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04 April 2022

Market Round Up

German energy giant E.ON SE has signed a deal with the green energy arm of Australia-based Fortescue Metals Group Ltd to explore shipping green hydrogen to Europe and reduce its dependency on Russian energy. Chair of Fortescue, Andrew Forrest, has set out an ambitious plan in which he has pledged to produce and export the necessary amount of green hydrogen to replace roughly one third of Germany’s gas imports from Russia. Russian gas accounted for 55% of German imports of fuel last year. A new supply of green energy, therefore, aims to substantially reduce Germany’s fossil fuel consumption and its reliance on aristocracies, in which E.ON would distribute the hydrogen to its 50 million customers as a replacement for gas in heating and industrial processes. It is not only Germany that will benefit from the deal as it has the potential to create a massive new employment-intensive industry in Australia, creating new jobs and excelling the country’s economic growth.

Like most investment toward the climate transition, this change will not come without cost; the move to produce five million tonnes of hydrogen will require an estimated US$50bn of expenditure to create enough renewable energy capacity to power a country of equal size to the UK. Fortescue will also need to find a method to liquefy and ship vast volumes of the gas from one side of the globe to the other at an operable price. To produce green hydrogen, it requires renewably powered electrolysers to split water into hydrogen and oxygen, a process entirely free of carbon emissions. This, however, is considerably more expensive to manufacture than the traditional carbon-intensive ‘grey’ hydrogen, which is made from natural gas. Fortescue has not yet started commercial production of the zero-emission fuel despite agreeing billions of Dollars of green hydrogen supply deals over the past year.

The company has, however, started construction of the world’s largest manufacturing facility for electrolysers and its first green hydrogen is expected to be produced in Tasmania by 2024. Russia’s invasion of Ukraine has increased the urgency to expand the provision of hydrogen infrastructure across Europe in the race for large-scale production of green hydrogen. Forrest has insisted that, despite the considerable cost hurdles, Australia’s huge tracts of unused land with plentiful solar and wind resources make it an ideal production location. He is confident that Fortescue will achieve its target of building 200 gigawatts of wind and solar to allow the production of 15 million tonnes of green hydrogen by 2030.

A surge in credit card borrowing has led to UK consumers borrowing a record amount in February, which economists attribute to the rising cost of living. According to data from the Bank of England, individuals borrowed a net £1.5bn on credit cards during the month, pushing total credit card borrowing to £59.5bn, the highest level since records began in 1993. The net increase was more than three times higher than the previous six-month average of £400m, acting to raise total consumer credit a net of £1.9bn – the highest level in five years. Usually, consumer borrowing is a signal of economic growth as it suggests consumers feel more confident to borrow and spend more. Yet with inflation at a 30-year high and consumer confidence consistently falling, the growing burden of debt is increasingly a sign that consumers are attempting to maintain their standard of living. StepChange, a UK debt charity, reported that a rising proportion of the people who were seeking advice are attributing cost of living pressures as their primary reason for debt accumulation. This prompts further concern that low-income households are turning to expensive forms of lending to cope with the rising costs of food, clothing and fuel. Anti-poverty charities have also expressed their fears of the increasing number of families saying that they are being forced to choose between eating and heating, as more shoppers turn to discount supermarkets such as Lidl and Aldi.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
Market Round Up
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