Speaker 1: you've been hearing about the energy crunch and counting the
Speaker 1: cost of rising prices. So what are the five things
Speaker 1: you need to know about why this is happening and
Speaker 1: how it might change where energy supplies come from in
Speaker 1: the future. I'm Jonathan pierce from the money mine team
Speaker 1: and I have with me, Stephanie Holzer jen, chief investment
Speaker 1: officer for Asia pacific at Deutsche Bank International
Speaker 1: and David Broad Stock, senior research fellow at the Energy
Speaker 1: Studies Institute, National University of Singapore. I guess the first
Speaker 1: question would have to be as bad as things are,
Speaker 1: How much worse can they get? David is manifesting right
Speaker 1: now as an energy crisis and this energy crisis has
Speaker 1: very important foundations, but it also is a broader commodity crisis.
Speaker 1: We cannot ignore this detail what's been
Speaker 1: happening in europe is really a consequence of what happened
Speaker 1: back in february. The start of the Ukraine Russia war
Speaker 1: that created an immediate geopolitical tension in energy supply chains
Speaker 1: and natural gas became what many people refer to as
Speaker 1: a weaponized commodity and the supply of natural gas into europe.
Speaker 1: And the pipeline infrastructures were used to respond to tariffs
Speaker 1: which were imposed
Speaker 1: Russia. This is a very concerning problem, but at the
Speaker 1: same time, the conflict has broader ramifications. Supply chains for
Speaker 1: food based commodities were directly impacted this of course, immediately
Speaker 1: tells us that we can expect inflation across multiple areas
Speaker 1: of commodities. What some people don't realize is also how
Speaker 1: there are second order impacts that there's spillover consequences
Speaker 1: if we take, for example, the rising cost of fuel
Speaker 1: for oil, particularly in recent months? although it's depressed to
Speaker 1: some extent. Now we can translate that into a rising
Speaker 1: cost of transporting goods and services and so these food
Speaker 1: commodities which need to be shipped from one country to another,
Speaker 1: then become more expensive to transport themselves and this will
Speaker 1: not stop at food commodities. The spillover will carry on
Speaker 1: into other commodities to for the regular consumer, this is
Speaker 1: going to translate into higher costs for
Speaker 1: products like TVs or any of the things we consume
Speaker 1: on a daily basis and
Speaker 2: higher prices for energy, which Asia is still very much
Speaker 2: reliant on fossil fuel. Energy resources as well has impacted
Speaker 2: inflation numbers. Higher inflation has impacted GDP growth, has also
Speaker 2: put governments into the forefront to tackle that potential cost
Speaker 2: of living crisis doesn't really spill over into Asia. We
Speaker 2: have seen central banks needing to react to higher inflation
Speaker 2: by taking
Speaker 2: interest rates up of course, making other parts less affordable
Speaker 2: or maybe also constraining investments. The realization has not only
Speaker 2: in Asia but also in the rest of the world,
Speaker 2: is that we have an energy security crisis and that
Speaker 2: is actually two fold number one is you want to
Speaker 2: make sure that you actually politically sustainable so that you
Speaker 2: diversify the energy resource imports that you need from partners
Speaker 2: that are reliable, that are aligned and that you can
Speaker 2: work with going forward. And secondly, there's also
Speaker 2: this question around environmental sustainability because some of the fossil
Speaker 2: fuels like coal may be more abundant than others, but
Speaker 2: in china a long time ago already has been understood
Speaker 2: that cole has not passed down in terms of energy
Speaker 2: consumption going forward before the crisis started, we had a
Speaker 2: focus more on natural gas, for instance, to produce energy,
Speaker 2: to not pollute the country that much
Speaker 1: now, David, these impacts that we have discussed, are these
Speaker 1: just a bump in the road? Or could they have
Speaker 1: long term consequences?
Speaker 1: In some ways, it may still be a tiny bit
Speaker 1: too early to actually determine whether this is just a
Speaker 1: bump in the road or something else. The reality is
Speaker 1: for major fuel commodities. We've had double digit percentages essentially
Speaker 1: taken off the table on the supply side.
Speaker 1: We are bumping into the seasonal time of the year,
Speaker 1: where especially in in europe, there's a huge demand for
Speaker 1: additional energy to provide heating this energy needs to be
Speaker 1: provided immediately and there's a very certain short term consequence
Speaker 1: that we have to consider health and security over sustainability.
