The Energy Transition disrupted
Our "predictions" for energy and critical minerals in 2024
The Oregon Group was set up to take advantage of a pivotal, once-in-a-lifetime opportunity to help investors stay ahead of the risks. And events are turning quickly.
While our weekly analyses focus on the granular details, specific metals, individual policies, etc, we like to step back at year-end and take a macro view, examining the bigger picture and underlying trends.
Cut through the noise and there are some clear signals across the critical minerals and energy sectors in the year ahead.
We expect the tension between geopolitics, critical minerals and energy to tighten further in 2024 — with a significant knock-on impact on momentum driving the global energy transition.
🚀 Please smash the ♡ button, subscribe for the banter ✓ and share with friends and colleagues. We are always grateful for your comments and support.
Energy
At the end of 2022 we predicted:
“The energy crisis is set to become more acute in 2023… In particular, this will impact European industry and spending power… while the US will see exports of LNG continue to rise, as well as an increase in investment that might otherwise have gone to Europe"
The fallout of high energy prices after Russia’s invasion of Ukraine has seen rapid deindustrialization in Europe, especially Germany; oil has seen significant volatility and high prices; while the US remains the world’s largest LNG exporter.
Despite falling natural gas prices and record oil production in the US, the global energy crisis is set to continue in 2024.
The immediate problem is not so much supply, but supply chains.
For example, Europe importing historic lows of pipeline natural gas from Russia, conflict in the Middle East spilling over into shipping through the Suez Canal, OPEC oil cuts, and costs of renewable energy rising.
But also, underlying these tensions, is years of underinvestment in new supply. For example, Goldman Sachs estimates the oil industry has lost the equivalent of Saudi Arabia’s daily output, 10 million barrels per day, because of delays in investments in new projects. This has halved the reserve life in the oil industry from 50 years in 2014 to 25 years today.
The fallout of energy price volatility will continue to hit Europe and the developing world, such as Pakistan, especially hard.
Commodities
At the end of 2022 we predicted:
“For many commodities, investment and markets are still not pricing in the expected rise in demand and tight supply.”
Most major commodities have seen elevated prices — higher than their 2015-19 average — throughout 2023, despite significant economic headwinds. In particular:
our report predicting the start of a 10-year bull market for uranium appears to have hit the mark
and, our report predicting copper will face a 10MT supply gap in the next 10 years dropped before Bloomberg warned “a forecast surplus of copper going into 2024 has suddenly all but disappeared”
We believe 2024 is set to see continued volatility and elevated prices across many major commodities and critical minerals, driven by tight supply, geopolitical tensions and years of underinvestment. However, a downturn in global economic activity, especially in the US and China, will suppress demand and prices.
In the critical minerals sector, there will be increased tension over mining and processing between the US and China. In particular, US policy will continue to support “on-shoring” or “friend-shoring” of the critical mineral supply chain, but there will not yet be any bifurcation of critical mineral prices between the West and China in 2024.
Geopolitics
As we warned in one of our very first podcasts, global trade is undergoing "de-globalisation", with a significant impact on regional economies and geopolitics, including an increased threat of conflict over critical minerals.
The latest example of this growing global insecurity is the deployment of an international coalition to patrol the Red Sea to stop attack by Houthis in Yemen, and the subsequent disagreements in the West over the deployment.
This deterioration in globalisation and geopolitics is set to continue as a major theme into 2024, driven by several main factors:
a distracted US, focused on the upcoming 2024 election, as well as elections in the UK, India, Taiwan, Mexico and South Africa
continued US-China tensions
a fragile global economy, increasing domestic and regional tensions
more assertive powers, such as Russia and Iran, working to disrupt the current international system
Western rearmament hinges on building secure commodity and critical mineral chains, but years of investment lie ahead to rearm
This will all impact commodity prices as logistics and supply chain costs increase.
The global system will continue to be tested, and Europe will likely be the biggest loser, squeezed by energy prices, wars on its periphery, as well as the US-China trade war.
But, ignore the naysayers, the US will remain the global power for the foreseeable future.
Markets
At the end of 2022, we predicted:
“We are bullish on commodities and energy, but this is having a significant impact on the rest of the economy that will likely continue into 2023. Deglobalization, debt, inflation, interest rate rises, mean sentiment is low. We think with good reason.”
