WEBVTT - 5 things you need to know about the energy crunch | EP 23

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<v Speaker 1>you've been hearing about the energy crunch and counting the

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<v Speaker 1>cost of rising prices. So what are the five things

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<v Speaker 1>you need to know about why this is happening and

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<v Speaker 1>how it might change where energy supplies come from in

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<v Speaker 1>the future. I'm Jonathan pierce from the money mine team

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<v Speaker 1>and I have with me, Stephanie Holzer jen, chief investment

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<v Speaker 1>officer for Asia pacific at Deutsche Bank International

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<v Speaker 1>and David Broad Stock, senior research fellow at the Energy

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<v Speaker 1>Studies Institute, National University of Singapore. I guess the first

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<v Speaker 1>question would have to be as bad as things are,

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<v Speaker 1>How much worse can they get? David is manifesting right

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<v Speaker 1>now as an energy crisis and this energy crisis has

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<v Speaker 1>very important foundations, but it also is a broader commodity crisis.

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<v Speaker 1>We cannot ignore this detail what's been

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<v Speaker 1>happening in europe is really a consequence of what happened

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<v Speaker 1>back in february. The start of the Ukraine Russia war

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<v Speaker 1>that created an immediate geopolitical tension in energy supply chains

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<v Speaker 1>and natural gas became what many people refer to as

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<v Speaker 1>a weaponized commodity and the supply of natural gas into europe.

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<v Speaker 1>And the pipeline infrastructures were used to respond to tariffs

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<v Speaker 1>which were imposed

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<v Speaker 1>Russia. This is a very concerning problem, but at the

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<v Speaker 1>same time, the conflict has broader ramifications. Supply chains for

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<v Speaker 1>food based commodities were directly impacted this of course, immediately

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<v Speaker 1>tells us that we can expect inflation across multiple areas

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<v Speaker 1>of commodities. What some people don't realize is also how

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<v Speaker 1>there are second order impacts that there's spillover consequences

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<v Speaker 1>if we take, for example, the rising cost of fuel

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<v Speaker 1>for oil, particularly in recent months? although it's depressed to

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<v Speaker 1>some extent. Now we can translate that into a rising

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<v Speaker 1>cost of transporting goods and services and so these food

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<v Speaker 1>commodities which need to be shipped from one country to another,

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<v Speaker 1>then become more expensive to transport themselves and this will

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<v Speaker 1>not stop at food commodities. The spillover will carry on

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<v Speaker 1>into other commodities to for the regular consumer, this is

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<v Speaker 1>going to translate into higher costs for

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<v Speaker 1>products like TVs or any of the things we consume

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<v Speaker 1>on a daily basis and

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<v Speaker 2>higher prices for energy, which Asia is still very much

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<v Speaker 2>reliant on fossil fuel. Energy resources as well has impacted

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<v Speaker 2>inflation numbers. Higher inflation has impacted GDP growth, has also

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<v Speaker 2>put governments into the forefront to tackle that potential cost

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<v Speaker 2>of living crisis doesn't really spill over into Asia. We

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<v Speaker 2>have seen central banks needing to react to higher inflation

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<v Speaker 2>by taking

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<v Speaker 2>interest rates up of course, making other parts less affordable

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<v Speaker 2>or maybe also constraining investments. The realization has not only

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<v Speaker 2>in Asia but also in the rest of the world,

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<v Speaker 2>is that we have an energy security crisis and that

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<v Speaker 2>is actually two fold number one is you want to

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<v Speaker 2>make sure that you actually politically sustainable so that you

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<v Speaker 2>diversify the energy resource imports that you need from partners

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<v Speaker 2>that are reliable, that are aligned and that you can

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<v Speaker 2>work with going forward. And secondly, there's also

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<v Speaker 2>this question around environmental sustainability because some of the fossil

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<v Speaker 2>fuels like coal may be more abundant than others, but

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<v Speaker 2>in china a long time ago already has been understood

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<v Speaker 2>that cole has not passed down in terms of energy

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<v Speaker 2>consumption going forward before the crisis started, we had a

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<v Speaker 2>focus more on natural gas, for instance, to produce energy,

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<v Speaker 2>to not pollute the country that much

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<v Speaker 1>now, David, these impacts that we have discussed, are these

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<v Speaker 1>just a bump in the road? Or could they have

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<v Speaker 1>long term consequences?

