Climate Change
The EU’s transition to a carbon tax launched this week via its Carbon Border Adjustment Mechanics (CBAM) will lead to higher inflation in the medium term (3 – 5 years out), and will stoke consumer (i.e., voter) antipathy if it becomes effective in 2026. As a result, the tax will be watered down. Food and energy prices are particularly at risk, as imported fertilizers, and electricity-generation and -transmission components made from steel and aluminum are affected by the CBAM. We remain long oil, gas and metals equity exposure via the XOP, XME and COMT ETFs. We also remain long gold to hedge inflation.
Carbon credits as an asset class are becoming increasingly investable. Given that the structural bull case for this asset class is compelling, strategic investors should long carbon credits. However tactical investors should book profits or consider merits of a short position, since prices are likely to correct over the next 12-24 months.
Global oil demand growth is tracking with our estimate of ~ 1.8mm b/d for this year. Supply discipline is being maintained by OPEC 2.0, where the core (KSA and the UAE) and Russia have reduced production by ~ 240k b/d yoy in 1H23. In addition, KSA extended its unilateral production cut of 1mm b/d from July into August. We expect inventory draws in 2H23 as supply stays below demand. Our Brent forecast remains unchanged at $92/bbl this year, and $120/bbl next year. We remain long the COMT and XOP ETFs.
Markets continue to be tossed to and fro by central-bank policy, and risks of higher commodity prices. These are due to fiscal stimulus and exogenous weather and war-related risk, which could send food and energy prices higher this winter. We remain long gold outright, energy and metals producers via the XOP, XME and PICK ETFs, direct commodity exposure via the COMT ETF, and futures exposure to backwardation in copper (long 4Q23 copper futures vs. short 4Q24 copper futures).
We are strategically bullish on the outlook of the energy sector. Domestic and external political constraints asserted themselves, restraining the most negative impulse against this sector by the Biden administration. Go long energy versus cyclicals (ex-tech).
The initial phase of the EU’s ambitious CBAM will launch 1 October and will begin collecting a carbon tax in 2026. Between now and then, it will be challenged as it attempts to put a price tag on CO2 emissions as imports cross the EU border. The CBAM will impart an inflationary bias in EU commodity and goods markets as 2026 draws near and importers have to secure EU ETS credits, the number of which, by design, will contract over time.
Innovative Tech will face macroeconomic headwinds in a new “higher for longer” interest regime. Yet, the long-term opportunity of the cohort is tremendous. Investors need to be judicious with the timing of adding new capital to these themes to bolster long-term returns.
What is the outlook for the European housing market amid rising mortgage rates and the energy crisis? Does housing represent a systemic risk? Can households weather the storm? And what are the opportunities, if any?
Dear Client, We will not be publishing the Commodity & Energy Strategy next week, as I will be participating in a panel discussion with Dr. Bassam Fattouh, Director of the Oxford Institute for Energy Studies (OIES), which will focus on global energy markets and their evolution. Our panel will be moderated by my colleague Roukaya Ibrahim, Managing Editor of BCA Research's Daily Insights. We will return to our regular publishing schedule on September 15, 2022. Sincerely, Robert Ryan Chief Commodity & Energy Strategist Executive Summary The Biden administration’s Inflation Reduction Act (IRA) will throw just under $370 billion at incentivizing renewable-energy development via tax credits, grants and loans, and, in what arguably is a concession to common sense, to adding and extending incentives for conventional energy sources, carbon capture and hydrogen. In the short run, the IRA could add to systematic stress in the North American bulk power supply market, which still is contending with grid stability issues caused by solar PV generation. In a direct shot at the dominance of EV supply chains by China, the IRA subsidizes EVs assembled in North America using batteries sourced from there and critical minerals sourced either from the US or states which have a Free Trade Agreement with the US. The IRA will increase global competition for base metals supplies, which already are tight. This will push prices higher to incentivize the development of the mines and local metals-refining operations required to satisfy this demand. IRA’s $370 Billion Allocations Bottom Line: The IRA incentivizes investment in clean energy, pollution reduction and GHG remediation, and employment in the energy-supply market writ large. The next year likely will be taken up writing the actual regulations implementing the IRA. If it succeeds in significantly boosting renewable energy investment and EV sales, it will stoke already-tight base metals markets and drive costs higher. By incentivizing