Live on ausbiz - Surging demand & supply weakness an opportunity for ASX energy producers
Trent Primmer, our Director of Trading, featured on ausbiz in an interview arranged by Hans Lee, producer and journalist, discussing the surging demand and supply weakness as an opportunity for ASX energy producers.
Oil, gas, coal... fossil fuels are in high demand, but short supply and prices are rising rapidly as a result. Trent says the market pressure in coal is largely related to Chinese policy, having formerly banned coal and now back-tracking as the country faces rolling blackouts.
Surging demand and supply weakness an opportunity for ASX energy producers
Read the conversation:
"Okay. Let's turn back to the global energy crisis as it's playing out to certainly playing havoc with markets at the moment, let's chat to Trent Primmer from Barclay Pearce Capital for insights. Trent, Good to talk to you this morning. So in fact, just taking a look to what's going on as far as we're certainly talking carbon at the moment, aren't we and the problems that we're having with the energies cause its gas, it's oil, it's coal. In fact, we did see a decline in European gas prices overnight. That was on the prospect of some more supply coming from Russia. Overall though, how are you seeing the tightness in energy markets?"
"Yeah. I think one thing that we've noticed in particular, I mean, the pressure behind the coal price rising higher, a lot of that is from formerly China banning coal, and now starting to backtrack on that ban as they've suffered sort of rolling blackouts and power outages, there's considerable demand, like you said, for LNG and coal I think short-term we can wait, we consider the supply weakness to sort of be big, pushing the price higher and obviously you're going into winter months in China and basically the Northern hemisphere, essentially in general, where 90% of the world's population essentially lives, pushing those prices a lot higher. So we're saying coal, LNG, oil, everything that you can find a stick out energy-wise, you know, reaching pretty dizzy, I think we're going to say some really, really strong numbers of those three commodities in particular moving forward. And I think, you know, we'll see it through probably to the December period."
"Trent, just put this in perspective for us because we know in Europe, clearly, there is that pivot away from fossil fuels to renewables, and that is putting pressure on those energy prices at the moment. But overall, the world's energy is still relying heavily on fossil fuels?"
"Correct? Yeah. 80% of the world's energy is fossil fuel backed essentially at the moment. I think with supply things like coal and oil, it's getting hard to find investment and more supply as a result, particularly, you know, in an ESG focussed world. It's stunting supply growth from Greenfield operations. Long-term demand for these products will probably drop to zero, but we still have a long way to obviously to reach that goal. And I think elevated fossil fuel prices are here for the long-term view to restriction and supply. Well obviously demands tapering at a slower rate. But like you said, world still relies on it. Probably not the most popular, but it's going to take some time to take it off that demand."Andrew Geoghegan:
"All right. So as a consumer, perhaps we should prepare for higher prices. However, as an investor, there are opportunities clearly in this space. What are you seeing at the moment, particularly locally? "
"Locally look, we do like oil currently. I mean, OPEC, we say increasing supply weigh about 400,000 barrels a day in November, which is marginal, to say the least. I think some of the local names, Woodside petroleum, which has some of the strongest and largest exposure to high quality, LNG, and obviously their oil component. So we do like Woodside sort of short to medium term. and we also like Beach Energy petroleum it will be in the comparable, smaller cap. But, we think it's got legs from here so those are the two picks, namely for oil, the moment, and obviously Woodside with the LNG exposure."
"Trent, and obviously, as we started there, coal, also an issue at the moment, particularly in China, as they're trying to source supplies. In fact, there are reports that they're turning back to Australian coal because they're pretty desperate at the moment, ofcourse that's a political issue that they're dealing with too. So are you seeing perhaps some opportunity as far as I think the coal companies concern?
"Yeah, look, I think probably in White Haven, there's an opportunity and some of the smaller players. I suppose, from our company's perspective we're really taking this rising energy prices as a way to invest in companies with LNG and oil exposure. Even though you know, 80% of the world's energy is fossil fuel backed. A lot of the companies that we back right now, and a lot of the companies that we're focused on in the early to seed tages of renewable energy and green hydrogen, so, we tend to move more with where things are going rather than something like coal. You know, obviously, there's going to be hard demand, but that demand's going to type her off longer term. We'd rather stick with ssomething like your green hydrogen players or renewable energy, LNG, and obviously some low exposure as well as economy starts to open up coming out of the COVID pandemic lockdowns."
"How long do you think this has to play out when it's clearly linked to, obviously heading into the Northern hemisphere, winter as we were talking about, but also obviously coinciding with the global reopening plus you've got those ongoing supply chain constraints."
"Yeah, absolutely. Look, I think we're probably going to see over the next 12 months, you know, some relatively strong pricing across coal, you know, oil, LNG. It's really a question of when obviously, like you said, but it's quite hard. I think the demand was so pent up during the lockdowns because no one was focusing on increasing more supply, particularly not OPEC because we didn't know when economies would be opening up. And then, we'd be sort of in the case of, you know, an over supply in oil. I think that's the key question. That's the burning question. You know, we don't have a crystal ball in that aspect, but I'd say over the next 12 months, we would see some strong pricing across, you know, those three, in particular."
"Trent, thanks for joining us from Barclay Pearce Capital."
This interview was arranged by Hans Lee, producer and journalist at ausbiz.
Barclay Pearce Capital team members are often featured by the media, sharing their insights on the market. Receive the latest market summaries and market-moving news, subscribe to Deal of the Week