If there was ever a geopolitical event that underscores the need for countries to have diverse energy supplies and the benefits of the decarbonization movement, it’s Russia’s war against Ukraine. That conflict is having a profound, adverse impact on global energy prices, and it’s expected to result in high prices and diminished supplies of natural gas across Europe this winter. As ominous as this scenario is, there are investment implications, some of which are relevant when evaluating the Goldman Sachs Future Planet Equity ETF (GSFP).
“European gas prices have traded to record levels as a result of the Russia-Ukraine war and lower Russian pipeline imports, forcing regional power prices to rise to record highs,” according to Cowen research. “We expect power prices to remain very high through 2024, which could cost the region ~7% of its GDP, before normalizing from 2025 onward as new supply comes to market.”
Elevated natural gas and dependence on supplies from hostile Russia is a clear message to many European countries which need to reduce that dependence and continue forging ahead with decarbonization efforts. While that’s a longer-ranging effort, it could be beneficial to GSFP member firms, which focus on decarbonization products and services.
While Europe may be able to take additional supplies of liquefied natural gas (LNG), that could be several years off, confirming the need to make decarbonization part of broader energy plans today.
“European gas prices, and by extension, power prices, should remain elevated through 2024. This comes as a result of Russia cutting off pipeline supplies despite the region’s efforts to reduce consumption. This could also result in a $1.4 trillion/yr impact, or nearly 7% of the region’s GDP,” added Cowen.
In other words, now and going forward, the benefits of GSFP being diverse and actively managed can shine for investors because decarbonization not only garners international support, but it takes many forms — some of which GSFP components can benefit from.
“RePowerEU accelerates energy transition. Solar power combined with heat pumps can be used to electrify heat supply and provide individual energy security, benefiting solar and energy storage,” concluded Cowen. “EV charging companies that operate as charge point operators with models predicated on throughput/energy sales could be negatively affected. European lithium-ion battery manufacturers can face higher costs as a result of the energy-intensive process.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.