia invaded Ukraine.

And the ongoing uncertainty means energy prices will likely stay elevated into 2023.

A good way to position yourself in the short term is with an energy-related exchange-traded fund (ETF).

The United States 12 Month Natural Gas Fund (UNL) tracks natural gas price movements.

Regards,

Nomi Prins
Editor, Inside Wall Street with Nomi Prins

P.S. As I said in my essay today and yesterday, the energy crisis on the other side of the Atlantic won’t stay on the other side of the Atlantic…

As the contagion spreads from Europe to America and from the energy markets to the financial system – a portion of your retirement could be at great risk.

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The Main Reason Behind the Energy Crisis in Europe…

September 27, 2022 By admin Leave a Comment

Why Europe Loves Natural Gas

One of the main factors driving the energy crisis in Europe is the rise in natural gas prices.

Europe loves natural gas. It gets about a quarter of its energy from it.

And what’s not to love?

It’s a superior form of fuel to oil and coal because of its energy density.

Natural gas is versatile. You can use it to heat your home or to spin a turbine and produce electricity. You can use it to power home cooking appliances and vehicles.

You can also use it to make fertilizer. And that’s crucial for the food production industry, as I wrote a few months ago.

Natural gas also produces less pollution than some other fuels. It emits about half as much carbon dioxide as coal, for example.

The upshot is that European nations wanted to move away from the dirtier, polluting fossil fuels, such as coal and oil, and, in some cases (think Germany), nuclear. So it had every incentive to fall in love with natural gas.

But there was a problem…

You see, there are two ways to move natural gas around. The first is by sea, using liquified natural gas (LNG) carriers.

This option requires an export facility to chill the natural gas down until it becomes liquid. It is then pumped onto these giant boats and shipped across the world.

Then on the other end, you need an import terminal to re-gasify it. All this infrastructure takes billions to make and years to construct.

The second option is much simpler. It involves transporting natural gas via pipeline.

Europe chose the easier way. It imported natural gas from Russia through pipelines.

Russia was right next door, after all. And it produced lots of natural gas.

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From Nord Stream to No Stream

Until recently, Russia was a major exporter of natural gas to the rest of Europe. Last year, the European Union (EU) got roughly 45% of its imported natural gas from Russia, according to the International Energy Agency.

Russian gas reaches Europe via a complex network of pipelines running through eastern Europe.

The most important pipeline is Nord Stream 1. It’s approximately 1,200 kilometers long and runs under the Baltic Sea between Russia and Germany. Up to 170 million cubic meters of gas can flow through Nord Stream 1 daily.

Since it became operational in 2011, more than 441 billion cubic meters of Russian gas have flowed to Europe via Nord Stream 1.

In 2021, Europe imported 155 billion cubic meters of natural gas from Russia. Nearly 40% – 59 billion cubic meters – came through Nord Stream 1.

Nord Stream 1 is owned and operated by Nord Stream AG, whose majority shareholder is the Russian state company Gazprom.

For years, Nord Stream 1 has embodied the tacit deal between Russia and the European Union.

Russia was willing to supply copious amounts of natural gas at favorable prices. It developed infrastructure to take its gas to Europe.

Europe built industries that depend on that cheap supply of Russian gas. And industrial powerhouses, like Germany, built their entire economies around it.

But then, earlier this year, Russia went to war with Ukraine. That changed everything.

The EU slapped Russia with unprecedented sanctions. Russia retaliated by cutting the flow of natural gas via Nord Stream 1 by about 60%.

Then during its annual scheduled maintenance this summer, the pipeline flow dropped to zero. When it came back online, it came back at 40% capacity before dropping to 20%.

Then, at the end of August, Russia shut down the pipeline again, supposedly for maintenance. This shutdown was to last three days. But at writing, the pipeline remains offline.

