Why Commodity Prices Are Surging...Digital Consumption and Creativity...Investing $5 Trillion in Hydrogen

[Goldman Sachs]( [BRIEFINGS] February 17, 2022 The Long-term Case for Commodities Despite an environment of slowing economic growth, fading fiscal support and hawkish pivots by central banks, commodity prices across the board — ranging from oil and metals, to grains, corn and soybeans — are surging. The drivers stem from a supply and demand imbalance that’s likely to persist even in the face of slowing economic growth, says Jeff Currie, global head of commodities research in Goldman Sachs Research, on an episode of Exchanges at Goldman Sachs. “We cover 27 commodities that go into the index,” Currie explains to host Allison Nathan. “Every single one of them is in a deficit. Inventory is declining — near critical operating levels. And high, spiky prices with steep levels of backwardation…That is telling you you're out of this stuff.” And there's still room for commodities to move higher, he says, given a lack of capital expenditure that is constraining supply and a long-term structural rise in demand stemming from policies aimed at addressing income inequality, climate change and supply chain resiliency. Such forces are creating an opportune time to invest in commodities, he adds. “I am utterly baffled right now [with] the lack of interest in this space,” Currie says. “Whether it's in the commodity equities, the credit, the actual physical commodities themselves. The only demand that exists in this space is the actual real, physical demand from people who need to use this.” [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Strap%20on%20Your%20Seatbelt%20for%20the%20Commodity%20Boom&body=https%3A%2F%2Fyoutu.be%2FjX_FB7NW_LA) Tech Entrepreneur: Digital Consumption Kills Creativity Above (L to R): Wolfgang Fink of Goldman Sachs and Verena Pausder of Fox & Sheep In an episode of Talks at GS, Verena Pausder, founder of Fox & Sheep, one of the largest developers of children’s apps in Germany, discusses the rise of online learning and the use of technology to improve equity in education. On creativity in the digital age: “I think we all have to turn towards this topic and say digital consumption will kill creativity, and how can we make our children creators of this new world?” On the shift to online education: “At the moment, we do one lesson for 30 kids, regardless of their different learning behavior. And only digital education can solve this because we won’t be able to double up on the number of teachers…what we need is individual learning.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Tech%20Entrepreneur%3A%20Encourage%20Digital%20Creativity%20in%20Kids%2C%20Not%20Consumption&body=https%3A%2F%2Fyoutu.be%2FNXxLhQO6-rA) Briefly...To Reach Net Zero, Invest $5 Trillion in Hydrogen Clean hydrogen has emerged as a critical technology to reach net zero carbon emissions. This is why more than 30 countries have released official hydrogen strategies and road maps to ramp up their hydrogen consumption and develop the required infrastructure. The targets in these strategies show they are poised to increase capacity over 400-fold in this decade, compared with 2020. We spoke with analyst Zoe Clarke in Goldman Sachs Research about green hydrogen, which is produced using renewable energy, and her estimate that $5 trillion of investment is needed in the clean hydrogen supply chain to achieve net zero, as policy, scalability and affordability come together. Which industries do you expect to be most impacted by hydrogen energy in the next three to five years? Zoe Clarke: We believe the clean hydrogen revolution begins in existing end-markets of hydrogen as decarbonization starts to unfold. Today there’s already a demand for more than 75 million tons of hydrogen from industries including refineries, steel and ammonia, methanol and other chemicals manufacturing. As such, we view that the clean hydrogen revolution starts with the existing hydrogen market that needs to be decarbonized, dominating the near-term pipeline of clean hydrogen projects — green steel in particular is also starting to make an entry — before it penetrates new markets, such as heavy-duty long-haul trucking, shipping, aviation, power generation, energy storage and more. $5 trillion is obviously a very big number. Is the financing available to achieve that? Zoe Clarke: We don’t have an explicit, published view on where the $5 trillion can be financed from, yet if we use other technologies as a comparable example, including wind, solar and batteries, such financing has come from a mix of public and private investments. Developing the right policy framework will be critical for the de-risking of the industry and can provide the visibility required to encourage further private investments. Your research shows a substantial number of hydrogen projects coming from Australia, Africa, Europe and Latin America, but relatively few in the pipeline from the U.S. and Asia. Why is that? Zoe Clarke: For Asia the reason is lack of visibility: We do not have the same visibility and corporate disclosure in Asia as we do in Europe with respect to green hydrogen projects and capacity additions. Our projects list comprises all the publicly announced projects from companies across the globe that we could identify and these, for the near-term, appear to be concentrated in Europe, the Middle East, Latin America and Australia. We do expect that there will be projects moving ahead in regions such as China, but we do not have the greatest visibility or plenty of explicit, publicly disclosed announcements from that region. The U.S. is an interesting region and clean hydrogen can be a very important technology to its decarbonization path given the large share of the country’s emissions attributed to transportation, especially long-haul heavy trucks. We therefore view that the U.S. may be an upcoming region from which a lot of the growth comes in the near- and medium-term for clean hydrogen, but the interest so far has been primarily focused on the transport end-market rather than necessarily the broader clean hydrogen economy. For instance, fuel-cell manufacturing has been a technology largely developed by many corporates in the country, yet the electrolyzer technology is only starting to gain momentum in the region. We view that this will change, especially considering the $9.5 billion that has been pledged to develop hydrogen as a clean energy source as part of the U.S. Infrastructure Investments and Jobs Act, which has been passed into law. Nonetheless, if we look at the green hydrogen-dedicated projects, these are primarily concentrated in Europe in the near-term, and in the Middle East, Latin America and Australia in the medium-term. Will high gas prices in Europe accelerate the adoption of hydrogen energy in that region? Zoe Clarke: Absolutely. Higher hydrocarbon prices are acting as a form of implicit carbon pricing, given the lack of global coordination for the development of an explicit carbon pricing market. The environment we currently see in Europe creates a unique dynamic, as a combination of historically high gas prices and high carbon prices make grey hydrogen, or fossil fuel-based hydrogen, relatively uncompetitive compared to green. This dynamic is already tilting the scales towards green hydrogen. Earlier this year, the president of the European Commission, Ursula von der Leyen, stated that due to the rise in gas prices, green hydrogen today can already be at cost parity with grey. If we look at a country level, countries like Germany and the U.K. are accelerating their efforts in the space. Germany is working on providing greater funding availability for green hydrogen projects, and the U.K. has stated its intention to blend 20% hydrogen into the gas grid as early as next year. So clearly the unique environment that we see in Europe at the moment with higher commodity prices and higher carbon prices is making green hydrogen more attractive in comparison. Are technology advances necessary to achieve these forecasts or can this be done with off-the-shelf technology? Zoe Clarke: We can achieve the clean hydrogen revolution we envisage with existing technologies, but we certainly require existing technologies to reduce costs on the back of scale and automation, whilst technological innovation continues to improve the technological offering. There will be new technology entrants in the industry, and the current corporates in the industry are increasingly focused on developing optimized, high-performance technologies that can deliver green hydrogen at a more competitive price. Learn more about Zoe Clarke’s research into hydrogen energy [here](. 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