the development of carbon-capture and hydrogen technologies, it would extend the life of traditional hydrocarbon energy. Feature The Inflation Reduction Act (IRA) will make $370 billion available to energy providers and households via tax credits, grants and loans to incentivize green-energy production and deployment in the US (Chart 1). It also seeks to incentivize the expansion of locally built EVs in North America, the batteries that will power them, and the critical minerals crucial for green energy, as it attempts to break China’s dominance of EV and critical mineral supply chains globally. Support for carbon-capture and use, and hydrogen as a fuel also will be expanded. Chart 1IRA’s $370 Billion Allocations The US DOE estimates the IRA and the previously passed Bipartisan Infrastructure Law will reduce Greenhouse Gas (GHG) emissions by 1,150 MMT CO2e in 2030, equivalent to a 40% reduction vs 2005 GHG levels, in 2030.1 The inclusion of Carbon-Capture-Use-and-Storage (CCUS) technology in the IRA will incentivize technology that would allow for fossil fuels to be used as a bridge for the green energy transition, which, if successful, will dramatically extend the useful life of hydrocarbon resources. Per the IRA, tax credits for CCUS can reach a maximum of USD 60 – USD 85/ MT of CO2 captured depending on how successful the technology is in actually removing CO2.2 This is $25-$35/MT more than what is provided by the existing CCUS tax credits. As we argued in previous reports, lower production costs for nascent green technologies such as CCUS will spur research and development, unlocking a virtuous cycle of increased production and deployment, and lower costs.3 The IRA is technologically agnostic as to how low-carbon energy is produced – i.e., via renewables, hydrocarbons, or nuclear power. From 2025, Investment- and Production-Tax Credits (IC and PC tax credits) will be available for technology-neutral electricity production, meaning electricity from fossil fuels or nuclear power will receive tax and investment credits alongside renewables, provided no toxic GHG emissions are released. This will catalyze the development and use of CCUS technology, especially in existing power plants, which can be retrofitted with this technology. Controversy Around Oil, Gas Attends The IRA Among the more controversial features of the Act are provisions supporting oil and gas production. One of the provisions requires 2mm acres of public land and 60mm acres of water to be offered for lease to oil and gas companies a year prior to issuing new onshore solar or wind rights-of-way. We do not believe this will meaningfully increase US oil production since its main constraint isn’t a dearth of land but investor-induced drilling restraint – i.e., the capital discipline that compels oil and gas producers to only produce what can profitably be produced. We also are doubtful that increasing oil and gas royalties to 16.6-18.75% under the IRA will influence drillers’ production decisions since most states’ royalties, most notably Texas and New Mexico’s will be at parity or higher than the revised rate under the new law.4 The duration and coverage of investment and production tax credits for solar and wind projects have increased. Furthermore, energy storage technology will now receive ITCs and PTCs, which should encourage the development of this technology. Energy storage technology – e.g., utility-scale lithium batteries – will make green electricity more reliable, providing a competitive alternative to fossil fuel-generated electricity. Increasing Solar PV Resources Strain Power Grids As Chart 1 shows, renewables are receiving massive support from the IRA, particularly solar PV and wind resources. This will, over the short run, present problems for grid stability. The North American power grid is being stressed by lack of investment in systems capable of fully integrating renewables – particularly solar PV – with incumbent bulk power supplies from fossil fuels and nuclear power. This is being exacerbated by extreme-weather events (e.g., prolonged heat waves, droughts, fire storms, flooding, etc.).5 The IRA focuses on incentivizing particular power-generation technologies and, in conjunction with the Bipartisan Infrastructure Law, investing in and bolstering North American electric grids.6 This is and will remain a critical issue, given the threat to bulk power system (BPS) stability posed by the large amount of small-scale solar supplies, which are not required to meet NERC reliability standards, per the NERC’s analysis. This risk is being analysed in depth following widespread loss of solar PV power in California during the summer of 2021, which was compounded by droughts and wildfires.7 “The ongoing widespread reduction of solar PV resources continues to be a notable reliability risk to the BPS, particularly when combined with the additional loss of other generating resources on the BPS and in aggregate on the distribution system,” the April 2022 NERC report notes. In an earlier report, NERC analysts noted much of the solar PV resource operates at a smaller scale than