Russia’s Endgame Could Mean Lights Out for Europe

As a result of all these actions, the European gas price went parabolic this summer. At one point, it cost $340 per megawatt-hour (MWh). That’s 312% higher than in January 2022, before Russia invaded Ukraine.

You can see the huge spike in natural gas prices that coincided with the Nord Stream 1 shutdown in the chart below.

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Now, while the price has dropped back somewhat in recent weeks, as Europe secures alternative supplies, the uncertainty surrounding their natural gas supply is a huge concern for the eurozone countries.

Consider this…

At about $12 per megawatt-hour (MWh) in November 2021, the eurozone’s energy import costs were $200 billion. That’s 1.6% of its GDP.

If gas settles at about $200 per MWh, this number will increase by roughly $700 billion to 7% of GDP.

At $300 per MWh, it would rise by about $900 billion. That’s a crippling 8.5% of its GDP.

So, Russia’s endgame is simple – to keep gas prices as high as possible to inflict maximum pain on Europe, so it eases off on sanctions.

Energy Rations Becoming a Reality

The way things are going, it looks inevitable that Europe will have to ration gas and energy come winter.

Germany is already discussing its options. German politicians are trying to decide how German industry will be prioritized. Difficult questions are being asked.

Questions like… Who gets the gas when there is a shortage? Who has to close the shop?

But whichever way they slice it, it will likely end up plunging Europe’s largest economy into crisis.

And if that happens, the entire European Union – and potentially the entire world – is in trouble.

Tomorrow, in the second part of this two-part essay, I’ll show you how to turn rising energy prices into profits in your portfolio.

Regards,

Nomi Prins
Editor, Inside Wall Street with Nomi Prins

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Massive Government Investment in Renewables on the Way…

May 16, 2022 By admin Leave a Comment

Governments Rushing Into Renewables

Last October, global governments met in Scotland for the COP26 United Nations Climate Change Conference. There, they agreed on several key climate change and carbon emissions goals.

Now, I know not everyone feels the same way about climate change. But no matter what your views are on environmental matters, what’s coming down the tracks brings with it a huge opportunity to profit…

See, global governments put a price tag of up to $150 trillion on their plans to reach COP26 goals.

More recently, the war in Ukraine has been a major catalyst in their push for renewable energy and related technologies…

In March, the U.S. banned Russian oil, liquefied natural gas, and coal imports.

At the time, the European Union (E.U.) treaded softly.

It outlined a plan to become independent from all Russian fossil fuels “well before 2030.” And it announced plans to triple its renewable energy capacity by 2030.

But last month, it stepped things up a gear. It banned Russian coal imports.

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And last week, it proposed phasing out Russian crude oil within the next six months.

That’s significant… Earlier this year, the E.U. accounted for 71% of Russian fossil fuel exports.

If this proposal gets voted into law, it will undoubtedly lead to fuel shortages and price hikes across the bloc.

So the E.U.’s 27 member countries must now find alternative ways to power their economies… fast.

But it’s not just in Europe where the effects of the energy crisis are being felt…

Here in the U.S., the latest Consumer Price Index (CPI) data shows that energy costs have risen by 30% in the last 12 months. Gasoline is up 43%. And fuel oil is up 80%.

And if the E.U. goes ahead with its Russian oil ban, we can expect further price increases here. That’s because any sanctions have global ramifications on oil and gas prices.

So the race to ramp up production from renewable energy sources is on, both here and across the pond…

The Cost of Our Carbon Footprint

That’s where our New Energy theme comes in. It covers everything from renewable energy to cleaner infrastructure.

Essentially, New Energy is about reducing our carbon footprint. There’s a big push to cut back on carbon dioxide emissions, and to replace them with less harmful alternatives.

Perhaps one of the main reasons governments and industry alike are paying attention is that there is now a cost associated with our carbon emissions and consumption.

The airline industry is a great example. If you’ve booked a flight on Google Flights recently, you’ve probably noticed this:

Google shows you how much carbon dioxide each flight will emit. And it compares it with average emissions. Airlines will be charged for these emissions.