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<v Speaker 1>In some ways, it may still be a tiny bit

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<v Speaker 1>too early to actually determine whether this is just a

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<v Speaker 1>bump in the road or something else. The reality is

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<v Speaker 1>for major fuel commodities. We've had double digit percentages essentially

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<v Speaker 1>taken off the table on the supply side.

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<v Speaker 1>We are bumping into the seasonal time of the year,

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<v Speaker 1>where especially in in europe, there's a huge demand for

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<v Speaker 1>additional energy to provide heating this energy needs to be

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<v Speaker 1>provided immediately and there's a very certain short term consequence

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<v Speaker 1>that we have to consider health and security over sustainability.

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<v Speaker 1>And this is a very challenging position for governments that

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<v Speaker 1>they need to face. I don't think there's any need

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<v Speaker 1>to contest the idea that sustainability remains a top priority.

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<v Speaker 1>But the question as to whether or not health it

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<v Speaker 1>becomes a secondary priority is something that governments obviously cannot ignore.

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<v Speaker 1>Will it have long term consequences at the moment. You know,

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<v Speaker 1>if we look towards the futures markets for many commodities

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<v Speaker 1>or if we even look towards the spot markets for

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<v Speaker 1>gas markets, the prices are at almost historical highs that

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<v Speaker 1>oil markets spiked close to historical highs, although are beginning

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<v Speaker 1>to come down,

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<v Speaker 1>We're seeing an important detachment between the oil and the

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<v Speaker 1>gas prices, which historically hasn't always been the case. They

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<v Speaker 1>tend to track each other fairly closely. So we're seeing

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<v Speaker 1>some new conditions and the futures markets point towards a

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<v Speaker 1>certain durability in the events that we're seeing at the

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<v Speaker 1>moment towards the price outcomes. And so then the question becomes, well,

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<v Speaker 1>if I'm an economy, if I'm planning to purchase fuels

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<v Speaker 1>to run my economy,

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<v Speaker 1>and I take the traditional approach of consuming apart from

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<v Speaker 1>spot markets using perhaps my own resources, if I have

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<v Speaker 1>them and then setting up futures contracts or long term

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<v Speaker 1>supply contracts to complement the rest of my supply. Maybe

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<v Speaker 1>I can't find access to desirable long term contracts.

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<v Speaker 1>But if those long term contracts are not desirable and

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<v Speaker 1>the spot prices are also very undesirable, then you find

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<v Speaker 1>yourself in a very awkward situation. And what becomes a

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<v Speaker 1>question of needing to provide a short term resilience to

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<v Speaker 1>the economy to maintain and say public health, then slowly

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<v Speaker 1>creeps into a longer term question of, well, how do

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<v Speaker 1>I endure this for an indefinite amount of time things

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<v Speaker 1>to keep in mind, it's more than just an energy crunch.

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<v Speaker 1>Rising prices are spilling over into other commodities

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<v Speaker 1>and as europe heads into winter, governments may have to

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<v Speaker 1>increase fossil fuel production to tide people over

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<v Speaker 1>Stephanie. This energy crunch comes just as the world is

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<v Speaker 1>also opening up after the pandemic. Could this double whammy

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<v Speaker 1>derail the energy transition to net zero that many asian

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<v Speaker 1>economies have committed to.

