Imports, as a percentage of the region’s energy needs, have risen from approximately 50% in 1990 to 58-60% currently. During the same period, the costs and risks of importing energy have risen significantly. According to the European Commission’s latest assessment of the region’s competitiveness, businesses in Europe pay twice as much for electricity as they would in the US.
Other big energy importers, specifically, China and India, import approximately 24% and 37%, respectively. They are currently making up the difference through some renewables and an aggressive expansion of the use of coal.
The fact that electricity costs twice as much in Europe as in the US is not exactly new information. On February 18, 2014, Sigma posted a blog titled, “Natural Gas, Jobs and the Stock Market”, which suggested that manufacturers should consider moving some of their manufacturing capacity to low-cost energy jurisdictions instead of seeking to bring energy to the home market.
Investors, when making portfolio decisions based on regional competitiveness, should seek to assess the various factors potentially affecting margins. Asset allocation strategies can be challenging. Investors may want to confer with their advisor(s).
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
