Top 10 trade ideas for 2014. Proposition #7: Beneficiaries of the challenges facing the energy sector
The overall cost of energy including supply and environmental costs, is now, more than ever, higher. Moreover, the entrance of new providers means the cost of energy is increasingly diverging from one region to another.
An obvious example is the recent increase in the availability of shale gas in the US, where oil and gas prices are now lower. Additionally, as some US businesses have replaced oil and coal with gas, their emission levels have fallen, as have their CO2 charges. Consequently, production costs will be lower and more business can be done. However, on the other side of the Atlantic, in Europe, energy prices have risen, due to a lack of viable, long-term solutions in the presently heavily-subsidized renewable energy sector. The lack of progress in this area is causing the continent to stagnate in a long lasting period of low economic growth. On the other hand in the Far East, and in particular China, rising awareness around potential air and water pollution problems, is pushing companies to manage their resources and environmental impacts more prudently, thereby resulting in a slower Chinese market share gain in manufacturing.
While it is too early to project a far-ranging relocation from EM to DM, lower energy prices in some regions of the world may convince some companies to shift some production sites closer to the end-user locations. US consumers would be the initial beneficiaries of such a move. Evidence is growing that some European based companies are increasingly considering investing in the US, among these are: BASF, Yara, Solvay, and DSM.
In preparation for these potential shifts and relocations, overall capex allocation made by these companies is changing in nature. Newly developed energy and energy related manufacturing techniques require more capital spending which in turn will result in a higher rotation demand. It is estimated that a total of USD 32bn will be required to put US shale gas resources to use. This includes development of export terminals, associated infrastructure, LNG’s, and chemicals.
Not only does a modern economy require efficient communication networks but also, and more importantly, an energy efficient infrastructure. The companies mentioned below are leading providers in their sectors and are therefore considered suitable for long-term investment.
Download the full report here: Top 10 trade ideas for 2014 Proposition 7 Beneficiaries of the challenges facing the energy sector.pdf
Quick-link to the company reports: ANDR, ARM, BASFn, BCHN, DRX, DSMN, HTG, IFX, LIND, PRY, SCHN, SIKN, SOLB, YAR