To stay competitive, the world has to transition to new sources of energy that emit less carbon.

The world’s governments have accepted that climate change is real. And this is unleashing a massive new investment trend.

$750 billion was spent on clean energy technologies and efficiency worldwide in 2021.

And as we’ve been telling you, the White House has allocated $100 billion to clean energy projects under the Bipartisan Infrastructure Law.

We’ve already shown you several ways to profit from the increasing investment in this sector.

But it’s not just governments that are putting their money where their mouths are…

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Private Money Following Public Investment

The search for alternative energy isn’t just a political battle cry. It’s something even the largest oil companies are embracing.

Traditional energy companies are rethinking their strategies.

For example, BP has committed to shrinking its oil and gas production by 40%. It plans to invest $5 billion per year in low-emission businesses. Recently, it spent $220 million on a pipeline of 9 gigawatts (GW) of solar projects in the United States.

And oil and gas company, Total, invested $2.5 billion in an Indian renewable energy company. It aims to have 35 GW of gross renewable energy generation capacity by 2025 (up from around 9 GW today).

So with massive government investment in renewables on the way, more of the big energy companies are likely to follow suit…

Traditional Energy Won’t Disappear Overnight

Now, traditional energy won’t just disappear overnight…

The chart below comes from the U.S. Energy Information Administration (EIA). It tracks the trend of energy consumption needs globally through 2050.

And it shows the growth in renewable energy (blue line at the top) as well as traditional energy.

As you can see, the projection is for a 50% growth in the New Energy space.

And we’re already seeing rising demand. 2021 was another record year for renewable energy, according to the International Energy Agency (IEA).

The world added a record 295 GW of new renewable power capacity in 2021. That was despite the pandemic and rising costs for raw materials globally.

Now, from the chart above, we can see that traditional energy consumption will remain more or less flat.

But even in traditional energy production, carbon-neutral technologies will play a bigger and bigger role.

Even minor adjustments to their processes and maintenance routines could help companies reduce their energy consumption.

Public and Private Investment Create Massive Opportunity

This transition to New Energy represents a windfall magnet for you. As I mentioned earlier, up to $150 trillion is about to flow into this sector.

As we’ve been showing you, global governments are backing the New Energy transition.

And even the traditional fossil-fuel giants are coming on board.

This does not mean that oil and gas will go away, or that I will ignore opportunities in the traditional energy space.

But as the energy crisis unfolds… and the E.U. and the rest of the world exerts more and more pressure on Russia… I will pay close attention to New Energy companies.

For now, I recommend keeping an eye on the best emerging energy sources. These include wind, solar, geothermal, next-generation nuclear, and carbon-capture coal.

And I’ll be sure to let you know how to invest as this trend develops. So stay tuned…

Regards,

Nomi Prins
Editor, Inside Wall Street with Nomi Prins

P.S. Millions of Americans are looking for ways to reduce their energy bills. And it’s no wonder… with energy costs up 30%, gasoline up 43%, and fuel oil up 80% in the last twelve months, according to the latest U.S. inflation figures.

The war in Ukraine is the latest catalyst in the energy crisis story… Global governments are quickly shifting gears to focus on alternative energy sources.

But there’s another huge event coming up that will put this trend into overdrive. In fact, it will shake the energy market to its core.

And the best part: If you know where to look, you could double… or even triple your money over the next twelve months.

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Why the Age of Oil Will End With a Bang

April 7, 2021 By admin Leave a Comment

After more than a century, it appears that the age of oil is drawing to a close.

The entire world is rapidly embracing renewables.

Governments everywhere have pledged trillions of dollars toward the transition to clean energy.

China, India, Britain, Korea, Japan, and now even the United States are moving in the same direction: away from hydrocarbons.

While that doesn’t sound very bullish for the price of oil, in the short and medium-term, I’m growing convinced that it actually is…

Suddenly, Nobody Wants to Spend Money Drilling Oil Wells

The world’s oil producers are slashing spending across the board.