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<v Speaker 2>There's a big differentiation going on in terms of the

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<v Speaker 2>shorter term and the longer term impact where initially there

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<v Speaker 2>was this fear that if you don't invest into the

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<v Speaker 2>traditional energy resources, you're missing out on performance. We've

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<v Speaker 2>In this in some of the Morningstar data, global sustainable funds,

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<v Speaker 2>the inflows dropped by more than 60% compared to the

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<v Speaker 2>previous three months. It looks like a bit of a

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<v Speaker 2>rethinking on a very short term basis or to reallocate.

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<v Speaker 2>Although don't forget that the overall market has been constrained

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<v Speaker 2>a lot as

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<v Speaker 1>well and according

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<v Speaker 2>to the global sustainability fund flows report from Morningstar that

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<v Speaker 2>product category, sustainable investments

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<v Speaker 2>is actually held up quite well and this is where

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<v Speaker 2>the medium and longer term perspective is now coming in handy.

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<v Speaker 2>And I think this is also ultimately showing in the

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<v Speaker 2>products and the focus are put on E. S. G.

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<v Speaker 2>Compliant products. The growth path of energy transition investments in

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<v Speaker 2>the AsIA pacific region are actually profiting twice. So we

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<v Speaker 2>have 368 billion us stellar that were recorded being the

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<v Speaker 2>highest investments

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<v Speaker 2>Worldwide into the Asia Pacific region making up for almost 50%

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<v Speaker 2>of last year's global energy transition investments. I think that's

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<v Speaker 2>a very powerful statement. The region has showed the strongest

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<v Speaker 2>surge in 2021 with an increase of 38% year on year.

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<v Speaker 2>The opportunities around these investments and the money that is

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<v Speaker 2>flowing into the region to support the sectors that are

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<v Speaker 2>looking at tackling these problems will ultimately

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<v Speaker 2>end up in portfolios, the companies and the indices the stocks,

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<v Speaker 2>the efforts behind it. In terms of the range of

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<v Speaker 2>investment opportunities, we see great opportunities for different parts of companies.

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<v Speaker 2>So you have the climate transition enablers. Then you obviously

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<v Speaker 2>have also the companies that already working in technologies and

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<v Speaker 2>looking at renewable energy, the usage of electric cards, heat pumps,

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<v Speaker 2>anything that is also look

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<v Speaker 2>into redesigning the infrastructure and dealing with climate change as

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<v Speaker 2>we see it right now, rising sea levels, hotter temperatures,

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<v Speaker 2>climate tech. So there's plenty of opportunities, the money is

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<v Speaker 2>flowing into this part of the world, much more so

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<v Speaker 2>than in the rest of the world. And ultimately in

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<v Speaker 2>the medium and longer term horizon that will display in

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<v Speaker 2>opportunities that you can put in and already can put

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<v Speaker 2>in portfolios.

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<v Speaker 1>Now, David some argue that the energy crunch has in

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<v Speaker 1>fact highlighted the importance for countries to move to renewables

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<v Speaker 1>and wean themselves off foreign oil and gas. What's your

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<v Speaker 1>take

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<v Speaker 1>the conflict has brought to the attention of economies and investors.

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<v Speaker 1>Business is what it means to be locked into fuel

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<v Speaker 1>sources and what it means to be locked into those

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<v Speaker 1>fuel sources where we are also import dependent. And this

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<v Speaker 1>is creating questions. We don't normally give a high level

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<v Speaker 1>of attention because often we imagine that the world can

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<v Speaker 1>simply supply us

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<v Speaker 1>With the fuels that we need to power through our

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<v Speaker 1>economic activity. But now we're seeing that there are legitimate

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<v Speaker 1>risks to those fuel sources in Europe. They're having to

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<v Speaker 1>switch the lights off in towns in order to make

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<v Speaker 1>sure that there's enough energy to heat homes. And this

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<v Speaker 1>is very unfamiliar territory. This is not something that anybody

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<v Speaker 1>has really experienced since a world war times back in

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<v Speaker 1>the 1940s.

