Europe takes step toward energy security as Russia threatens supplies

Pumpjack (oil derrick) and refinery plant in West Texas

dszc/E+ via Getty Images

The clean energy debate, as well as industries of the future, has been getting a reality check in recent weeks as crude oil continues to power higher. It's not that the world won't eventually transition to cleaner fuels, but more about how long it will take to get there and securing ample energy supplies in the interim. Years of underinvestment in oil means Western nations are having a tough time ramping up supply, while the cuts to production are coming at a time of soaring fossil fuel demand.

Bigger picture: Oil producers are not likely to invest in further supply as they enjoy record high prices that provide their investors with big dividends. Moreover, corporate interests on Wall Street are looking to grow production only modestly due to ESG mandates, activist shareholder proposals and banks avoiding loans to the industry. CEOs of some of the world's largest oil companies even warned that there were no quick-fix solutions to higher energy prices at the CERAWeek conference in Houston, Texas. Check out some of the top headlines on Seeking Alpha:

Europe energy crisis a 'big wake up call' - TotalEnergies

Cheniere's new LNG capacity sold out through 2040s

U.S., allies should double, then quadruple oil stockpile release - Hess

Natural gas a key component of energy transition - U.S. climate envoy John Kerry

The current environment is also roiling some market predictions that were made not long ago. "I would be surprised if oil hits $70 again," ARK Invest's Cathie Wood declared in May 2021, before doubling down on her forecast yesterday, saying that oil prices were on their way back to $12. Even Tesla's Elon Musk tweeted this week, "Hate to say it, but we need to increase oil & gas output immediately. Extraordinary times demand extraordinary measures." YTD declines: ARKK -40%; TSLA -33% (Note that Tesla is ARKK's biggest holding, making up over 8% of the fund).

Energy security: The war in Ukraine has shown Germany's low-carbon energy transition is somewhat reliant on the kindness of Vladimir Putin, and even without restrictions on Russian energy, Germany is generating a majority of its electricity from coal. Amid heavy reliance on fossil fuels, energy prices in Europe have spiraled out of control, with European natural gas trading at ~$62/mmbtu, or translating to $360 oil on an energy equivalent basis. EU leaders will agree this week to phase out dependency on imports of Russian energy sources as Moscow threatens to shutter Nord Stream 1, while the U.K. is seeking self-sufficiency by increasing North Sea oil and gas production.

ETFs: ICLN, CRAK, PBW, QCLN, FAN, PBD, ACES, CNRG, SMOG, ERTH, XLE, USO, UCO, BNO, SCO, USOI, USL, DBO, NRGU, UGA, OILK, NRGD, OLEM, USAI, NRGO, NRGZ, YGRN, UNG, UGAZF, DGAZ, BOIL, FCG, KOLD, UNL, GAZ

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