Inflation Is Boosting This Sector

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Electricity…petrol…food prices…

The cost of living has been rising, hitting consumers’ pockets.

And one of the big culprits has been energy.

While it’s all felt a bit 1970ish, author and energy expert Daniel Yergin says things could be ‘potentially worse’ this time around:

In the 1970s, only oil was involved, whereas this crisis encompasses natural gas, coal, and even the nuclear-fuel cycle. In addition to stoking inflation, today’s crisis is transforming a previously global market into one that is fragmented and more vulnerable to disruption, crimping economic growth. And, together with the geopolitical crisis arising from the war in Ukraine, it is further deepening the world’s great-power rivalries.

Europe, in particular, is on edge at the moment.

On Monday, Russia shut down Nord Stream 1 for routine maintenance.

Nord Stream 1 is a major European gas pipeline delivering about 55 billion cubic metres of gas per year from Russia to Germany.

While these works are scheduled to last 10 days, there are fears that Russia may not turn the pipeline back on as geopolitical tensions rise.

France is already preparing for a ‘total cut off of Russian gas’.

And Germany has recently warned that cutting natural gas supplies to Europe risked causing a ‘Lehman effect in the energy system’.

This is at a time when Europe is working to build up its natural gas supplies ahead of winter. So things could get really tough for Europe if Nord Stream 1 doesn’t come back on…and hikes gas prices even more.

Energy security has been THE topic this week

Energy is at the core of everything we do.

It’s becoming clear that leaving our energy supply in the hands of others is a risk and that producing more of our own energy is becoming critical to many economies.

Of course, the long-term solution to this is renewable energy.

The UK took the bull by the horns this week as it introduced its own Energy Security Bill to parliament.

The bill includes a range of energy measures looking to support the UK’s energy independence, diversify from fossil fuels, and boost cleantech. The UK expects it will bring in £100 billion from the private sector in investment by 2030.

As Business and Energy secretary Kwasi Kwarteng put it:

To ensure we are no longer held hostage by rogue states and volatile markets, we must accelerate plans to build a truly clean, affordable, home-grown energy system in Britain.

This is the biggest reform of our energy system in a decade. We’re going to slash red tape, get investment into the UK and grab as much global market share as possible in new technologies to make this plan a reality.

And energy security was also the big topic at the Sydney Energy Forum, a two-day conference hosted by Australia and the International Energy Agency.

As Energy Minister Chris Bowen said during the forum:

By building resilient clean energy supply chains, we can protect our economies from the shocks of the next crisis.

The one supply chain no geopolitical crisis can disrupt is the supply of sun to our land and the supply of wind to our country’s coasts and hills.

Something that US Secretary of Energy Jennifer Granholm echoed:

It’s about our energy security and our energy independence as nations. No country has ever been held hostage to access to the sun. No country has ever been held hostage to access to the wind. They have not ever been weaponised, nor will they be. So therefore, our move to clean energy globally could the greatest peace plan of all.

The US and Australia took advantage of the forum to sign the new Australia-US Net-Zero Technology Acceleration Partnership. Both countries will work together to accelerate the deployment of net-zero emissions tech and cooperate on securing critical mineral supply chains.

It shows that the shift to renewables is accelerating, and there’ll be plenty of money pouring in.

And speaking of supply chains…

Another main topic at the Sydney conference was China’s hold on clean energy supply chains.

As Granholm said:

China has big-footed a lot of the technology and supply chains, and that could end up making us vulnerable if we don’t develop our own supply chains. It is imperative that nations that share the same values develop our own supply chains.

China dominates when it comes to producing solar panels but also lithium-ion batteries.

More than 80% of all battery cell manufacturing happens in China. And at the heart of this is lithium.

It’s why China has been on a lithium shopping spree in the last few years. In fact, Ganfeng Lithium has just snapped up two lithium mines in Argentina.

So we will need plenty of lithium to meet the demand for the energy transition…and it’ll become even more important as countries race to build their own battery supply chains.

It’s probably why lithium prices have remained high.

But lithium is just one of the many opportunities arising from the energy transition. There’s cleantech, EVs, hydrogen, solar, and wind — to name a few. The energy transition will affect every sector of the economy.

And it’s these opportunities that we look for at New Energy Investor. You can find out more here.

Until next week,

Selva Freigedo Signature

Selva Freigedo,
For Money Morning

Selva is also the Editor of New Energy Investor, a newsletter that looks for opportunities in the energy transition. For information on how to subscribe, click here.

About Selva Freigedo

Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up…

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