other supplies (baseload nuclear power, e.g.), and are not part of the NERC’s bulk electric supply (BES) system (Chart 2).8 Practically speaking, the NERC noted, “the vast majority of solar PV plants connected to the BPS, totaling over half the capacity, are not considered BES and are therefore not subject to NERC Reliability Standards.” Chart 2Solar PV Resources Strain Grids In theory, this could limit the expansion of solar PV resources until the grid stability problems are addressed. Because of its intermittency, wind resources also can be unreliable sources of power, which means fossil-fuels alternatives – particularly natural-gas-fired generation – will continue to be favored to maintain grid stability and to provide back-up generation if wind or solar PV generation becomes unavailable. If CCUS technology can be harnessed to significantly reduce methane discharge – another goal of the IRA – along with particulates, natural gas production stands to increase as the US migrates to a low-carbon future. Investment Implications The recently enacted IRA law will incentivize increased investment in renewables and conventional resources. In addition, it will spur investment in energy-transmission and –transportation resources. The drafting and implementation of the regulations required to implement the law will be done over the next year or so, so it is difficult to forecast which investments will get off to the fastest start. We remain bullish base metals – the sine qua non of the renewal-energy transition – and conventional hydrocarbon resources. We continue to favor equity exposure via ETFs – the XME and XOP for exposure to miners and oil-and-gas producers, respectively. We also remain long the COMT ETF, an optimized version of the S&P GSCI to retain exposure to commodities directly. Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Analyst Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Paula Struk Research Associate Commodity & Energy Strategy paula.struk@bcaresearch.com Commodities Round-Up Energy: Bullish EU gas storage facilities were 80.17% full as of August 29 , reaching the bloc’s 80% target two months early (Chart 3) and raising the possibility of natgas rationing to reduce demand will not be needed this winter. The EU’s willingness to purchase gas at high prices over the summer injection months, given the dire consequences of possibly low gas storage levels in the winter withdrawal period, is responsible for this result. As Russian gas flows have dropped, the EU has had to rely on other sources, namely the US. LNG imports of 39 Bcm from the US to the EU over the first six months of this year have surpassed full year 2021 flows, according to Reuters. Elevated US gas flows to Europe have come at the expense of gas flows to states which are unable to afford the fuel at such high prices. In the US, high Henry Hub gas prices signal low domestic fuel availability primarily due to higher gas exports (Chart 4). Base Metals: Bullish High electricity and fuel prices in Europe are making metal smelting increasingly expensive, and are forcing refiners to voluntarily reduce operations. Nyrstar’s Budel zinc smelter and Norsk Hydro’s Slovalco aluminum smelter are the latest refinery operations forced to shutter operations going into the winter. Reduced domestic metal production runs counter to the continent’s aim of becoming more self-reliant on the supply of minerals critical to strategic industries such as defense and aerospace. Precious Metals: Neutral Federal Reserve chair Jerome Powell stressed the importance of price stability and reiterated the Fed’s commitment to restrictive policy to reduce inflation at the Jackson Hole conference. Gold prices fell on his speech as markets adjusted to higher interest rates than previously expected. However, counter to BCA’s US Bond Strategy view, markets still expect the Fed to start cutting rates in 2023. Two key drivers for gold prices next year will be the Fed’s rate hike regime and inflation perpetuated by potentially high oil prices following European sanctions on Russian oil and oil products. Chart 3 Chart 4 Footnotes 1 Please see The Inflation Reduction Act Will Significantly Cut the Social Costs of Climate Change, published by the US Department of Energy on August 23. See also 8.18 InflationReductionAct_Factsheet_Final.pdf (energy.gov) for additional DOE analysis of the IRA. 2 Manufacturers of different green technologies can maximize tax credits by ensuring certain labor and materials sourcing requirements are met. 3 For a report with our most recent discussion on this issue, please see EU Gas Crisis Boosts Hydrogen’s Prospects, which we published on April 7, 2022. See also Assessing Risks To Our Commodity Views, published on July 8, 2021, and Industrial Commodities Super-Cycle Or Bull Market?, published on March 4, 2021, for additional discussion on the need for carbon-capture investment. 4 The Permian basin, which constitutes 60% of total US shale production is located in these two states. 