Editorial StaffWho created this fiasco (and why)… and, most importantly, who stands to get rich from it…
Earlier this year, Russia officially halted all natural gas exports to Europe in reaction to the sanctions imposed by the collective “West” following the invasion of Ukraine.
What that meant was that the source of 40% of the European Union’s natural gas supply vanished… immediately – and indefinitely.
The problem is that replacing that kind of volume can’t – and hasn’t – happened overnight. The European Commission estimated that it would cost €210 billion (that’s around $210 billion) just to build the infrastructure to support gas supplies from new sources, including new LNG import terminals. But even this kind of massive investment won’t allow Europe to fully replace Russian energy supplies until 2027.
In the meantime, Goldman Sachs estimated in September that spiking energy prices will cost European households an incredible additional €2 trillion next year. In a note to clients, the bank explained that Mr. Market has underestimated the scope of fallout from this energy crisis:
“In our view, the market continues to underestimate the depth, the breadth and the structural repercussions of the crisis… We believe these will be even deeper than the 1970s oil crisis.”
European asset prices have partly priced in in the fallout from what will likely be the worst energy crisis in modern economic history. U.S. markets, though, for the most part have shrugged off this energy crisis as a purely European problem.
That’s a big mistake.
The Domino Effect Will Reach Even Farther Than American Energy
One of the central themes we’ve tracked since starting our flagship publication, The Big Secret on Wall Street (This Week), is the rise of America as an energy exporting superpower. Specifically, the rise of American LNG exports, which will increasingly link the U.S. domestic gas market to international prices. That’s why U.S. natural gas recently traded at the highest levels since 2008, at a peak of over $9 per thousand cubic feet (mcf) (though they’ve since cooled off, for now, to a bit over $6/mcf). As recently as last year, natural gas in the U.S. traded at around $3/mcf.
Natural gas is a key fuel source of American electricity generation, which means that the sharp increase is crushing millions of households with crippling utility bills. Bloomberg recently reported that an incredible one in six U.S. households is late on its utility bills. That’s 20 million American families, the largest number ever recorded.
Things will only get worse as peak demand season for natural gas hits this winter. Prepare to see more headlines like this in the coming months:
The article goes on to explain…
“After enduring months of rising prices from the gas pump to grocery checkouts, New Jerseyans could see their annual heating bills soar this fall and winter as inflation and global tensions drive up natural gas prices. State regulators on Wednesday approved double-digit rate increases for four gas providers serving millions of customers in the state, with prices expected to rise by hundreds of dollars on an annualized basis for some people.”
And it’s only going to get worse.
Abundant energy supplies are the basis of modern life. Or, more simply put, the more energy you can give people, the better their lives are going to be…
There are people – hello, snowflakes – who think they can attack oil and gas, and that it’s only going to be felt by the oil and gas producers. But when you attack a company, you’re attacking that company’s customers. Which will eventually translate to higher prices. Which is what’s going on right now.
The ripple effects go beyond just higher heating and utility bills. Energy impacts every economic activity on Earth.
In Europe, for example, shortages of electricity and natural gas have forced shutdowns of everything ranging from steel to plastics to chemical manufacturing.
But the bigger problem is going to be food.
More than 70% of the production in Europe of ammonia – the critical ingredient in nitrogen fertilizers – is now offline. At the start of last year, farmers in Western Europe could buy ammonia for about $250 per ton. Today, that same ton of fertilizer costs $1,250. If European gas supplies remain disrupted and these sky-high fertilizer prices persist, the International Fertilizer Association estimates a 2% drop in global corn, wheat, rice, and soybean production.
That might not sound like a lot. But for perspective, it would be equivalent to OPEC announcing an oil production cut of 2 million barrels per day. Prepare for a global shock in food prices to go along with crippling costs for energy, heat, and utility bills.
The energy crisis won’t be contained in Europe.
The U.S. Bureau of Labor Statistics reported recently that inflation was up 7.7% year-on-year in October, down slightly from recent months but still near multi-decade highs. A big driver of inflation has been higher food costs, which have been posting double-digit prices hikes in recent months.
Add to that, many sectors of the U.S. economy are already in a recession…
“People keep saying, are we going to be in a recession? We’re in a recession. Anybody who thinks we’re not in a recession is crazy. The housing market is in a recession & it’s just getting started. So it’s probably going to be a difficult 12 to 18 months in our industry.”
– Restoration Hardware CEO Gary Friedman
The biggest problems for investors are still several quarters away. And are likely to stem from much higher consumer and corporate default rates. Reports surfaced recently that borrowers in Goldman Sachs’ credit card portfolio were falling behind on their payments and defaulting at rates “well above subprime lenders.” Deutsche Bank credit strategists likewise predict noninvestment-grade bonds will see average default rates exceed 10% in 2024, including default rates above 40% for the lowest-ranked (CCC) bonds.
Given that the U.S. economy relies upon consumer spending, the weak consumer will soon start hitting corporate profits. This will eventually lead to layoffs, creating further weakness in consumer incomes, driving a self-reinforcing recessionary cycle.
The bottom line: The shockwaves from the European energy crisis are spilling over onto American shores. The early signs of economic distress we’re seeing now will soon snowball into a full-blown recession…
How to Chart a Course Through The Energy Crisis
The only cure to these problems is increases to baseload power generation – that is, raising the minimum power that can be produced by the electrical grid.
And the fastest and quickest way to accomplish that in Europe is building natural gas-fired power plants. That will mean big increases to American LNG exports over the next decade. There’s truly no other solution.
In America, that will mean more natural gas pipelines, more drilling, and more production. Well-informed investors (including my subscribers) are well positioned to profit with several pure LNG plays.
I recently launched an advisory called The Big Secret on Wall Street (This Week). This is the flagship letter of my brand-new publishing venture, Porter & Co.
We’re a small shop of world-class researchers and financial writers headquartered in an office over top of the tractor barn on my farm in Maryland.
We’re committed to providing individual investors like you thorough and exhaustive explanations of major investment themes, from the big, global picture all the way down to the financials of the companies leading the sector…
We do it all in plain English, not Wall Street jargon. So, it’s easy to understand and act on our very best ideas…
Here’s an example — it’s a just-published video presentation called “The Boston Blackout”
This is a major energy crisis that could spread from Europe to New England this winter, and then across America. If this happens, it will wreak even more havoc on the ailing stock market and economy…
In the video, I name prominent politicians that orchestrated this crisis. And get this: I even reveal how certain progressive politicians have been warming their homes with RUSSIAN GAS while publicly denouncing Vladimir Putin and courting liberal “snowflake” voters.
This video has been called “scandalous”
Do yourself a favor and check it out before it’s taken down. I’ve seen in the past just how far powerful people will go to silence me.
Regards,
Porter Stansberry
P.S. In the video, about halfway through, I reveal a way you could make 10-50x returns on an American energy company that’s set to go up like a moonshot if the lights go out in Boston this winter…
Don’t miss this: CLICK HERE
