SIMON BROWN: I’m chatting now with Izak Odendaal, Old Mutual Wealth funding strategist. Izak, I recognize the early morning. In a word you place out final week you made the purpose up entrance that the surge in oil value that we’ve seen during the last 12 months causes common ache; nobody escapes that. With oil again beneath $100/barrel, it’s definitely serving to many – we’re going to see a pleasant petrol minimize regionally later this week. But Europe remains to be in a heap of ache in phrases of energy.
IZAK ODENDAAL: Yes. Good morning, Simon. And it’s getting worse, due to course on Friday Russia introduced that it will be shutting off the Nord Stream pipeline indefinitely, supposedly as a result of there’s a technical fault – however everyone knows what’s occurring there. So Europe is extraordinarily uncovered to very excessive and in addition very risky pure gasoline costs. And the distinction between oil and gasoline, which I feel is helpful to know, is that it’s straightforward to ship oil – you’ll be able to type of change one barrel of oil with one other – whereas pure gasoline is dear to ship, it’s less expensive to run these pipelines, and due to this fact there isn’t a speedy various for European economies to the piped gasoline. They’re attempting to import as a lot gasoline they will from the US and elsewhere, however have simply not been ready to take action sufficiently.
So you’ve seen the costs spike to unimaginable ranges. You’ve seen electrical energy costs, wholesale electrical energy costs enhance fairly dramatically. That clearly places the squeeze on customers, it places the squeeze on enterprise. There are elevated dangers of rationing as we head into the winter months – as South Africans know load with shedding.
There are additionally an entire bunch of different issues, considered one of which is that plenty of European utilities hedged a few of their exposures. They at the moment are dealing with elevated margin calls on these hedges, so now it’s turning into a monetary difficulty as effectively. There was speak over the weekend of governments having to step in and bail out a few of these utilities to stop issues escalating into the banking sector if the collateral posted on these hedges can’t be can’t be raised.
SIMON BROWN: I hadn’t even considered that. And in fact [there’s] one other problem on the market – we’ve been speaking gasoline, to a good diploma the Russian invasion of Ukraine – however there’s [also] drought in Europe, and this extends throughout to China as effectively. The drought is a seasonal difficulty, but in addition maybe a longer-term difficulty, very like the gasoline is in the sense of worldwide warming and local weather change.
IZAK ODENDAAL: Yes. It’s nearly like all the pieces’s gone mistaken there, due to course of the massive reliance on hydroelectricity in lots of these nations. The low water ranges can’t produce sufficient hydroelectricity. We’ve seen the identical factor in China.
But additionally, apparently, a few of the nuclear crops haven’t been in a position to run at full capability as a result of they depend on rivers to chill them, particularly type of in the southern areas.
That’s additionally one thing I don’t assume folks actually thought might occur – that you would be able to’t run your nuclear plant at full capability as a result of it’s too scorching.
I feel the underside line in all of that is that nations, governments but in addition traders want to begin pondering much more about energy safety, which is one thing we’ve taken without any consideration during the last couple of years. In reality in Germany in 2019, 2018, there have been days when electrical energy costs turned damaging; the solar shone a lot and the wind blew a lot that there was such an abundance of renewable energy that wholesale electrical energy costs truly turned damaging. So in that type of surroundings, you assume, wow, gasoline is reasonable and sunshine is free, and life’s good. No one thought or deliberate for this type of surroundings the place abruptly the gasoline is minimize off. Nature doesn’t play alongside.
So [this] calls for lots extra funding in energy safety, it requires extra redundancy.
And, once more, it’s a theme popping out of Covid, the place persons are saying, effectively, it’s not all about effectivity any extra, it’s now about resiliency – it’s about having spare capability in case one thing goes mistaken.
So it’s a totally different surroundings that we seem like shifting into.
SIMON BROWN: Yes. I take your level. Just because the just-in-time provide chain was a sufferer of Covid, so is the plentiful energy. Looking at Europe – I’m pondering of Germany, for instance, with its giant industrial base which in fact makes use of energy … in the brief time period that hurts them due to the price of the ability, to your earlier level, but in addition probably [presents] some alternative as a result of, in fact, in the event that they’re in search of that energy safety there’s going to be some spending in that house, and that spending is any person’s revenue.
IZAK ODENDAAL: Absolutely. So I feel it is a long-term funding alternative.
And I feel the larger the crisis, the extra we want to consider how huge the chance is. I feel that’s all the time mindset to have as an investor.
There is perhaps totally different sorts of opportunities, and possibly the plain one is to say, effectively, you’ll want to make investments in electrical energy manufacturing. Maybe that’s not the easiest way to consider it. Maybe the easiest way to consider it’s [about] a type of German industrial corporations now being offered off closely as a result of Europe is dealing with a recession. But truly they aren’t as badly off as you may assume at first look.
This is a chance for folks to begin digging beneath the hood and in search of these corporations which are going to be extra resilient in this type of surroundings, as a result of these crises are likely to not have an effect on all people equally.
But, completely, I do assume we’re shifting into an surroundings the place there’s going to be much more spending on energy safety. That’s going to create opportunities. I feel South Africa is usually a beneficiary as effectively in the brief time period, as a result of we’re clearly a giant coal producer – and that basically has saved our bacon all through this crisis.
But in the long run additionally due to our hydrogen potential, [our] renewables, [our] platinum – and we would even be a giant hydrocarbon producer.
We’ve seen huge findings of oil and gasoline in Mozambique and Namibia, and there’s each motive to consider that South Africa may additionally have a few of these assets.
I feel the opposite level to make is that we as South Africans are much more used to this type of energy crisis, [the] unstable energy surroundings. So I suppose we’ve additionally realized some classes that they’re solely now beginning to be taught in Europe.
SIMON BROWN: I take the purpose. We type of despatched it up north there. But in the crisis, there typically is alternative.
We’ll depart it there. Izak Odendaal, Old Mutual Wealth funding strategist, I recognize the early morning.
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