Speaker 1: And this is a very challenging position for governments that
Speaker 1: they need to face. I don't think there's any need
Speaker 1: to contest the idea that sustainability remains a top priority.
Speaker 1: But the question as to whether or not health it
Speaker 1: becomes a secondary priority is something that governments obviously cannot ignore.
Speaker 1: Will it have long term consequences at the moment. You know,
Speaker 1: if we look towards the futures markets for many commodities
Speaker 1: or if we even look towards the spot markets for
Speaker 1: gas markets, the prices are at almost historical highs that
Speaker 1: oil markets spiked close to historical highs, although are beginning
Speaker 1: to come down,
Speaker 1: We're seeing an important detachment between the oil and the
Speaker 1: gas prices, which historically hasn't always been the case. They
Speaker 1: tend to track each other fairly closely. So we're seeing
Speaker 1: some new conditions and the futures markets point towards a
Speaker 1: certain durability in the events that we're seeing at the
Speaker 1: moment towards the price outcomes. And so then the question becomes, well,
Speaker 1: if I'm an economy, if I'm planning to purchase fuels
Speaker 1: to run my economy,
Speaker 1: and I take the traditional approach of consuming apart from
Speaker 1: spot markets using perhaps my own resources, if I have
Speaker 1: them and then setting up futures contracts or long term
Speaker 1: supply contracts to complement the rest of my supply. Maybe
Speaker 1: I can't find access to desirable long term contracts.
Speaker 1: But if those long term contracts are not desirable and
Speaker 1: the spot prices are also very undesirable, then you find
Speaker 1: yourself in a very awkward situation. And what becomes a
Speaker 1: question of needing to provide a short term resilience to
Speaker 1: the economy to maintain and say public health, then slowly
Speaker 1: creeps into a longer term question of, well, how do
Speaker 1: I endure this for an indefinite amount of time things
Speaker 1: to keep in mind, it's more than just an energy crunch.
Speaker 1: Rising prices are spilling over into other commodities
Speaker 1: and as europe heads into winter, governments may have to
Speaker 1: increase fossil fuel production to tide people over
Speaker 1: Stephanie. This energy crunch comes just as the world is
Speaker 1: also opening up after the pandemic. Could this double whammy
Speaker 1: derail the energy transition to net zero that many asian
Speaker 1: economies have committed to.
Speaker 2: There's a big differentiation going on in terms of the
Speaker 2: shorter term and the longer term impact where initially there
Speaker 2: was this fear that if you don't invest into the
Speaker 2: traditional energy resources, you're missing out on performance. We've
Speaker 2: In this in some of the Morningstar data, global sustainable funds,
Speaker 2: the inflows dropped by more than 60% compared to the
Speaker 2: previous three months. It looks like a bit of a
Speaker 2: rethinking on a very short term basis or to reallocate.
Speaker 2: Although don't forget that the overall market has been constrained
Speaker 2: a lot as
Speaker 1: well and according
Speaker 2: to the global sustainability fund flows report from Morningstar that
Speaker 2: product category, sustainable investments
Speaker 2: is actually held up quite well and this is where
Speaker 2: the medium and longer term perspective is now coming in handy.
Speaker 2: And I think this is also ultimately showing in the
Speaker 2: products and the focus are put on E. S. G.
Speaker 2: Compliant products. The growth path of energy transition investments in
Speaker 2: the AsIA pacific region are actually profiting twice. So we
Speaker 2: have 368 billion us stellar that were recorded being the
Speaker 2: highest investments
Speaker 2: Worldwide into the Asia Pacific region making up for almost 50%
Speaker 2: of last year's global energy transition investments. I think that's
Speaker 2: a very powerful statement. The region has showed the strongest
Speaker 2: surge in 2021 with an increase of 38% year on year.
Speaker 2: The opportunities around these investments and the money that is
Speaker 2: flowing into the region to support the sectors that are
Speaker 2: looking at tackling these problems will ultimately
Speaker 2: end up in portfolios, the companies and the indices the stocks,
Speaker 2: the efforts behind it. In terms of the range of
Speaker 2: investment opportunities, we see great opportunities for different parts of companies.
Speaker 2: So you have the climate transition enablers. Then you obviously
Speaker 2: have also the companies that already working in technologies and
Speaker 2: looking at renewable energy, the usage of electric cards, heat pumps,
Speaker 2: anything that is also look
Speaker 2: into redesigning the infrastructure and dealing with climate change as
Speaker 2: we see it right now, rising sea levels, hotter temperatures,
Speaker 2: climate tech. So there's plenty of opportunities, the money is
Speaker 2: flowing into this part of the world, much more so
Speaker 2: than in the rest of the world. And ultimately in
Speaker 2: the medium and longer term horizon that will display in
Speaker 2: opportunities that you can put in and already can put
Speaker 2: in portfolios.
