Europe’s Economy is in Winter While Australia’s Economy is in Summer
When northern hemisphere is approaching winter, Australia’s summer is coming close, so does the economy. North America, China, Europe and Britain are now in the grip of a global energy crisis, Britain is turning back to coal-fired power stations to keep the lights on, while in China, they are curbing industrial production even as demands for exports soars. The energy crisis is being driven by the global shortages and soaring costs of energy.
Coal, the target of repeated attacks by environmental activists which is supposed to be a fading star, has emerged as one of the Australian stock market’s top performers, up 28% over the past month, 210% over the past 12-months and 700% over the past five years.
Gas prices in the United Kingdom and the Netherlands both settled at record highs in September. The UK’s Oxford Institute for Energy Studies (OIES) said world LNG imports – excluding Europe –in the first eight months of this year were 12 per cent higher than in 2019 and were on track to be 10 per cent higher on the year.
What’s the impact on Australia?
For resource-rich Australia, it is shaping as the biggest winner from the energy crisis because it has a foot in both camps, old energy through coal, oil and gas and new energy through lithium, nickel and solar, and the commodity with a foot on both sides of the old/new divide, uranium.
After the initial outbreak of Covid-19, it was the iron ore which eased the concern of economy concession. The hiking price had offset the fiscal deficit caused by the economy stimulus. Although the iron ore price has more than halved after peaking at over US$220 per tonne, other resources has taken iron ore’s rose as economy booster. The extraordinary rally in prices for Australian fossil fuels has more than offset a slump in prices for the nation’s top export, iron ore.
Gas
According to statistic from Geoscience Australia (2021), Australia's identified gas resources are sufficient to supply domestic demand and Australian LNG exports for over 40 years. Domestic consumption just accounts for one third of the total production.
Although Australia is the seventh largest gas producer in the world, it’s the world’s largest LNG exporters. The export volume and value are both increasing dramatically in the past decade. The Department of Industry estimated Australia to export 82 million tonnes of LNG in the year to June 2022, up from 77.7 million tonnes last year, with the face value rising by 87 per cent to $56 billion.
Coal
Coal is Australia’s largest energy resource. Australia is currently the fifth largest producer and the second largest exporter of coal and has the third largest reserves of coal in the world. Less than 10% of production is consumed domestically.
Thanks to the hiking prices for Australian thermal and coking coal, the face value of thermal coal exports is expected to rise from $16 billion to $24 billion, and the face value of Australian coking coal exports was expected to rise from $23 billion to $33 billion
Lithium, Nickel and Rare Earth Elements
Most of countries are implementing carbon-neutral strategy, this energy transition offers great opportunities for Australia. For example, increasing electric vehicle production drives the demand for lithium, nickel, rare earth elements. Renewable energy generation demands rare earth elements and uranium. Global electric vehicle fleet size is projected to increase 30% a year to 2050, while global stationary battery storage and wind capacity are projected to increase to 8% and 6% a year respectively to 2050. (Outlook for selected critical minerals, Office of Chief Economist, 2021)
Australia produced 56% (45 kt) of global lithium, currently the fourth largest producer of rare earth elements (REE) with 9% global market share and the third largest producer of uranium. The global transition to renewable energy will be underpinned by technologies that require a broad range of critical minerals.
The True Heaven Country
Australia is truly a lucky country with abundant energy resources. The abundance not only meet domestic demands (15% of the total production), which keep Australia away from the energy crisis happening in northern hemisphere, but also create wealth for the whole country through exporting (85% of production). Australia is powering forward with a plan for energy future that supports Australia's long term energy security and economic growth and delivers an affordable and reliable energy system.
The high credit rating (AAA), competitive investment environment, well-established financial system and abundant resources all enhance Australia’s position as investment heaven while more and more countries are experiencing volatile economy. It is witnessed that more global investors are pouring billions of investments into Australia, which is also beneficial to Australia’s other major sectors such property and agriculture.
Wharton is proudly to offer Australian investment opportunities to domestic and global investors. We have consistently delivered competitive return to our investors thanks to Australia’s resistant economy. If you like to know more about your investment options, please contact us info@whartoncapital.com.au.
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