Geopolitical crises are forcing the arrival of the era of affordable new energy ahead of schedule!

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Energy security is evolving from a long-term vision to an urgent current issue, and the ongoing intensification of geopolitical conflicts is forcefully accelerating the global energy transition.

Huatai Securities points out in its latest report that the current Middle East conflict has led to almost a complete halt in shipping through the Strait of Hormuz, impacting global crude oil and LNG supply by 15.6 million barrels/day and 300 million cubic meters/day, accounting for 34% and 19% of global trade volumes respectively, with the impact exceeding that of the previous two oil crises and the Russia-Ukraine conflict.

High oil prices not only amplify violent fluctuations in energy prices, but also elevate energy security to the core of national strategic decision-making. Against this backdrop, the connotation of energy security is being redefined—its essence lies in localization and diversification, and the increase in electrification and reduction in import dependence brought by energy transition precisely match this strategic demand, making it an inevitable choice for all countries. The rise in traditional energy prices is accelerating the grid parity process for new energy, making energy transition equivalent to energy security.

For investors, the surge in traditional energy prices is accelerating the grid parity process for new energy (wind, solar, and storage) and electric vehicles, giving the new energy sector the chance to break through the ceiling of demand and usher in both profit and valuation upgrades. Specifically, lithium batteries and energy storage will become the two main investment themes. Among them, leading battery enterprises with overseas capacity layout, as well as residential and commercial & industrial energy storage companies, will be the first to benefit from this historic energy transition opportunity.

Energy Shock Transmission: Double Oil and Gas Pressure in Asia, Europe Faces Immediate Impact from Higher Oil Prices

Regionally, the Asia-Pacific is the most affected. About 75% of crude oil transported through the Strait of Hormuz goes to the Asia-Pacific, and only 4% to Europe; LNG is even more concentrated, with about 83% flowing to the Asia-Pacific, while Europe accounts for just 11%.

Specifically, some Southeast Asian countries such as Thailand, Pakistan, and Bangladesh have oil and gas accounting for as much as 40% to 80% of their power generation structure, making them extremely sensitive to external shocks and with low inventories, they are facing a dual crisis of oil and electricity shortages.

East Asia, however, is suffering more from a gas shortage than oil shortage. In Japan and South Korea, oil accounts for 38% to 41% of energy consumption, and natural gas 20% to 25%. Among these, crude oil imports from the Middle East account for as much as 64% to 97%, and natural gas for 10% to 34%. Current crude oil inventories can support about six months, but natural gas stockpiles are extremely low—only 31 days for Japan and 40 days for Korea, so gas prices are even more severely impacted.

Some Asian countries and Europe exhibit more oil shortage than power shortage. India, Vietnam, Indonesia and other countries are coal-dominated and have relatively sufficient electricity supply. Although Europe has basically rid itself of dependence on Russian natural gas, and Middle Eastern gas accounts for only 4% of its imports, it is more reliant on Middle Eastern refined oil (24%) than crude oil (17%). Therefore, the pressure from oil price increases is more prominent.

Soaring Oil Prices Catalyze Comprehensive Acceleration of EV Penetration

The ongoing rise in oil prices is accelerating the penetration of EVs from both economic and security perspectives. The reversal of the oil-electricity cost ratio and the prominent risk of physical energy supply have become the core drivers for the electrification transition.

In the European passenger vehicle market, the upward shift of oil prices has significantly reinforced the economic advantage of EVs. It is expected that by 2026, EV penetration in Europe will rise to 31%, an increase of 6.4 percentage points year-on-year, thereby driving 62.5 GWh of battery demand.

In China's commercial vehicle sector, for short-distance, high-frequency scenarios, electric heavy trucks have already achieved price parity with diesel vehicles, with breakeven oil prices in the range of $49 to $65 per barrel. It is expected that by 2026, the electrification rate in China's commercial vehicle sector will reach 42.4%, up 15.4 percentage points year-on-year, adding 79.8 GWh of battery demand.

In the Asia-Pacific region excluding China, the rise in oil prices combined with physical supply constraints, including driving restrictions and fuel rationing measures, will accelerate electrification progress in Southeast Asia and South Asia. It is expected that by 2026, the electrification rates of Vietnam, Indonesia, India, and Malaysia will rise to 40%, 20%, 10%, and 10% respectively, for a combined additional battery demand of 22.8 GWh.

New Energy Wind/Solar/Storage: Gas Prices Transfer to Electricity Prices, Storage Is Most Flexible

As the marginal pricing source of electricity in Europe, Japan, and Korea, rising natural gas prices will directly drive up wholesale and retail electricity prices. The transmission path is clear: oil prices drive up gas prices, gas prices are then transmitted to wholesale electricity prices, which ultimately affect retail electricity prices. According to estimates, if TTF natural gas prices rise by 51%, European wholesale electricity prices will increase by 32%.

In terms of beneficiaries, energy storage ranks first, photovoltaics second, and wind power third, with distributed projects outperforming centralized ones. Looking back at the market performance during the Russia-Ukraine conflict, European residential energy storage installations grew fivefold in one year.

Photovoltaic-plus-storage has already reached price parity in Japan and Korea. If benchmark crude oil prices rise to $100-$130 a barrel, the IRR of wind/solar/storage projects in Japan and Korea will increase by 5 to 22 percentage points. In comparison with the recent Asia-Pacific LNG price peak of $22.35 per MMBtu, levelized cost of electricity for PV+storage at 95% utilization is $174/MWh in Japan and $162/MWh in Korea, already achieving parity with gas-fired power at $175/MWh. Demand is expected to break out first in these regions.

Investment Focus: Lithium Batteries and Energy Storage

Huatai Securities points out in its latest report that high oil prices are accelerating the energy transition from both economic and security angles.

The report believes the triple growth of overseas passenger car, domestic commercial vehicle, and energy storage demand is forming a coordinated upward trend for the lithium battery sector. With the continuous progress of Europe’s “Industrial Accelerator Act” and the localization of industrial chains, battery and structural component firms with overseas production capacity will be the first to benefit from this supply-side dividend.

The energy storage sector is also witnessing significant improvements. The rise in energy prices directly enhances the investment returns of distributed PV+storage projects. In oil- and power-deficient regions such as Southeast Asia, residential and commercial & industrial energy storage demand shows extremely strong elasticity. Looking at the benefit order, residential storage sentiment will release first, gradually spreading to C&I and large-scale storage.

Risk disclosure and disclaimerThe market has risks; investment needs to be cautious. This article does not constitute personal investment advice, nor does it consider the particular investment goals, financial situation, or requirements of any individual user. Users should determine whether any views, opinions, or conclusions in this article are appropriate for their particular circumstances. Investments are at your own risk. ```