5 Please see the North American Electric Reliability Corporation’s recent report entitled Summer Reliability Assessment, May 2022, for an in-depth discussion of electric grid reliability going into the 2022 summer. 6 Please see “The Inflation Reduction Act Drives Significant Emissions Reductions and Positions America to Reach Our Climate Goals,” published by the US DOE as DOE/OP-0018, August 2022. 7 Please see “Multiple Solar PV Disturbances in CAISO, Disturbances between June and August 2021, April 2022,” published by the North American Electric Reliability Corporation. 8 Please see “Summary of Activities, BPS-Connected Inverter-Based Resources and Distributed Energy Resources,” published by NERC in September 2019. Investment Views and Themes New, Pending And Closed Trades WE WERE STOPPED OUT OF OUR LONG SPDR S&P METALS & MINING ETF (XME) TRADE ON AUGUST 29, 2022 WITH A RETURN OF 19.43%. WE WILL RE-ESTABLISH A LONG POSITION IN THE XME AT TONIGHT'S CLOSE. Strategic Recommendations Trades Closed in 2022
Executive Summary Natural Gas Markets Eerily Quiet An eerie calm in European natural gas markets belies the state of war in Ukraine that already is producing a cutoff of Russian natgas supplies in retaliation for the EU’s oil embargo. Such cutoffs will accelerate, and send natgas prices in Europe and Asia sharply higher if they occur sooner – as we expect – rather than later. The US will continue to send most of its LNG exports to Europe. These exports are expected to average 12 Bcf/d this year, up 22% from last year’s level. Planners in Europe and Asia will want to secure as much natgas supply as possible by the end of October to refill storage for the November-March withdrawal season, which is beginning to look like another La Niña winter. The US Climate Prediction Center makes the odds of such an event, which is associated with colder-than-normal winters in the Northern Hemisphere, just over 60%. Bottom Line: European governments are preparing their citizens for natgas rationing, in the event of a cutoff of Russian gas. This will occur sooner rather than later. In its wake, EU GDP will fall, and inflation will rise as knock-on effects constrict base metals, fertilizer and food supplies. At tonight’s close, we will be getting long 1Q23 TTF futures on the ICE, expecting prices to again exceed €225/MWh. Feature Related Report Commodity & Energy StrategyHigher Gasoline, Diesel Prices Ahead Russia is at war with Ukraine. NATO military support for Ukraine – with the EU at the forefront – is being maintained at a high level, and Ukrainian forces are vigorously defending their homeland.1 The EU embargoed Russian oil imports to sharply reduce funding for Russia’s war machine. Russia will be compelled to follow through on its threat to cut off pipeline gas shipments to Europe, following the embargo.2 It is highly doubtful Russia will countenance the timetable envisioned in the EU embargo, which calls for a phase-out of oil imports by yearend that removes close to 3mm b/d, or 90% of Russia’s sales into its largest market (Chart 1). Equally doubtful is the notion the EU will countenance funding Russia’s war on Ukraine over the course of such a phase-out. Our colleague Matt Gertken, who runs BCA’s Geopolitical Strategy, demonstrated that while such a phase-out schedule may be optimal for both sides – i.e., it prolongs revenue flows to Russia and gas flows to the EU – it almost surely is not an equilibrium.3 An equilibrium in this prisoners’ dilemma obtains when both sides act immediately to end their vulnerability to the other unilaterally upsetting the optimal state – i.e., endure short-term pain for long-term gain (Diagram 1). For this reason, we believe Russia’s cutoff of natgas shipments to the EU will occur sooner rather than later, to inflict maximum pain on the EU going into the coming winter season. The EU knows this, and is preparing its citizens for rationing of natgas. Chart 1EU’s Russian Oil Embargo Cuts Sales By 90% By Year-end Diagram 1The EU, Russia Prisoners’ Dilemma Russian Natgas Cutoff To The EU Underway Russia already has begun reducing natural gas supplies to the EU (Chart 2). Russian gas flows to Finland, Poland, Bulgaria, Netherlands, and Denmark were embargoed after these states refused to pay for gas in rubles (Chart 3). Russia reduced gas shipments to Germany – albeit marginally – after Shell refused to pay for natgas supplied to Germany in rubles. While this only disrupted 1.3% of total natgas consumption in Germany, it showed Russia will quickly act against what it views as “unfriendly” customers.4 Ukraine was forced to shut a gas transit point through which 8% of total Russian gas flows reach Europe, after Russian occupying forces were found to be siphoning gas, according to Gas Transmission System Operator of Ukraine (GTSOU). As a result, gas flows from Russia have taken a further hit and have not recovered (Chart 4). EU member states whose supply of Russian gas has been disrupted will need to search for alternatives. Orsted, an energy company supplying natgas to Denmark, stated it will source gas from the EU market. Given supply constraints in Europe, an increase in the number of bids on the single EU market will raise