Oil and gas performed well in 2022.
Natural gas appreciated by 20%, while oil scored a 7% win.
This may not sound like much, but the tech-heavy NASDAQ index dropped by 33%.
So the fossil fuels everybody loves to hate somehow turned into market darlings.
What does it tell us about the future?
And, more importantly, what does it mean for the energy sector as a whole?
Are oil and gas here to stay, despite the global push for clean power?
Or was 2022 an anomaly?
Read on to find out…
Will Oil and Gas Keep Growing?
2022 was unique in many ways. The “black swan” event of the year, of course, was the continuing war in Ukraine.
Russia is a major oil and gas exporter. When its economy got hit with sanctions, it couldn’t sell its hydrocarbons to the markets as easily.
As a result, the total supply decreased, which pushed prices up.
But these were short-term, unpredictable events.
You can’t count on them to continue supporting the prices of the “old economy” fuels such as oil and gas.
In the long term, they are done.
But there could be other moments when they briefly outperform clean energy commodities such as uranium, lithium, or, for that matter, copper or aluminum. The latter two are used in building wind and solar installations.
Our thesis is that on a longer-term time scale, these commodities will be winners not only in terms of higher demand but also higher prices, in our view.
Focus: Nuclear Power
Bloomberg reports that nuclear power will be on investors’ radars this year.
Five factors will underpin this expectation.
First, Japan announced plans to grow the share of nuclear power in its electricity mix from the current 7% to over 20%. It will need 27 reactors to do that. It only has ten now. So new ones will be built.
Second, France is reopening its nuclear plants to increase its energy output in the face of an energy crisis in Europe.
Third, there’s a global trend to extend the useful life of existing plants to 60 years.
Fourth, over 400 new nuclear plants will be built over the coming decades to increase the share of nuclear power in the world’s mix.
Fifth, there is a new generation of nuclear reactors being developed, including small modular power plants. They are safer than previous-generation ones, which will reduce customers’ worries and increase demand.
Overall, the nuclear sector is undergoing a revolution that could increase its output and make it safer.
This bodes extremely well for uranium, the fuel used in nuclear reactors.
We urge investors to put uranium on their radars right now. Even though some of the catalysts we listed above are related to long-term plans and projections, it won’t take too much time for investors to factor them into their expectations. As we all know, markets trade on expectations, so the impact of soaring demand and nuclear capacity could get reflected in the price of uranium quite soon.
Japan alone is about to invest over $1.2 trillion in building nuclear reactors over the next ten years.
That country alone has created a trillion-dollar trend that, in our view, is worth paying attention to.
Thank you for your loyal readership,
The Financial Star team