Last year the economy started to recover and energy consumption recovered too. If the economic recovery continues and the Fed does not mess things up while taming inflation, big oil as well as many alternative energy investments like solar may do well in 2022. ExxonMobile was trading at $32 in November of 2020 and trades at $73 as we begin 2022. The stock is still not back to its pre-pandemic level of more than $80 a share. In 2021 crude oil demand outpaced supply as reported by the US Energy Administration. With continued economic growth one might expect the entire energy sector to prosper through 2022. What factors will affect energy investments in 2022?
Pitfalls to Energy Investments in 2022
We have speculated about investments if Russia invades Ukraine. One of the biggest pitfalls to energy investments in 2022 is the potential Russian invasion of Ukraine. Ukraine is where a huge amount of Russian oil and natural gas transit on the way to Europe. 400,000 barrels of oil a day transit Ukraine on the way to Slovakia, Hungary, and the Czech Republic via the southern branch of the Druzhba pipeline network. Russian natural gas transport through Ukraine on the way to Europe runs between 2.9 Tcf to 3.3 Tcf a year. (Tcf = trillion cubic feet) This is about a third of Russian natural gas exports and about a fifth of EU natural gas consumption.
Recession in the EU
A potential outcome of a Russian invasion of Ukraine could be a temporary or even long term disruption of crude oil and natural gas transport via pipelines in Ukraine. That would be a shock to the economy in the EU and that of Russia. The EU is the world’s first or second largest economy sharing the top spot with North America. If the whole situation does not descend into an all-out war, it might simply drive the prices of natural gas and oil up which would be a boon for the likes of Exxon Mobile and other oil companies.
Higher Fossil Fuel Prices Make Renewable Energy More Competitive
As a rule the more expensive oil and natural gas are, the more competitive solar, wind, hydroelectric, and nuclear energy are. If the situation in Ukraine becomes really nasty, all energy prices could go up making pretty much all energy investments good bets in 2022. We noticed one glitch in the solar energy realm in California when we read a letter to the editor by the former governor of California, Arnold Schwarzenegger. The California Public Utilities Commission is considering a “grid participation charge” for solar users who can, in theory, send energy into the electric grid instead of using it for their homes or businesses. The average $57 a month fee would deter further installation of solar panels on homes and businesses in California and anywhere else where such fees might be instituted.
Slowdown in China and Energy Prices
The rise of China as an economic power and the leading industrial power has had many ramifications. One of these is that when China’s industrial machine sneezes the countries that provide it with raw materials all catch colds. This is pertinent for energy investments for 2022. China’s economy grew at an annualized rate of 4% last month. That would have been great for the USA or Europe but it is half of their rate of growth at the same time last year. Consumers and home buyers have become very cautious with a potential collapse of their real estate sector in the offing and country-wide lockdowns again as the omicron variant of Covid-19 brings Covid-19 back to China where it all began.
Energy Investments for 2022 – Slideshare Version
Energy Investments for 2022 – DOC