The U.S. Adapted… And So Will Europe

All things considered, William Henson had a great day…

Henson only waited 40 minutes to fill up his car. A week earlier, he had waited an hour and a half.

Plus, it could’ve been much worse…

At least Henson didn’t bump his car into another while waiting to buy gas. A man who did that in Norfolk, Virginia, wound up struggling with a hatchet-wielding couple.

In Levittown, Pennsylvania, rioting drivers threw rocks and bottles at police. They set two cars on fire. And they shouted, “More gas! More gas!”

Fights broke out all across the country. Some gas-station owners carried guns for protection. And ultimately, many gas stations needed to invent new “business models”…

Stations in some areas instituted an “odd-even” gas-rationing policy. Drivers could only buy gas if the last digit of their license plate was odd or even, depending on the day.

Other stations tried a three-flag system. Green meant drivers could buy gas. Yellow signaled that the station was rationing gas. And finally, red indicated no gas.

Like it or not, the 1970s oil crisis is a major part of U.S. history. In fact, the National Museum of American History’s collection includes “Red flag from the gasoline shortage of 1973-1974.”

It may seem like a bygone era to today’s youth. But Russia’s invasion of Ukraine earlier this year brought us back to the reality Americans learned in the 1970s…

It’s impossible to escape the economics of the global energy supply.

In short, the U.S. never forgot its oil pains of the 1970s. Five decades later, Europe is learning a similar lesson. And it could lead to big changes in the energy space…

Americans permanently adapted to OPEC’s embargo. The government created a Strategic Petroleum Reserve in 1975. And it introduced fuel-economy standards for automobiles…

Buyers no longer cherished big, gas-guzzling cars. Fuel efficiency became stylish. The now-familiar “miles per gallon” metric rose 81% across the board between 1975 and 1988.

Federal agencies even started researching wind and solar power. But back then, they worried about the oil supply – not climate change. (Concern for climate change is a much more recent thing.)

These days, as you likely know by now, Russia is weaponizing energy. That’s a central part of its fight against Ukraine.

It threatens to stop supplying natural gas to Europe. Or it insists on payment in Russian rubles. (That would reduce the impact of other Western sanctions on the country.)

Folks, this situation is just as serious as OPEC’s 1970s oil embargo…

In 2021, the European Union (“EU”) imported about 40% of its natural gas from Russia. And Germany depends on Russia for 65% of its natural gas.

The EU knew Russia always had the energy weapon. But now, it’s no longer an idle threat. Russia is actively using the global energy supply as a weapon.

Even if Russia and Ukraine made peace tomorrow, that action can never be undone.

As a result, alternative energy sourcing is a new fact of life in the EU. And that’s bullish over the long term for U.S. companies tied to the production and movement of natural gas…

In fact, global energy-oriented consulting firm Wood Mackenzie projects that U.S. exports of liquefied natural gas will double between 2020 and 2040.

And the International Energy Agency realizes that fossil fuels aren’t going away anytime soon. It estimates that gas will account for 46% of the global energy portfolio in 2040.

You might think energy prices have run their course after big gains this year. But history says Russia’s war in Ukraine will have long-lasting repercussions for the energy market.

Ultimately, like the U.S. in the 1970s, the EU won’t forget its current energy pains.

Good investing,

Marc Chaikin

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