the Dutch Title Transfer Facility (TTF), all else equal. Chart 2Russia Starts Cutting Gas Flows Chart 3Russian Gas Flows To EU Falling Overall... Chart 4...Particularly Via Ukraine Higher TTF prices will direct gas flows from the US to Europe, reducing gas available for domestic consumption. LNG gas exports to Europe have maintained their upward trend since 2016 and were up by 87% (674 BCF) in 1Q22 vs the same period in 2019 (Chart 5). Chart 5US LNG Exports To Europe Surge Simultaneously, the US witnessed its largest inventory withdrawal this winter in the last four years (Chart 6). Warmer-than-normal temperatures and drought conditions in the US also are increasing domestic demand, as electricity companies are forced to substitute hydroelectric power with natgas-fired generation. Increased exports and weather phenomena have combined to push the Henry Hub contract above $9.50/MMBtu this week, the highest level since 2008. Chart 6US Natgas Inventories Slowly Filling US LNG Exports To Europe Surge Higher European prices for US natgas have disincentivized shipments to Asia, where prices – measured by the Japan Korea Marker (JKM) – have been trading below the TTF so far this year on average (Chart 7). This has allowed European gas inventories to refill at a rapid pace. As of 4 June, the EU’s working gas inventories were ~49% full and are above last year’s level for this time of the year (Chart 8). Chart 7Natural Gas Markets Eerily Quiet Chart 8European Gas Storage Refill Off To A Good Start Shanghai’s reopening will propel Chinese economic activity and demand for natgas, making an already tight global natural gas market tighter. However, the risk of rolling lockdowns in China will keep Asia’s LNG demand in check.5 LNG vessel charter rates have increased sharply since the Russia-Ukraine war began, largely on the back of European demand (Chart 9). We expect this to be a regular feature of the international gas market going forward, as more LNG export capacity is added in the US – it will rise to 12.6 Bcf/d next year, e.g. – and global demand remains strong. Chart 9Surge in LNG Charter Rates Europe Is Critically Short LNG Infrastructure Most of the EU’s existing 158 Bcm of annual regasification capacity is located around the Iberian Peninsula (Chart 10), which is not well-connected to the rest of Europe. As a result, to substitute Russian piped gas for LNG imports, investments for import terminals and regasification capacity will be required. In its REPowerEU program the European Commission expects to move closer to complete independence from Russian fossil fuels by importing an additional 50 Bcm of LNG per year, reducing demand, and ramping up renewable energy. Germany is aiming for independence from Russian gas flows by planning a shoreside LNG terminal and ordering four Floating Storage and Regasification Units (FSRUs). The FSRUs, which are expected to come online between year-end and the start of next year will have a combined capacity under 24 Bcm per year. Chart 10Europe Needs More Re-Gasification Capacity These plans, however, are not aligned with the nation’s pathway to go carbon neutral by 2045. An environmental activist group has filed a lawsuit to halt the construction of the LNG terminal. The group also is opposed to Germany’s draft LNG acceleration bill, which will allow imports until two years before 2045.6 This reflects two problems all EU nations will face as they transition to LNG from pipeline Russian gas imports. Firstly, member states will need to invest billions of euros in new LNG capacity, and given current politics, likely will have to decide to scrap or repurpose this infrastructure in during the transition to green energy. Opposing this possibility is the high likelihood that EU states will need to enter long-term LNG contracts to ensure supply security and shield themselves from volatile natgas prices. For the immediate future, the EU likely will kick this can down the road for as long as possible. Investment Implications Back in March, Germany and Austria began preparing their citizens for natgas rationing.7 Now the IEA is warning all of Europe the likelihood of such action is increasing rapidly.8 State and local planners throughout Europe will spend the next five months or so lining up as much LNG and pipeline gas as possible going into the coming winter season. While the inventory-injection in Europe is off to a good start, planners most likely hope to exceed their minimum target for filling 80% of storage in time for the November-March withdrawal season. In addition to the risk of a Russian cutoff of supplies, planners have to account for a higher likelihood of a colder-than-normal winter, given the odds of another La Niña winter, which is associated with colder-than-normal winters in the Northern Hemisphere. The US Climate Prediction Center makes the odds of such an event – the third such event in as many years – just over 60%. If European states are forced to implement rationing of natgas, knock-on effects resulting from prioritizing human needs over industrial concerns will, once again, restrict base metals, fertilizer and food supplies. We remain long energy, metals and grains exposure via the S&P GSCI and COMT ETF as the natural-gas drama in Europe plays out. In addition, we remain long the XOP, XME, PICK, and CRAK ETFs to maintain our equity exposure to industrial commodities. At tonight’s close, we will be getting tactically long 1Q22 futures on the ICE, expecting prices to again exceed €225/MWh. This will complement our existing tactical commodity exposures in 4Q22 TTF futures. Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Analyst Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Paula Struk Research Associate Commodity & Energy Strategy paula.struk@bcaresearch.com Commodities Round-Up Energy: Bullish US refined product demand rose just under 4% for the week ended 3 June 2022, led by a surge in jet-fuel demand of 26.5% yoy – finishing at 1.6mm b/d vs. 1.26mm b/d the year earlier, according to the US EIA. This provides further evidence consumer pent-up demand for travel is being released, after the long shut-downs in travel caused by COVID-19 beginning in 1Q20. The surge in jet-fuel demand was enough to offset yoy declines in gasoline and distillates such as diesel fuel and heating oil of 0.9% and 2.8%, respectively. Gasoline inventories were down 800k barrels yoy, which put them 10% below their five-year average level at the end of the reporting week. Distillate inventories rose 2.6mm barrels, but this still left them 23% below their five-year average. Crude oil inventories in the US including those in the Strategic Petroleum Reserve (SPR), which is being drawn down to provide charging stock to refiners, drew 7.3mm barrels, and stood at 519mm barrels. Versus year-ago levels, crude inventories including the SPR are down 17%. Base Metals: Bullish Copper production in Chile fell 9.8% yoy in April as state-owned copper giant Codelco’s monthly supply fell 6.1% yoy to 116,000 tons. In Peru, protests against mines by displaced communities have seen suspensions in copper mine production, including that of MMG-owned Las Bambas. Although the International Copper Study Group (ICSG) expects a physical surplus for refined copper markets next year, falling production in Chile and civil unrest in Peru continue to plague the rebuilding of stocks (Chart 11). Globally, a risk matrix we reproduced in a report last year showed that approximately 570 million Metric Tons of copper faced a significant ESG risk.9 This increases the risk of new copper projects being stymied by activist groups, and further curtailing future copper production. Precious Metals: Bullish According to data from World Gold Council, gold ETFs faced net outflows in May as the USD and interest rates strengthened, following the Fed rate hikes (Chart 12). In his speech, Fed Governor Christopher Waller explained that by increasing interest rates, the Fed aims to match labor demand to supply and reduce wage growth, which in turn will lower inflation.10 This, however, does not deal with high inflation via the mechanism of elevated food and fuel prices, which will remain high as long as supply disruptions continue in these markets. Chart 11 Chart 12 Footnotes 1 Please see The Institute For The Study Of War for daily updates of the Russia-Ukraine war. 2 Please see Higher Gasoline, Diesel Prices Ahead, which we published last week, for further discussion of the EU’s embargo of Russian oil imports. The EU embargo initially will be on Russian seaborne oil imports, which will tighten global crude oil and refined-product markets further. Pipeline imports are due to phase out by year-end. Cumulatively, this will translate to a 90% decrease in Russian crude and product exports to the EU, representing ~ 3mm b/d of lost sales. Our report is available at ces.bcaresearch.com. 3 Please see Energy Cutoff Continues (GeoRisk Update), published by BCA Research’s Geopolitical Strategy on June 1, 2022. It is available at gps.bcaresearch.com. 4 According to a recent report from Gemeinshcafts Diagnose institution prepared on behalf of Germany’s Federal Ministry of Economics and Climate Protection, if Russia embargos oil and gas to Germany immediately the German economy will fall into a sharp recession. The cumulative loss to macroeconomic output in 2022 and 2023 will amount to 220 billion euros, or more than 6.5% of annual economic output. 5 For more on the risk of rolling lockdowns in China, please see Not The Time To Be A Contrarian, published by BCA’s Emerging Markets Strategy on May 19, 2022. 6 Please see Germany’s Cabinet Moves to Head Off Lawsuits Against LNG Terminals, published by The Maritime Executive on May 11, 2022 7 Please see Germany Closer To Rationing Natgas, which we published on March 31, 2022. 8 Please see Europe at risk of winter energy rationing, energy watchdog warns, published by ft.com on June 8, 2022. 9 Please see Renewables ESG Risk Grows With Demand, which we published on April 29, 2022 10 For the speech, please see Responding to High Inflation with Some Thoughts on a Soft Landing. Investment Views and Themes Recommendations Strategic Recommendations Tactical Trades Trades Closed in 2022