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<v Speaker 1>It certainly does open up those questions. Do we now

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<v Speaker 1>have the ability to move away from oil and gas

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<v Speaker 1>And versus do we have the desire? And the desire

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<v Speaker 1>is obviously increasing, but the ability is still constrained by

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<v Speaker 1>other factors. In order to shift away from oil, we

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<v Speaker 1>need to have something to shift to

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<v Speaker 1>localize this with the Singaporean context. If we think about

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<v Speaker 1>the Singapore context, we could shift away from oil in

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<v Speaker 1>the use of transportation and we could substitute that with

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<v Speaker 1>electric vehicles. But in the case of Singapore, for example,

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<v Speaker 1>those electric vehicles are powered using natural gas and so

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<v Speaker 1>you only shift from one problem to another of the

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<v Speaker 1>same types of problems, but with a variation around the risks.

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<v Speaker 1>Other economies will have better opportunities.

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<v Speaker 1>An important aspect to keep in mind is that any

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<v Speaker 1>transition from one fuel source to another fuel source will

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<v Speaker 1>take time and the amount of time it takes depends

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<v Speaker 1>on the ability to scale up the infrastructure. And this

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<v Speaker 1>in turn will be impacted by existing development pathways that

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<v Speaker 1>have been deployed within the economy as a whole, companies

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<v Speaker 1>can do their own thing. You know, some companies have land,

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<v Speaker 1>they can create their own self generation and become resilient

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<v Speaker 1>to x

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<v Speaker 1>external power risks, but many companies don't have that. And

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<v Speaker 1>so you have to be in a position where the

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<v Speaker 1>company can access resources provided by the government and if

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<v Speaker 1>the government themselves have not engaged in a trajectory to

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<v Speaker 1>start developing alternative fuels, then you won't be able to

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<v Speaker 1>transition very quickly.

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<v Speaker 1>So Stephanie as countries go about this slow transition, what

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<v Speaker 1>can they do in the meantime is diversification the key.

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<v Speaker 2>There's also already a lot of calculation around how much

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<v Speaker 2>over the next 10 years, Asian countries are actually able

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<v Speaker 2>and are expected to increase their share and power generation

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<v Speaker 2>based on renewables. So just to give investors a flavor

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<v Speaker 2>as to how meaningful this is

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<v Speaker 2>because we're talking about almost doubling for some of the

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<v Speaker 2>countries in china for instance, the share of energy from

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<v Speaker 2>non hydro renewables

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<v Speaker 1>in total

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<v Speaker 2>generated electricity is likely to rise from 15 currently to

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<v Speaker 2>almost 30 so 26% in 2031. Likewise India will grow

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<v Speaker 2>from 11 to 21 also almost

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<v Speaker 2>doubling Japan is going from 15 to 23 South Korea

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<v Speaker 2>from 7.5 to 19.5%. We talk about very meaningful investments

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<v Speaker 2>in the next 10 years into the space, which ultimately

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<v Speaker 2>will end up in portfolios. It's then for picking the

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<v Speaker 2>companies that are looking into using technology or developing solutions

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<v Speaker 2>around the space definitely here in Asia.

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<v Speaker 1>Now, what options do we have to diversify our energy

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<v Speaker 1>grid in Singapore?

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<v Speaker 1>And it certainly highlights that we can expect to see

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<v Speaker 1>fuel sources like nuclear, potentially geothermal, the extent of which

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<v Speaker 1>is being explored at the moment? Geothermal for example, would

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<v Speaker 1>be very interesting for Singapore's case because there's no discontinuity

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<v Speaker 1>in the supply, it's a very reliable supply because it's

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<v Speaker 1>all controlled underground in a very moderated

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<v Speaker 1>regulated environment and its local, there's no import risks, barrier

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<v Speaker 1>import risks, imported electricity is an option that the economy

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<v Speaker 1>has been looking into very seriously. But this requires significant infrastructure.

