The Switch to Coal in Europe

The Switch to Coal in Europe

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Europe is currently in the height of a summer heatwave. And while this means folks have no use for their heating systems right now, concerns over how houses will be heated in the cold winter months have begun to arise.

Earlier this week, Russian energy giant Gazprom cut gas flow via the Nord Stream 1 pipeline, causing fears over the future winter gas supplies to escalate. The Nord Stream 1 pipeline flows from Russia to Germany under the Baltic Sea.

Gazprom cited technical problems for the constraints. The company said the return of equipment serviced by Germany’s Siemens Energy in Canada was delayed.

But German Economic Minister Robert Habeck coined the pipeline as a political move. A spokesperson for the bloc called the move “another example of Gazprom and Russia’s use of its energy supplies as an instrument of blackmail.”

And while Gazprom maintains the cut was not meant to send a message, CEO Alexei Miller said that the company will continue to do as it pleases.

“Our product, our rules,” Miller said during the St. Petersburg International Economic Forum. “We don’t play by rules we didn’t create.”

It is not yet known when or if the Nord Stream 1 gas flows will return to normal levels. But it does have impact on the market as a whole…

In today’s Market360, we’ll talk about those impacts and I’ll share the profit opportunities that I see in the near future.

The Impact of Russia’s Actions

Since the Russian invasion of Ukraine in February, Russia has cut off gas supply to several European countries. Typically, the EU receives roughly 40% of its gas via Russian pipelines. And last year, 55% of Germany’s natural gas supply came from Russian imports. After the Russian invasion, Berlin cut its consumption of Russian gas supply by 20%, as it began to purchase gas from Norway, the United States, and the United Arab Emirates.

Europe uses the summer months as the “filling season.” The bloc fills underground storage networks, including salt and porous-rock caverns, aquifers and depleted gas fields, with natural gas to store for the winter months.

In May, the EU set a goal for these storage facilities to reach 80% capacity by November. As of last weekend, storage was 54% full, according to Gas Infrastructure Europe. While above the 44% capacity at this time last year, the new strains on supply threaten that 80% goal.

And as Europe now scrambles for natural energy, countries are considering a return to coal-fired plants to produce heat in the winter and compensate for Russian supply shortages.

Coal burning produces carbon dioxide and methane gas, among others, and poses a serious threat to the environment. It is the most carbon-intensive fossil fuel in terms of emissions and has thus been one of biggest targets in the transition away from fossil fuels and into more renewable energy sources.

But policymakers have agreed upon coal burning as a necessity if Europe wants a solid heat supply in the winter.

Habeck said that, while a “bitter” choice, the decision to burn coal and limit the use of natural gas is one Germany had to make in order to store as much gas as possible.

In a statement Sunday, he announced Germany’s decision to restart coal-fired power plants. Industrial lobby Federation of Germany Industries (BDI) said last week that companies had already begun making the switch to coal to make more natural gas available for storage.

The German government has also called upon its people to use less natural gas in the coming months.

Europe Beyond Coal Managing Director Mahi Sideridou told CNBC:

“Decades of failed energy and infrastructure policies have led to a point where our governments are (re)considering coal, a fuel that is responsible for millions of deaths as well as irreversible climate damage. The critical thing now is that they ensure that any new measures are temporary, and that we are on the pathway to fully exit coal in Europe by 2030 at the latest.”

While the latest coal developments bode well for coal companies, that doesn’t mean that we should disregard oil companies.

Remember, in the U.S., oil is king, and I anticipate that it’s going to reign supreme for at least the next two decades. The fact of the matter is we’re still in the early innings of the new oil boom, which is why now is the perfect time to invest in the energy sector.

There are three main catalysts that will spur the oil boom over the coming years, but let me share one with you today…

The ESG Delusion

I call it the ESG Delusion.

For years, ESG investing (Environmental, Social, Governance) was all the rage. Folks wanted companies to decrease their investments in fossil fuels and reward them for long-term “climate friendly” solutions. The concept essentially ended fossil-fuel investing among those who followed the ESG ethos (including many big-money institutions) and caused energy stocks to fall to barely 2% of the S&P 500 holdings last year.

So, over the past couple of decades, oil companies were quick to rebrand themselves as “climate friendly,” too. For example, BP (NYSE:BP) invested $220 million into U.S. solar projects and even temporarily renamed itself “Beyond Petroleum,” Shell (NYSE:SHEL) spent $4 million on a wind farm and Chevron (NYSE:CVX) invested $3 billion into a renewable energy growth. Today, more than half of the Fortune 500 companies are spearheading major ESG initiatives.

However, following the recent rise of energy stocks, oil companies now represent approximately 5% of the S&P 500 and continue to steadily rise. During its recent annual rebalancing, the S&P 500 ESG index kicked out Tesla (NASDAQ:TSLA) and added ExxonMobil (NYSE:XOM). According to the University of Massachusetts’ 2021 Toxic Air Polluters Index, which ranks the 100 largest corporations based on 2019 emissions, Tesla ranked 22. ExxonMobil and Marathon Petroleum Corporation (NYSE:MPC) ranked 28. The University of Massachusetts found that the vast majority of Tesla’s air pollution is attributable to its lithium-ion battery plant outside of Reno, Nevada.

If you’d like to know the other catalysts that should light a fire under oil stocks, sign up for Growth Investor now. I’ll send you my special report called 5 Stocks for the New Oil Age, which reviews the three big catalysts, as well as five oil companies that perfectly positioned from the oil boom.

I’ll also send you three other special reports — 10 Stocks to Sell in the New American Age, which details the 10 companies that I think are immediate sells, as well as 3 Income Opportunities for the New American Age and The Best Gold Play for the New American Age. I believe that the information in these reports will allow you to protect your wealth in the days to come.

I should also add that if you choose to become a member of Growth Investor today, you’ll be just in time to receive my Growth Investor Monthly Issue for July right off the presses. In this Monthly Issue, we’ll consider the recent inflation data, the Federal Reserve’s reaction to inflationary pressures and the threat of recession here in the U.S. I’ll also reveal three new additions to the Growth Investor Buy Lists that not only have strong forecasted earnings growth but have also benefitted from positive analyst estimates and persistent institutional buying pressure.

For full details, click here.

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

BP p.l.c. (BP), Shell plc (SHEL)

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