We did not call a recession in 2023, and — with just a few days of the year left, we think we can now say with confidence (!) — there won’t be one in 2023. But, as we warned, this does not mean the global economy is healthy. Far from it. For example,
seven tech stocks make up 25% of the S&P500 and half of the Nasdaq 100
US corporate bankruptcy filings have been the highest since 2020
core inflation remains stubbornly high, rising 0.3% in November
foreign direct investment into China turned negative in 2023 for the first time on record
The chances of a recession in 2024 are now much higher than in 2023, but regardless of whether a recession materializes, we expect this tension in the global economy over core inflation, interest rates, regional economic slowdowns, to continue.
Every downturn is different but in a volatile market, commodities may be one of the safest bets for growth, and this would be especially so in 2024. Check out our analysis on navigating commodity investing in a recession.
the US election, and many more elections
We can’t ignore the US 2024 election, which will dominate the news cycle for the next year and create significant "noise", but we predict — whatever happens — it not de-rail America’s dominance of this century, as we outlined in our recent analysis, “The new American century”.
More specifically, as our recent newsletter suggests, Will the Inflation Reduction Act survive America’s 2024 election?, while obviously of great political importance, the outcome of the US election will be beneficial for the mining industry (less so for electric battery and vehicle manufacturing), whoever wins.
Globally, more voters in history are headed to vote in 2024, with at least 64 countries (including the EU) holding elections, representing a combined population of about 49% of the people in the world. As the saying goes, all politics is local, but the cost of living will be the driving force behind most of these elections, with governments trying and opposition promising to mitigate the cost the of energy, commodities, interest rates and inflation with a greater variety of policies than we’ve seen in many years.
the Energy Transition
2022 was, as we called it, the year the energy transition began, but 2023 was the year we reached “peak green”. For the energy transition, 2024 will be a year of disruption.
Retrenchment and disruption in any industry is normal, especially with rising interest rates and capital costs, and allows for increased efficiency and strategic focus.
The sunken costs in the energy transition — US$358 billion invested in renewable energy in H1 2023, a 22% rise compared to the start of 2022 — as well as the priority of climate change for many voters, means it is highly unlikely the energy transition is about to be completely derailed. But, after years of cheap growth for renewable energy, many companies, governments and voters will reassess their priorities.
We expect:
further pushback against net-zero deadlines, with tight lending conditions and more skeptical voters, the West will increasingly reassess it’s self-professed role as leader in driving the global energy transition
trade barriers by the West against Chinese electric vehicle and renewable energy imports will increase (as is already happening with the Biden administration increasing tariffs on electric vehicles imports from China, and China's latest ban the export of technology to make rare earth magnets)
efforts by the West to set up critical mineral supply chains outside of China and Russia will gather pace, but momentum will struggle with higher capital costs and prices for processing capacity
sales of electric vehicles will not rise as quickly as some of the more generous forecasts, but even a limited rise will increase critical mineral demand and deficits
the biggest loser of the energy transition will continue to be Europe, caught between China’s investment in processing capacity and US financial leverage to pull in investment into electric battery manufacturing plants
nuclear power will continue to be rise as a priority for governments efforts to reach net-zero targets, for example, the announcement by 22 countries at COP28 to triple their nuclear power capacity, Japan reopening the world’s largest nuclear plant, and Poland’s approval of six SMR power plants
a shift back towards traditional fossil fuel energy, especially in developing countries, as the new technologies become too expensive and government budgets tighter, due to interest rate rises
Technology
“We have a great belief in technological breakthroughs as a driver of change and investment”
At the end of 2022, we asked ChatGPT to give three predictions, and allowing for some nuance for the word "significant”, it was right on all three.
So, what about 2024.
A Happy New Year and a big thank you to all our subscribers for your continued support.
Our most popular newsletters of 2023:
Lessons on hydrogen energy's ambition vs reality from South Korea
Military rearmament is just getting started — without enough critical minerals
🚀 Please smash the ♡ button, subscribe for the banter ✓ and share with friends and colleagues. We are always grateful for your comments and support.