Those spending reductions are going to have a big impact on medium-term oil supply.

The moment an oil producer puts a new oil well into production, the rate at which it produces immediately starts declining.

So for oil producers, these production declines create a never-ending treadmill. Producers have to constantly spend money on drilling just to stay in the same place.

To grow production, they need to spend even more.

According to Exxon Mobil (NYSE: XOM), global production from existing oil wells declines at a rate of 7% per year.

On a base of 100 million barrels per day (bpd) of production, that means the world will lose 7 million bpd of production over the next 365 days.

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That means to just keep production flat at 100 million bpd, the oil industry needs to add 7 million bpd of new production.

Without sufficient spending on new wells, global production will fall.

Historically, spending enough on new wells to offset declines hasn’t been a problem.

The oil industry has always notoriously borrowed aggressively and burned through every penny of its cash chasing production growth above all else – often creating no value for shareholders.

But now things are different for two reasons…

Investors have indicated to oil companies (especially shale producers) that borrowing recklessly and burning through cash is no longer acceptable.The market wants to see these companies spend less, improve their balance sheets and return cash to shareholders instead.Oil executives who would like to keep their cushy jobs have received that message, and growth spending has been cut to the bone.
With the long-term future of oil in doubt, the largest oil producers are no longer willing to spend billions exploring and developing the megaprojects that are so crucial to maintaining supply. These companies can’t spend billions developing long-term oil projects if they don’t believe there is going to be long-term demand for that oil. I recently wrote about how oil majors Royal Dutch Shell (NYSE: RDS-A), BP (NYSE: BP), and Total (NYSE: TOT) have all announced plans to intentionally reduce production.

Without these big boys growing new production, oil supply is set to suffer in both the near and long term.

Demand Will Fall Eventually, but Not Yet

Prices are always determined by the relationship between supply and demand.

If supply exceeds demand, prices fall.

If demand exceeds supply, prices rise.

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While huge spending cuts are set to hit short- and medium-term oil supply, demand is not projected to fall until far out in the future.

In China and India, where billions of people live, oil demand is expected to continue growing for a while.

Eventually, the transition to renewables will cause global oil demand to peak. But it can’t happen overnight.

Reuters recently provided a recap of when oil market analysts are forecasting global demand to peak.

Bernstein Energy projected it would peak between 2025 and 2030.
Rystad Energy was more specific, pointing to 2028.
The International Energy Agency believes it will happen within 10 years.
Goldman Sachs thinks it will happen after 2030.

Meanwhile, spending cuts are going to hit oil supply much sooner.

Last week in its investor update, the French oil major Total warned that it sees a big oil supply shortfall coming by 2025.

By big, I mean a shortfall of 10 million bpd.

That is a massive shortage.

If Total is correct and the oil market is headed toward a situation where it is undersupplied by this much, the price of oil is going to surge.

So while the age of oil might be ending, it isn’t going to end without a bang.

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Good investing,
Jody

global oil demand

Energy Crisis: The Best Way to Profit from Rising Costs

In this Article

(Russian) Winter Is Coming

Energy Prices Will Continue to Rise This Winter

What This Means for You and Your Money

The Main Reason Behind the Energy Crisis in Europe…

In this Article

Why Europe Loves Natural Gas

From Nord Stream to No Stream

Russia’s Endgame Could Mean Lights Out for Europe

Energy Rations Becoming a Reality

Massive Government Investment in Renewables on the Way…

In this Article

Governments Rushing Into Renewables

The Cost of Our Carbon Footprint

Private Money Following Public Investment

Traditional Energy Won’t Disappear Overnight

Public and Private Investment Create Massive Opportunity

Why the Age of Oil Will End With a Bang

Suddenly, Nobody Wants to Spend Money Drilling Oil Wells

Demand Will Fall Eventually, but Not Yet