- Exceptional demand growth and supply constraints have led to energy shortages in China, which are clearly playing out in gas and power markets
- Lower than normal inventories of coal and possibly gas suggest that we have not seen the worst
- Moreover, similar issues in Europe suggests a more widespread problem for markets
- Much will depend on just how cold this winter is, although the omens don’t look good
- In the short term, expect higher prices, although given the inextricable link between energy and economic growth, shortfalls in energy supply will clearly result in slower economic growth
Bernstein said its top pick in Asia Pacific for gas would be Woodside.
The firm noted that for investors, the upside of energy shortages will be through unregulated producers of coal and gas.
Playing such a theme through Coal China or PetroChina is complicated by regulated prices and import losses.
Instead, global names such as Woodside, Gazprom, Equinor and Cheniere are more obvious ways to gain exposure to higher spot gas and LNG prices.
Bernstein said in a note:
- We also see upside for LPG/NGL players as demand for LPG grows, with US names among the more obvious listed beneficiaries
- Winners are also solar, wind, energy storage and hydrogen companies, where greater investment is needed to accelerate low carbon supply
Bernstein believes that primary energy demand may have increased by as much as 4.8% in 2021, based on an estimated 8% growth in oil demand, 13% growth in gas demand and 4% increase in thermal coal demand (which make up 85% of the energy mix).
Energy supply has clearly not kept pace with demand.
- For gas, demand has increased by 16% for the 1st 8 months while domestic supply has grown at around 7%, resulting in gas imports rising by 22% and LNG imports increasing by 30%
- This has helped contribute to the worldwide deficit in gas inventories in Europe and Asia as we come into the winter period