As an investment advisor, I have to be like a good chess player in that I have to look ahead to try and determine what is the right move today that will have a long-term future payoff. Recently I began to see stories about the implications to the European economy as Putin and Russia have decided to cut back on crude oil and natural gas shipments to the European Union.
The concerns are dealing with the availability of natural gas and electricity. Since the Ukraine invasion, the electricity price in many European countries has increased tenfold. Let me say that again. The cost of electricity has increased tenfold. If you were paying $1,000 yearly based on current prices, you could be paying $10,000 annually. Natural gas prices have increased fivefold, and many economists expect that with a cold winter, things could get devastating across Europe.
According to the world health organization and the US center for disease control, the mortality of people dying from cold versus heat is 20 to 1 in favor of cold. With a shortage of fuel, natural gas, oil, or coal, a cold European winter could see a significant spike in people dying. The green energy opportunity to be an alternative to coal or natural gas has not materialized in Europe. Germany, with the largest economy in Europe, is experiencing blackouts and is expecting more devastating conditions this coming winter and is trying to do something about it by reopening nuclear power plants and coal plants to try and make up the shortfall in electricity.
If the European leadership continues to not want to buy Russian oil, natural gas, or Coal, then the Europeans will have to depend upon other sources around the world to purchase the commodities they need to provide for their people. This is where I think the opportunity potentially lies in oil and natural gas. On Friday September 2 Russia’s Gazprom indefinitely shuts down gas pipeline to Europe, compounding an energy crisis that has already sent prices soaring.
When Donald Trump was president, he told European nations to close down the oil and natural gas pipelines with Russia, and because the US is an exporter of energy, we would supply them with the oil and natural gas they need to maintain their economies. And we were in a position to literally export tens of millions of barrels of crude oil and billions of cubic feet of natural gas. Unfortunately for Europe, President Biden decided to impact energy exploration in the United States, shut down the Keystone Pipeline, and put other restrictions on oil and gas companies in finding precious reserves in the United States. The European nations are scrambling to find a replacement supply to care for their countries. The places where European governments can find oil and natural gas, which will be at ever-increasing prices, will be either the Middle East or the United States. I think there is grave concern about tying their economies and survival to terrorist countries in the Middle East, and therefore they would like to be able to buy oil and natural gas from the United States.
I think both the NATO and the European Union ministers may have discussions with the Biden administration about wrapping up a special supply of oil and natural gas to be shipped to Europe regularly, at least until the spring of next year and more likely for years to come.
I believe that Joe Biden will be put between a rock and a hard place when European ministers come calling seeking America's help to deal with the pressure from Russia. How does the president of the United States say no? How does he say to our neighbors in Europe and our allies that we're not going to help them because we're trying to save the world, and we can't save you and the world both?
It is certainly possible that Joe Biden will turn America's back on helping Europe and its people survive a severe threat to their lives. The closer we get to winter in Europe, the more pressure will come from Europe and on energy prices globally, so the longer America refuses to participate and help its neighbors and friends in Europe, the greater the price will increase for crude oil and natural gas.
We have seen some significant volatility in both oil and natural gas. The price of natural gas was $5.51 on July 2, 2022, and $9.18 on September 1, 2022. You are probably asking how I should invest in energy. Before I answer that question, you need to read the following. Disclaimer: The value of any investment can go up or down depending on news, trends, and market conditions. I am an investment adviser, but what I say is a general opinion, and I do not consider your needs, goals, or objectives. Therefore, do your due diligence to understand the risks before investing.
For the average investor, I think buying individual stocks may be too risky. Therefore, I am very interested in mutual funds, especially exchange-traded funds, for their cost structure and diversification. Disclaimer: The value of any investment can go up or down depending on news, trends, and market conditions. We are not investment advisers, so do your due diligence to understand the risks before investing.
On Google reviews, you can find many ETFs investing in energy. One particular site that I like is https://www.nerdwallet.com/?trk=nw_gn_5.0. NerdWallet provides a lot of detailed information on quite a few ETFs on energy. Don't put all your eggs in one basket. You may be asking yourself what percentage of your portfolio should be invested in energy, and I think a good percentage would be somewhere between 10 and 15% of your portfolio in ETFs in energy.
Given the decline of almost 1800 points in the last five trading sessions bringing the markets down about 5 ½%, the returns shown in the NerdWallet on ETFs are staggering. I believe that we could see oil and natural gas hit all-time highs in the next 6 to 9 months, which would give, based on today's price, some significant upside and very reasonable dividends. I believe you should keep your money in. Let's say you want it set aside 10% of your portfolio. I would be looking to buy in 5% now and wait until the midterm election to put in the other 5%.
One last thought, pay attention to the news. If you see any discussions about the European Union or NATO having talks with the Biden administration about buying oil and natural gas from the United States, I would invest my extra 5%.
Keep one thing in mind. Lead time for reliable alternative energy sources takes a long time to develop. The supply problem in Europe will not end soon, and I don't expect that if Putin pulls out of Ukraine, the Europeans will suddenly go running to his arms to buy his oil and natural gas.