10 things to watch in energy, the budget, and taxes

* BusinessWorld August 22, 2022.
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This week will mark the sixth month of Russia’s invasion of Ukraine, so we review commodity prices as a result of invasion and US-led economic sanctions against Russia. We will also discuss the Philippine government budget for 2023 which is to be submitted to Congress today. Here are 10 things to watch out.

1. Continued high power prices that trigger high inflation.

Last week, the Dutch Title Transfer Facility (TTF), the leading Europe benchmark for wholesale gas prices, reached an all-time high of €245 per megawatt hour (MWH) — 505% higher than it was a year ago. And last week, the UK reported a double-digit inflation rate of 10.1% in July, another 40-year high record. Germany’s overall electricity prices (all in for generation, transmission, distribution, etc.) have been rising from €0.14/kwh in 2000 to €0.24 in 2010, €0.32 in 2020, and €0.41 in 2022.

2. High fertilizer prices, high food prices.

Fertilizers — urea/carbamide, urea ammonium nitrate (UAN), di-ammonium phosphate (DAP), and others — are mainly produced from oil and natural gas. The continued demonization of oil and gas on climate grounds leads to underinvestment and undersupply in fertilizer production, leading to higher fertilizer prices, thus higher agricultural prices for products like potatoes, rice, and corn (See Table 1).

3. Underinvestment in fossil fuels, not the Russian invasion, are drivers of high commodity prices.

The prices of some commodities today are generally similar to their pre-invasion levels — see Dubai and WTI crude, UAN, DAP, potatoes, and so on. Most price hikes occurred even before the invasion on Feb. 24, except for solar and wind price indices which had bubble prices that peaked in January-February 2021, coinciding with US President Joseph Biden entering the White House. The Commodity Research Bureau (CRB) Index, comprising a basket of 19 commodities in energy, agriculture and metals, also exhibited this trend.

4. Degrowth and deindustrialization economics.

The numbers mentioned in Table 1, like 40-year high in UK inflation, are among the indicators of the long-term deindustrialization and degrowth economics of Europe. Very soon many companies there will migrate to Asia, the ASEAN in particular. The Philippines should prepare a wide welcome mat for big foreign investments and ensure that our energy supply is big and prices are competitive....

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