Worth reflecting on why we don’t own coal, aren’t chasing coal, and, as a partial result, are fairly happily underweight energy in general.
EMBER has a great graph highlighting the fall in European electricity generation. A 7% supply side outage, because (mostly) France’s nuclear fleet fell over (a huge number of them had scheduled and semi-scheduled maintenance downtimes).
Europe also had an unusually low amount of hydropower generation (a once in 500 year drought, not at all dissimilar to the once in a hundred year floods we seem to get in SE-QLD and NSW every few years).
That meant coal and gas had to kick in, and even though their overall contribution was modest (solar and wind did far more of the heavy lifting) the sudden, unexpected tick up in demand caused a problem relative to supply.
Then Putin’s war struck, meaning gas prices went to the moon.
What’s the point
Well, the nuclear fleet is slowly ramping back up production. The drought conditions are less worse, and hydro is returning. The amount of solar and wind installed over the past year has increased enormously, so even greater contributions from renewables are occurring.
Most of the Russian hydrocarbons eventually made their way into market, anyway, through various channels, which meant supply crunches abated.
And so, here we are, with US natural gas prices going from $2 to $11 and back to $2.5. Europe has seen $/GJ drop by some 80%.
Whilst it is perhaps “too soon” to say with certainty that Europe is “home and hosed”, or even “home and vigorously towelling off” (as Hitchhikers’ Guide to the Galaxy would have it), with regard to energy inputs like coal, it does seem clear that we don’t have a need to chase it, as an exposure, and rather see it as much more likely that stocks like WHC and NHC head towards (or at least average closer) to their 2019 levels than it does to their 2021-22 peaks.
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