0:12:51.809 --> 0:12:54.429
<v Speaker 1>If it's a cable from Australia to Singapore, it will

0:12:54.429 --> 0:12:58.480
<v Speaker 1>take time to develop. And if that exists, then questions

0:12:58.480 --> 0:12:58.900
<v Speaker 1>around why,

0:12:58.910 --> 0:13:03.450
<v Speaker 1>what are the further options from that? Are you importing

0:13:03.450 --> 0:13:06.130
<v Speaker 1>to supply your own economy? Are you importing to build

0:13:06.130 --> 0:13:09.120
<v Speaker 1>into a regional grid and then that leads into the

0:13:09.120 --> 0:13:12.490
<v Speaker 1>question of, well, what about regional grid dynamics? Singapore is

0:13:12.500 --> 0:13:16.800
<v Speaker 1>centered within a cluster of countries that have a history

0:13:16.800 --> 0:13:18.300
<v Speaker 1>of coordinating with each other

0:13:18.540 --> 0:13:22.140
<v Speaker 1>And within that also a history of trying to develop

0:13:22.140 --> 0:13:27.100
<v Speaker 1>regional grids and regional power-sharing arrangements, either through fuels or

0:13:27.100 --> 0:13:32.780
<v Speaker 1>through final electricity that's sent over wires. But they also

0:13:32.780 --> 0:13:35.770
<v Speaker 1>with that have a history of struggling to coordinate in

0:13:35.780 --> 0:13:39.170
<v Speaker 1>the most optimal fashion perhaps for example, within the past

0:13:39.170 --> 0:13:42.480
<v Speaker 1>12 months or so that there have been shifts in

0:13:42.490 --> 0:13:45.600
<v Speaker 1>the agreements between countries within the region

0:13:45.880 --> 0:13:51.140
<v Speaker 1>which have resulted in countries wanting to retain green electricity

0:13:51.140 --> 0:13:54.230
<v Speaker 1>and not sell green electricity across the border. This is

0:13:54.230 --> 0:13:56.850
<v Speaker 1>an interesting shift in the landscape. From my own perspective,

0:13:56.860 --> 0:13:58.740
<v Speaker 1>I think this was a shift in the landscape which

0:13:58.740 --> 0:14:03.650
<v Speaker 1>occurred pre Ukraine crisis. Following on from the global reorganization

0:14:03.650 --> 0:14:06.190
<v Speaker 1>of energy markets after the Ukraine crisis?

0:14:06.800 --> 0:14:10.100
<v Speaker 1>That idea of needing to question whether or not you

0:14:10.110 --> 0:14:14.010
<v Speaker 1>can send green electricity across the border is something which

0:14:14.020 --> 0:14:15.970
<v Speaker 1>concerns me that this may gain more traction

0:14:16.170 --> 0:14:19.620
<v Speaker 1>and may limit the potential opportunities. And in the context

0:14:19.620 --> 0:14:22.130
<v Speaker 1>of a country like Singapore, that could be very important

0:14:22.140 --> 0:14:25.270
<v Speaker 1>because we don't have many places for renewables deployment. We

0:14:25.280 --> 0:14:29.390
<v Speaker 1>don't have indigenous resources being able to be central within

0:14:29.390 --> 0:14:33.600
<v Speaker 1>a connected network of countries that are happy willing to

0:14:33.600 --> 0:14:36.330
<v Speaker 1>share the cleanest versions of fuels in a way, which

0:14:36.330 --> 0:14:39.580
<v Speaker 1>benefits the whole group is an important piece of the puzzle.

0:14:40.335 --> 0:14:43.925
<v Speaker 1>Last question to you, how should investors navigate this energy

0:14:43.925 --> 0:14:44.565
<v Speaker 1>crunch

0:14:44.725 --> 0:14:48.475
<v Speaker 2>markets will remain volatile. So what is important is that

0:14:48.475 --> 0:14:52.755
<v Speaker 2>you are proactively managing portfolios, not just invest and go

0:14:52.755 --> 0:14:56.315
<v Speaker 2>away as maybe in the past. Also in terms of

0:14:56.355 --> 0:14:59.935
<v Speaker 2>making sure you emphasis the themes that you see out there.

