Q1 2022 outlook: Fuelling the energy crisis

Q1 2022 outlook: Fuelling the energy crisis

Steen Jakobsen
Chief Economist & CIO

Executive summary

Our outlook for early 2022 explores the overriding risk of an energy crisis developing this year due to years of underinvestment in mission-critical baseload energy—the fossil fuels and nuclear energy that are still the overwhelming energy inputs into our economy. The climate agenda and focus on reducing CO2 emissions is the right one for the long-term future, but 2022 will be the year in which policymakers discover that the current roadmap toward long-term climate targets is out of touch with reality. Focusing excessively on EVs and the current menu of alternative energy options while neglecting baseload fossil fuel and nuclear will only lead to an energy crisis ahead. Europe is already at the heart of the baseload crisis and will continue to be so in the coming year. The EU will be the first major economic bloc forced to revamp its energy infrastructure and allow natural gas and nuclear back in from the cold.

In equities, we look at the incredible current under-representation of the energy sector in equities, which makes up a meagre 2.7 percent of the S&P 500 market cap at the end of 2021 versus more than 16 percent at their major peak in 2008 and 10 percent in early 1995. We have also drawn up an inspirational list of some 40 companies across the global fossil fuel, nuclear and new energy landscape. We expect the sector to deliver strong returns in coming years, as market valuations are very stretched in most of the sectors that did well last year.

In commodities, a strong focus in 2022, we look not only at the upside potential for oil and gas, but also nearly every industrial metal due to the metal intensity of alternative energy sources, from wind turbines to EV batteries. The underinvestment that has brought us to the current state of weak supply will continue until ESG standards for lending into mining and upstream oil and gas production are softened. Greenflation will persist as a buzzword in 2022 with further uncomfortable inflation in commodities possibly spreading to the major agricultural products as fertiliser prices are set to spike in the next growing season after this winter’s natural gas crisis. Many don’t realise that much of the fertiliser used to increase the crop yields that are our “food baseload” are produced by stripping natural gas atoms of their hydrogen to produce ammonia compounds; so we even “eat” fossil fuels, in a way.

In the fixed-income markets, the focus this year will be on central banks’ increasingly aggressive stance as they lean against the powerful inflationary pressures that worked up a head of steam in the second half of 2021. Yield curves will likely bear flatten, with policy rate hikes raising yields at the front end of the curve while longer yields struggle to keep pace. The latter will be held down by weak long-term real growth prospects. Long-duration bonds and assets will likely struggle in the year ahead. Investor interest in higher-yielding debt will persist. However, as central banks begin catching up with inflation in their policy moves, higher real rates could spark an eventual widening in credit spreads that dent returns for riskier debt.

In currencies, we look at the likelihood that the Fed will be more or less be forced down a path of hiking rates until something breaks down the road. The USD is likely to remain weak as long as the Fed’s perceived “terminal rate” remains anchored around 2 percent, and as long as the pace of the Fed’s rate increases is sufficiently sedate to avoid a liquidity panic. Elsewhere, we note that 2022 kicked off with extreme divergences in JPY weakness and CNY strength that haven’t been seen since China modified its exchange rate regime back in 2015, severely weakening the renminbi. With much of the world tightening while China seeks some form of domestic easing after crackdowns on the tech and property sectors, the divergence points to a softer renminbi.

Explore Saxo’s products

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.