Gas shortage the catalyst for a global recession

The following Bloomberg article shines a spotlight on the ripple effects high gas prices have on the global economy.

Read the full article here.

Our key takeaways:

• Natural gas is the hottest commodity in the world right now. It’s a key driver of global inflation. Prices are up some 700% in Europe since the start of last year raising fears of a continent wide energy induced recession.
  
  
• Russia is cutting back on pipeline deliveries to Europe, the scramble to fill that gap is turning into a worldwide shortage.
  
  
• Germany says gas shortfalls could trigger a Lehman Brothers-like collapse, as Europe’s economic powerhouse faces the unprecedented prospect of businesses and consumers running out of power.
  
  
• The German government is in talks to bail out utilities which are losing some €30 million a day because it has to cover the missing Russian gas at soaring spot-market prices.
  
  
• Deutsche Bank cited growing risks of an “imminent German recession on the back of energy rationing,” and pointed to soaring power prices in Italy and France too. Morgan Stanley also predict that the whole of Europe will be in a downturn by year-end.

The Bloomberg article focuses on the repercussions gas shortages are having on the EU and the German economy in particular.

The German economy is one of the key pillars of the EU region, with a strong manufacturing industry making it an exporting powerhouse. The country is therefore heavily reliant on reliable energy supplies to keep this part of its economy functioning.

The fear that the Bloomberg article highlights is how a shortage in gas supplies or heightened prices could force shutdowns and lead to a recession.

We think this applies not only to the German economy and the EU but to the rest of the world also. With gas likely to become a more important part of the energy mix as the world transitions away from coal and oil we think investment into new supply will need to accelerate.

As a result we hold the following companies as Investment exposures to natural gas. To see the Investment Memos for these companies click on the links below:

Elixir Energy (ASX: EXR)

• Exploration stage, coal bed methane gas, Mongolia

Invictus Energy (ASX: IVZ)

• Exploration stage, gas, Zimbabwe

Top End Energy (ASX: TEE)

• Exploration stage, gas, Northern Territory