0:15:00.045 --> 0:15:03.405
<v Speaker 2>I think it's very visible. It's very important to understand

0:15:03.415 --> 0:15:04.485
<v Speaker 2>that climate

0:15:04.500 --> 0:15:11.670
<v Speaker 2>change resource allocations. We also have agricultural shortages that you know,

0:15:11.670 --> 0:15:15.130
<v Speaker 2>we look at food security, there's so many aspects that

0:15:15.130 --> 0:15:18.970
<v Speaker 2>are right now tackled that will ultimately have to result

0:15:18.970 --> 0:15:23.340
<v Speaker 2>into governments addressing these issues. Money to be flowing into

0:15:23.340 --> 0:15:26.510
<v Speaker 2>these themes solutions to be found to make things more

0:15:26.510 --> 0:15:28.650
<v Speaker 2>sustainable for the medium and longer term.

0:15:28.665 --> 0:15:31.875
<v Speaker 2>It's to identify these enablers early, put them in the

0:15:31.875 --> 0:15:35.365
<v Speaker 2>portfolio and then just brace for the volatility. Let's not

0:15:35.365 --> 0:15:38.005
<v Speaker 2>abandon the E. S. G. Theme. Quite the contrary I

0:15:38.005 --> 0:15:40.445
<v Speaker 2>think has happened not just in Asia but also in

0:15:40.445 --> 0:15:41.585
<v Speaker 2>the rest of the world

0:15:41.595 --> 0:15:44.915
<v Speaker 1>brace for volatility. And if you want to invest, look

0:15:44.915 --> 0:15:47.795
<v Speaker 1>at the issues we are facing right now like climate

0:15:47.795 --> 0:15:51.365
<v Speaker 1>change and food security which will see government action and

0:15:51.365 --> 0:15:52.815
<v Speaker 1>business solutions.

0:15:53.030 --> 0:15:56.590
<v Speaker 1>Countries and companies do need to look into diversifying their

0:15:56.590 --> 0:16:00.050
<v Speaker 1>power grid and energy needs. But the transition won't be

0:16:00.050 --> 0:16:04.160
<v Speaker 1>immediate and could involve other tradeoffs bear in mind that

0:16:04.160 --> 0:16:07.760
<v Speaker 1>this is a broader commodity crisis and rising prices will

0:16:07.760 --> 0:16:12.070
<v Speaker 1>spread as europe heads into winter. Governments may have to

0:16:12.070 --> 0:16:15.420
<v Speaker 1>increase fossil fuel production to keep the heat on but

0:16:15.420 --> 0:16:18.450
<v Speaker 1>it's unlikely that investing in renewables or E. S. G.

0:16:18.460 --> 0:16:20.360
<v Speaker 1>Will be impacted negatively.

0:16:20.530 --> 0:16:23.370
<v Speaker 1>We've been talking about the five things you need to

0:16:23.370 --> 0:16:27.160
<v Speaker 1>know about the energy crunch and my guests, Stephanie Holzer jen,

0:16:27.160 --> 0:16:30.950
<v Speaker 1>chief investment officer for AsIA Pacific at Deutsche Bank International

0:16:31.050 --> 0:16:33.920
<v Speaker 1>and David Broad Stock, senior research fellow at the Energy

0:16:33.920 --> 0:16:37.940
<v Speaker 1>Studies Institute in En US Money. Mine is every saturday

0:16:37.940 --> 0:16:41.090
<v Speaker 1>at 10:30 p.m. On media cops c n A. You

0:16:41.090 --> 0:16:44.230
<v Speaker 1>can also catch us online at CNN dot ASia or

0:16:44.240 --> 0:16:45.070
<v Speaker 1>on youtube.