Are we in an energy crisis?
The Head of International Energy Agency (IEA) has expressed that we are currently experiencing a global energy crisis, "tight global energy supplies, which have triggered severe shortages and sent electricity and fuel prices soaring, and this could get worse."
The complexity of this crisis is unprecedented. The entire energy system is already in turmoil after COVID-19 caused the disruption of the energy supply chain. The slow recovery of supply certainly is not helping.
A major player in commodities, Russia is the largest oil and natural gas exporter. Following the Ukraine-Russia war, the supply-demand imbalance has spiked an energy price surge. This cost burden has been passed onto consumers, further adding pressures to the current high inflation level.
Source: ICE Futures
On the other hand, Europe, US and many other major economies in the world are developing technology and infrastructure, seeking feasible alternative energy sources.
For Australia, the domestic energy and commodity price is mainly being impacted by the current global situation. In addition to that, Australia has also experience extreme weather for the past 2 years, slowing down coal, natural gas, and petroleum production. However, there is a positive sign on the energy market as China and Australia geopolitical tensions ease, with a potential end to the two-year ban on Australian coal (Bloomberg).
Where are we heading?
In the short term, energy prices will most likely remain high. On the longer horizon, most countries have learnt their lesson from Europe's heavy reliance on Russian energy exports. Nations around the world are diversifying their energy resources and building their own.
It is possible that renewable energies, uranium, and hydrogen will regain energy providers' favours in the coming future. However, the infrastructure and technology may take a long time to develop, which will not help the current energy situation.
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Disclaimer: This article does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.
