Let Them Freeze in the Dark

This comment was attributed to a Wyoming company in February 1973.  Energy prices were rising, but toughened environmental laws prevented finding more energy sources.  Various iterations, some of which were not suitable for general viewing, became popular in Texas during the 1973-74 energy crisis.

Now we seem to be seeing Deja vu all over again, thank you Yogi, as Western Europe is facing rising prices and serious shortages of coal and natural gas.  Today’s high energy prices could be a preview of a very difficult winter, if the weather is cold.  In Europe, spot natural gas prices are at all-time highs and inventories are uncomfortably low, giving rise to fears that a cold winter will force the region into a bidding war with Asia for liquefied natural gas (LNG) shipments.

The U.S. is not immune to rising energy prices.  Natural gas prices have edged above $5 per MMBTUs, near the highest since 2014.  The problem is that seasonal stockpiling is lagging and exports of LNG are up orders of magnitude compared to 2016.  Similarly, coal exports are more than 50% above previous year levels and shortages are beginning to surface in the middle of the country.

Investors should be factoring into portfolio decisions the potential for higher prices and shortages of domestic energy.  Just because things are worse in Europe doesn’t give the U.S. a pass.

Consumers are likely to see this in their heating bills and at the gas pump, as we move into the winter months.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA