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Panic Journal 5 – Ukraine/Russia version: Is Europe actually Toast, Power Silver Bullets and the Climate


It’s time after precisely 3 months for some new ramblings on Power, Europe and naturally the climate and different stuff.

Dangerous information in every single place:

The previous few weeks felt like a brand new disaster is occurring each week or so. Italian elections, the British Pound buying and selling like a Shitcoin, Putin threatening the West with Nuclear Weapons, Power costs for retail prospects skyrocketing, potential Blackouts being an actual difficulty in Europe this winter, metal and fertilizer firms shutting down in Europe, creating provide chain points down the chain and as well as, rumors about regime change in China and/or preparations for an assault on Taiwan are surfacing on daily basis.

I’ve been listening to some US podcasts and there appears to be consensus on that Europe is Toast. Even a comparability to the “Arab Spring” was made with the dire prediction that Governments will topple like Domino tiles. I don’t wish to sound conceited however one phrase of recommendation to my American readers: European nations are literally all Democracies and if individuals don’t like their leaders they are going to elect new ones.

The FT was simply operating an article concerning the coming Deindustrialization of Germany with the instance of BASF threatening to “go away” Germany and Billionaire Ray Dalio thinks that Europeans aren’t working laborious sufficient.

Having we seen this film earlier than ?

Penning this weblog now in my twelfth 12 months, the state of affairs felt someway much like the Euro disaster and I truly discovered a submit that reads eariely comparable from February 2013:

If you happen to observe the monetary media, the world appears to be soar from one life threatening occasion to a different. “Fiscal cliff”, vote in Italy, “the sequester”, speech of Japanese BOJ chief; Bernanke speech and so on. and so on. The media desires to advertise the image that the entire world is “strolling on a decent rope” and if anyone occasion goes incorrect, doom is ensured. Consequently, individuals are “glued” to their TV units, Bloombergs and so on. so as to not miss the one “huge occasion” which can change all of it.

I’m clearly not saying that there aren’t any points. there are various and as talked about earlier than, Pure fuel shortage shall be an issue for a while and never solely this winter.

“De-Industrialization” of Europe due to Pure Gasoline

Let’s begin with this one: Sure, the present state of affairs is troublesome. Perhaps a number of issues to make clear: Sure, it was clearly a strategic mistake to not diversify Pure Gasoline sources away into LNG and constructing LNG terminals as a back-up (as for example the Baltic states have achieved). Nonetheless, from a pure financial perspective, transporting pure fuel by way of pipelines is at all times higher and cheaper than to liquefy fuel, put in onto a ship and to gasefy it once more.

Europe will clearly pay the worth for this strategic mistake, however in 2-3 years time this can normalize. What do I imply with normalize ? Quite simple: LNG is a worldwide commodity and extra demand will imply increased prizes for everybody around the globe. One can see this already proper now. A curious instance is the US area typically referred to as “New England” that for some purpose isn’t linked to the American Gasoline grid however is importing all its fuel by way of LNG.

So for these nations that depend on LNG (particularly Asia), the European demand will enhance costs for everybody. But additionally for example within the US, the place home fuel could be very low cost, fuel producers won’t be pleased to promote their fuel for a fraction of the worth to native prospects when there’s a probability to promote it for a a lot increased value into the LNG market. So the present price benefit will develop into (considerably) smaller over the subsequent years and long run traders will issue this in.

One other argument that usually pops up is which you can solely run “actual” business should you additionally personal the sources. Particularly from the US facet, “Power independence” is being seen as a goal in itself.

Curiously, the truth says one thing totally different. Only a few nations handle to make use of their very own sources effectively, most useful resource wealthy nations truly fall into the “useful resource curse” entice. The massive industrial success tales are largely useful resource poor nations like Japan, South Korea, Taiwan or Germany that turned wealthy by concentrating on “worth add” actions.

As an alternative of power independence, for my part the story have to be of an “power variety”, i.e. “spreading your bets” and never attempting to depend on anyone know-how or supply. The broader the higher.

One other side to say right here is that attributable to inflation, the price of organising new crops and so on. has risen rather a lot. So the case for a brand new chemical plant in an space with low cost fuel costs isn’t as straight ahead because the capex required is critical and has to compete with upkeep capex of a less expensive present manufacturing website.

So no, I don’t consider in final full de-industrialization of Germany and Europe. Sure, there shall be modifications and a few actions will shift extra into different areas, however the actually “worth add” actions can’t be shifted so simply as a result of they rely rather more on understand how than on low cost enter costs.

Power: There are not any silver bullets

As of late you see newly minted consultants popping out of their holes and declare that they’ve the ONE answer that solves all power issues. Be it Nuclear Power (takes a very long time, is dear, upkeep intensive – France), Fracking in Germany (no, Fracking isn’t really easy) or a direct 100% change to Inexperienced Power (apparent: the solar doesn’t shine at night time and the wind doesn’t blow on a regular basis after which there may be “Dunkelflaute”).

The troublesome actuality is that the long run will look much more difficult. To be able to each, decarbonize and make a rustic like Germany extra unbiased from fossil fuels, many applied sciences will play a task.

Renewable power (photo voltaic Wind) clearly are necessary, but in addition for example Warmth that will get produced in industrial course of shouldn’t be wasted however “coupled” with district heating techniques. Fraunhofer Institute estimated for example that nearly 10% of the required power for present district heating techniques could possibly be generated by utilizing extra industrial warmth.