Speaker 1: Now, David some argue that the energy crunch has in
Speaker 1: fact highlighted the importance for countries to move to renewables
Speaker 1: and wean themselves off foreign oil and gas. What's your
Speaker 1: take
Speaker 1: the conflict has brought to the attention of economies and investors.
Speaker 1: Business is what it means to be locked into fuel
Speaker 1: sources and what it means to be locked into those
Speaker 1: fuel sources where we are also import dependent. And this
Speaker 1: is creating questions. We don't normally give a high level
Speaker 1: of attention because often we imagine that the world can
Speaker 1: simply supply us
Speaker 1: With the fuels that we need to power through our
Speaker 1: economic activity. But now we're seeing that there are legitimate
Speaker 1: risks to those fuel sources in Europe. They're having to
Speaker 1: switch the lights off in towns in order to make
Speaker 1: sure that there's enough energy to heat homes. And this
Speaker 1: is very unfamiliar territory. This is not something that anybody
Speaker 1: has really experienced since a world war times back in
Speaker 1: the 1940s.
Speaker 1: It certainly does open up those questions. Do we now
Speaker 1: have the ability to move away from oil and gas
Speaker 1: And versus do we have the desire? And the desire
Speaker 1: is obviously increasing, but the ability is still constrained by
Speaker 1: other factors. In order to shift away from oil, we
Speaker 1: need to have something to shift to
Speaker 1: localize this with the Singaporean context. If we think about
Speaker 1: the Singapore context, we could shift away from oil in
Speaker 1: the use of transportation and we could substitute that with
Speaker 1: electric vehicles. But in the case of Singapore, for example,
Speaker 1: those electric vehicles are powered using natural gas and so
Speaker 1: you only shift from one problem to another of the
Speaker 1: same types of problems, but with a variation around the risks.
Speaker 1: Other economies will have better opportunities.
Speaker 1: An important aspect to keep in mind is that any
Speaker 1: transition from one fuel source to another fuel source will
Speaker 1: take time and the amount of time it takes depends
Speaker 1: on the ability to scale up the infrastructure. And this
Speaker 1: in turn will be impacted by existing development pathways that
Speaker 1: have been deployed within the economy as a whole, companies
Speaker 1: can do their own thing. You know, some companies have land,
Speaker 1: they can create their own self generation and become resilient
Speaker 1: to x
Speaker 1: external power risks, but many companies don't have that. And
Speaker 1: so you have to be in a position where the
Speaker 1: company can access resources provided by the government and if
Speaker 1: the government themselves have not engaged in a trajectory to
Speaker 1: start developing alternative fuels, then you won't be able to
Speaker 1: transition very quickly.
Speaker 1: So Stephanie as countries go about this slow transition, what
Speaker 1: can they do in the meantime is diversification the key.
Speaker 2: There's also already a lot of calculation around how much
Speaker 2: over the next 10 years, Asian countries are actually able
Speaker 2: and are expected to increase their share and power generation
Speaker 2: based on renewables. So just to give investors a flavor
Speaker 2: as to how meaningful this is
Speaker 2: because we're talking about almost doubling for some of the
Speaker 2: countries in china for instance, the share of energy from
Speaker 2: non hydro renewables
Speaker 1: in total
Speaker 2: generated electricity is likely to rise from 15 currently to
Speaker 2: almost 30 so 26% in 2031. Likewise India will grow
Speaker 2: from 11 to 21 also almost
Speaker 2: doubling Japan is going from 15 to 23 South Korea
Speaker 2: from 7.5 to 19.5%. We talk about very meaningful investments
Speaker 2: in the next 10 years into the space, which ultimately
Speaker 2: will end up in portfolios. It's then for picking the
Speaker 2: companies that are looking into using technology or developing solutions
Speaker 2: around the space definitely here in Asia.
Speaker 1: Now, what options do we have to diversify our energy
Speaker 1: grid in Singapore?
