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CEO Agenda | High-Level Perspectives

Trending Insights | Energy Crisis

The current European energy crisis is rooted in energy transition policies. The Ukraine-Russia trigged the crisis, but the underlying cause is rooted in an energy transition reliant on “fossil fuels to move away from fossil fuels” (renewables needing baseload capacity from fossil fuels). After a decade of underinvestment-around, around one trillion dollars- driven mainly by ESG policies that prioritized renewable energy over firm baseload, capacity constraints in O&G are exposed and will and will be around for a few years.
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Trending Insights | Cheap money, is now expensive

After several years of artificially cheap and abundant, necessarily the pendulum is moving the other way. It has never been that cheap to borrow, and by the same token, real productive annual investment is at the lowest level in a decade. Inflation and relative price increases. In this context, CAPEX and project resource allocation will become more critical than before.
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Trending Insights | Expensive Energy

Most of the time as interest rates go up, commodity and other asset prices go down. However, this time this is not the case as the underlying cause of energy price increases is caused by substantial underinvestment in the fossil fuels industry and is independent of the monetary policy business cycle. Therefore, monetary policy is ineffective to curb price increases in energy and food as these have originated in the O&G supply chain. Expect energy prices to remain high in the years to come. A hedge is key.
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Trending Insights | Supply Chain Stabilization

5. Supply chain stabilization. Even though supply chain costs have been reducing are still far from stabilization. Even if bottlenecks ease, freight costs will remain high and unstable as most of the reduction is due to lower economic activity, not necessarily due to greater efficiencies or logistics improvements. Fuel price increases and overall inflation will make things worse amidst a zero covid policy in China. Expect more upheavals and extremely sensitive costs depending on economic activity.
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Trending Insights | Regionalization

Covid-19, trade sanctions, and energy crises are pushing for supply chain security over efficiency. This will imply governments fostering national supply and even taking over some industries, as well as putting a high emphasis on local and regional supply, nearshoring, and friend sharing to create relevant redundancies for a seamless supply. The deindustrialization of Europe due to impossible energy costs in energy-intensive industries will lead to trade diversion and trade creation. Time to take advantage of the opportunities in a global arena through a regional focus.
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Trending Insights | Strategic Focus

Long-term prospects over the world economy look a little bit “grim”. However, opportunities arise and optimal use of resources in adequate settings will be key. Strategy and mindset need to shift to new realities. One of the challenges is to reduce the exposure to the downside and increase the exposure to the upside of your business and investments. Approaches such as optionality, redundancies, barbell strategies, allowing to fail fast, and effectuation. As well as swarming are alternatives to creating antifragile organizations.
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Trending Insights | The great Attition

“The great attrition” has resulted in a scarcity of talent. Therefore, we are seeing increased labor costs as demand for talent is greater than supply. A structural gap has emerged and is uncorrelated to the overall macroeconomic conditions. Talent is scarce and will remain even more when the economy regains momentum. There is a very specific lack of knowledge. Most 40-year-old finance executives have never dealt in their professional life with positive interest rates or with inflation. Gray hair is needed.
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Read our latest article

Inflation is a “general and sustained increase in the prices of all goods and services” according to the classical economic definition caused by an expansion in the money supply. Changes in relative prices are not inflation. Inflation was caused by stimulus packages financed by monetary expansion in support of an expansionary fiscal policy. The only way to address this is through a restrictive monetary policy with a recessive impact on the global economy. Even though inflation is a monetary phenomenon, relative price increases (such as O&G) are supply and demand driven and uncorrelated to the money supply. Currently, worldwide, we are facing both: inflation and relative price increases (O&G), making the sweet spot more difficult for central banks. A good Pricing needs strategy needs to distinguish and consider both. Read More

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