One other attention-grabbing know-how is Geothermal. Fraunhofer once more estimated that 25% of the power required for heating  in Germany could possibly be produced by way of Geothermal power, once more in reference to district heating.

Once more, this isn’t a silver bullet however a ten% discount right here and one other 25% there and instantly we’re speaking a few considerably diminished demand for fossil gas by means of a mixture of applied sciences which might be already present and value aggressive at scale.

Electrical energy demand must develop into extra elastic, present fossil sources have for use higher. Renewable Pure Gasoline or Inexperienced fuels can play a task in areas which might be laborious to de-carbonize electrically (airplanes, ships).

This sounds difficult and it is going to be messy, however there may be additionally a giant probability: All these applied sciences, both present ones that should be scaled or new ones won’t solely work in ermany however could possibly be additionally very precious for different nations that face the identical issues.

Due to this fact I additionally see an incredible upside right here within the medium to long run for many who develop and scale the required applied sciences.

Nuclear: Tough however value to develop additional

Nuclear fission clearly has its personal issues as our French neighbors can possibly clarify higher. The present know-how that’s used is neither low cost if one components in all the actual prices (Capex, Insurance coverage) nor tremendous dependable. It additionally takes ages to constructed a brand new reactor.

The largest downside for my part is that the know-how hasn’t been developed additional for many years. One other downside is that sooner or later, huge centralized crops are much less efficient than they’re now.

Alternatively, for Germany, I believe it will clearly make sense to run the present reactors for extra time as a substitute of firing up coal crops.

I might be very pleased if somebody would work out fusion know-how within the close to future however that’s extremely unbelievable. If society might agree on what shall be achieved with the nuclear waste and the “actual” prices could be allotted, than there is likely to be a task for Nuclear sooner or later, however for my part it’s clearly not the silver bullet that some declare it’s.

Oil & ESG Investing

The costs of oil and different commodities are notoriously laborious to foretell and attempting to clarify value actions by one issue is at all times a fairly silly train. However, as I wrote final 12 months, David EInhorn and another outstanding traders blamed “ESG Investing” as the only real purpose for growing oil costs. With the battle in Ukraine, oil regarded like a “No brainer” a method wager to nice returns. With oil costs now at round 70 USD the query is in fact: Why is that ?

oil price

The quantity of Property managed below some type of ESG mandate remains to be growing so in principle oil needs to be dearer. However the reality is that different components are at the very least as necessary such because the latest easing of sanctions on Venezuela and a possible recession in 2023. The lesson at the very least for me is: Don’t ever consider in “single issue explanations” for any market value and attempt to separate ideology out of your funding course of.

Climate & German Gasoline consumption and storage

After a comparatively gentle November, the place the required financial savings of -20% fuel consumption have been comparatively simply achieved, December appears to develop into a chilly month.

One constructive shock is that the “Deutsche Netzagentur” is developing with new, fairly helpful statistics on their web site. Essentially the most attention-grabbing one is for my part the day by day statistic on how a lot in share factors the storage will get depleted. That is the latest model:

The orange line on prime is the present share to what the storage is stuffed, the blue bars present the day by day change. So on December sixth for example, to be able to fulfill consumption on that day, 0,45% of the saved Gasoline needed to be taken out. Now December sixth was a chilly day with temperatures round 1-3 levels Celsius, however not a really chilly day.

The final 2 days have been colder and subsequent week is likely to be much more chilly based on the climate forecast.

It is going to be very attention-grabbing to see how storage shall be depleted on a very chilly day with -10 Celsius at night time and possibly -3 to -5 throughout the day. Usually, the climate will get hotter round Christmas and Industrial consumption would possibly go down throughout the Christmas holidays however the issue stays: If fuel reserves are enough or not is generally relying on the climate.

Insulation Basket/Investments

After a restoration within the respective share costs, I’ve diminished my Insulation basket to solely 3 shares: Sto, Rockwool and Recticel. The primary purpose was, that I underestimated the contraction in housing. All these shares have publicity to housing and if exercise drops rather a lot, they are going to be negatively effected. I’ve saved the three positions as these appear to be probably the most conservatively financed ones and the most cost effective names.

However I do assume that there are loads of attention-grabbing alternatives within the power effectivity and power transition house. This shall be one in all my focus subjects going ahead.

Ukraine/Russia

At any time when individuals in Germany complain a few laborious winter and excessive prices, they need to possibly inform themselves what’s going on in Ukraine and the way a very laborious winter appears to be like like. Sure, Ukraine gained some floor again from Russia, however as retaliation, Russia is bombing the Ukrainian infrastructure and plenty of Ukrainians will neither have heating nor electrical energy in a local weather the place winters are a lot colder than right here in Germany.

As I’ve feared from the very starting, there doesn’t appear to be a fast finish to this battle. I keep in mind one podcast early within the 12 months with Mario Papic from Clocktower who talked about that almost all conflicts within the latest historical past didn’t finish with both a transparent victory or defeat however moderately they stalled and light out when the frontline stopped shifting. To date it doesn’t appear to be that so due to this fact assuming a fast finish of the battle shouldn’t be a base situation for subsequent 12 months.

 

 

 

 

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