Speaker 1: And it certainly highlights that we can expect to see
Speaker 1: fuel sources like nuclear, potentially geothermal, the extent of which
Speaker 1: is being explored at the moment? Geothermal for example, would
Speaker 1: be very interesting for Singapore's case because there's no discontinuity
Speaker 1: in the supply, it's a very reliable supply because it's
Speaker 1: all controlled underground in a very moderated
Speaker 1: regulated environment and its local, there's no import risks, barrier
Speaker 1: import risks, imported electricity is an option that the economy
Speaker 1: has been looking into very seriously. But this requires significant infrastructure.
Speaker 1: If it's a cable from Australia to Singapore, it will
Speaker 1: take time to develop. And if that exists, then questions
Speaker 1: around why,
Speaker 1: what are the further options from that? Are you importing
Speaker 1: to supply your own economy? Are you importing to build
Speaker 1: into a regional grid and then that leads into the
Speaker 1: question of, well, what about regional grid dynamics? Singapore is
Speaker 1: centered within a cluster of countries that have a history
Speaker 1: of coordinating with each other
Speaker 1: And within that also a history of trying to develop
Speaker 1: regional grids and regional power-sharing arrangements, either through fuels or
Speaker 1: through final electricity that's sent over wires. But they also
Speaker 1: with that have a history of struggling to coordinate in
Speaker 1: the most optimal fashion perhaps for example, within the past
Speaker 1: 12 months or so that there have been shifts in
Speaker 1: the agreements between countries within the region
Speaker 1: which have resulted in countries wanting to retain green electricity
Speaker 1: and not sell green electricity across the border. This is
Speaker 1: an interesting shift in the landscape. From my own perspective,
Speaker 1: I think this was a shift in the landscape which
Speaker 1: occurred pre Ukraine crisis. Following on from the global reorganization
Speaker 1: of energy markets after the Ukraine crisis?
Speaker 1: That idea of needing to question whether or not you
Speaker 1: can send green electricity across the border is something which
Speaker 1: concerns me that this may gain more traction
Speaker 1: and may limit the potential opportunities. And in the context
Speaker 1: of a country like Singapore, that could be very important
Speaker 1: because we don't have many places for renewables deployment. We
Speaker 1: don't have indigenous resources being able to be central within
Speaker 1: a connected network of countries that are happy willing to
Speaker 1: share the cleanest versions of fuels in a way, which
Speaker 1: benefits the whole group is an important piece of the puzzle.
Speaker 1: Last question to you, how should investors navigate this energy
Speaker 1: crunch
Speaker 2: markets will remain volatile. So what is important is that
Speaker 2: you are proactively managing portfolios, not just invest and go
Speaker 2: away as maybe in the past. Also in terms of
Speaker 2: making sure you emphasis the themes that you see out there.
Speaker 2: I think it's very visible. It's very important to understand
Speaker 2: that climate
Speaker 2: change resource allocations. We also have agricultural shortages that you know,
Speaker 2: we look at food security, there's so many aspects that
Speaker 2: are right now tackled that will ultimately have to result
Speaker 2: into governments addressing these issues. Money to be flowing into
Speaker 2: these themes solutions to be found to make things more
Speaker 2: sustainable for the medium and longer term.
Speaker 2: It's to identify these enablers early, put them in the
Speaker 2: portfolio and then just brace for the volatility. Let's not
Speaker 2: abandon the E. S. G. Theme. Quite the contrary I
Speaker 2: think has happened not just in Asia but also in
Speaker 2: the rest of the world
Speaker 1: brace for volatility. And if you want to invest, look
Speaker 1: at the issues we are facing right now like climate
Speaker 1: change and food security which will see government action and
Speaker 1: business solutions.
Speaker 1: Countries and companies do need to look into diversifying their
Speaker 1: power grid and energy needs. But the transition won't be
Speaker 1: immediate and could involve other tradeoffs bear in mind that
Speaker 1: this is a broader commodity crisis and rising prices will
Speaker 1: spread as europe heads into winter. Governments may have to
Speaker 1: increase fossil fuel production to keep the heat on but
Speaker 1: it's unlikely that investing in renewables or E. S. G.
Speaker 1: Will be impacted negatively.
Speaker 1: We've been talking about the five things you need to
Speaker 1: know about the energy crunch and my guests, Stephanie Holzer jen,
Speaker 1: chief investment officer for AsIA Pacific at Deutsche Bank International
Speaker 1: and David Broad Stock, senior research fellow at the Energy
Speaker 1: Studies Institute in En US Money. Mine is every saturday
Speaker 1: at 10:30 p.m. On media cops c n A. You
Speaker 1: can also catch us online at CNN dot ASia or
Speaker 1: on youtube.