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Energy from old and new sources is the essential investment for 2022

By

Tim Treadgold

-

January 6, 2022

Energy is the key investment for 2022, and it probably doesn’t matter whether it comes from old or new sources because demand from an electrifying world is already overpowering supply with the predictable effect on price.

Lithium, leader of the “new energy” metals is showing the way with last year’s 500% rise in the Chinese price of the metal, but coal also rewarded investors prepared to look past its poor environmental record with a 115% rise for thermal grade material used in power generation.

While hard to repeat this year, the upward trend has shown no sign of easing over the past few weeks.

Smaller lithium exposed exploration companies and project developers have also started to ride the energy wave with upward share price moves such as 37% rises by bothLake Resources (ASX: LKE)andGalan Resources (ASX: GLN)over the past month.

Supply and demand situation

Perhaps the most relevant question for investors to consider, apart from following the rich, is how the world will meet demand for new energy metals such as lithium, while activists oppose the development of new mines – much as they oppose the development of coal mines and oilfields?

The only answer to that critical question is with great difficulty, creating a perfect climate for higher prices of all energy material, including new metals, and old fuels (a list which incorporates uranium as well and coal and oil).

For investors there are two energy issues to consider.

Firstly, look at the prices for all forms of energy (rising rapidly) and compare that trend with supply (not rising as fast).

Secondly, consider two recent examples of supply pressure on new-energy metals even as demand has been rising.

In Serbia, the $2.4 billion Jadar lithium project ofRio Tinto (ASX: RIO)faces delays because of local activist (anti-mining) opposition, while in Chile a newly-elected President, Ga briel Boric, has promised to overhaul that country’s globally significant lithium industry to extract higher taxes as well as creating state-owned lithium company – with all the inefficiencies which always accompany a nationalised business.

Squeezing lithium supply will continue to drive the price higher, as it will for other energy metals such as nickel, copper, cobalt, graphite and even aluminium.

On the flipside of the equation where is evidence of surging new-metal demand from battery makers struggling to keep up with sales of electric vehicles as shown in:

• Record Tesla sales last year of 936,000 vehicles, up 500,000 on 2020.
• Mercedes Benz unveiling a concept of its Tesla-crushing all electric EQXX, which promises a range of 1,000 kilometres per battery charge.
• Sales of EVs in Norway, a country with abundant cheap electricity, accounted for 66% of all vehicles sold in 2021, an event which will be replicated elsewhere as petrol and diesel cars are phased out.

So much has been written about the new energy revolution that it can be hard for investors to appreciate that it is not a theory, it really is happening.

But for the revolution to succeed it will require a massive increase in newly mined supplies of battery metals with early signs indicating that it will not be easy for supply to catch up with demand and that can only mean one thing, higher prices for longer.