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Investment risks in the field of sustainable development and energy transition

The exploration and production industry

The oil and gas exploration and production industry is subject to instability due to the influence of energy prices, which in turn depend on the global economy and demand. Natural gas markets in North America are more susceptible to regional factors such as the economies of the United States, Canada, and Mexico. With the increase in unconventional drilling, the regulation of these technologies poses an investment risk due to environmental issues associated with drilling practices.

From a regulatory perspective, the industry faces challenges related to wastewater disposal and state and federal drilling regulations. This may lead to additional costs for companies and a decrease in their profits. Moreover, there is a risk of legislative changes that could impact companies’ operations. Despite these risks, the industry remains attractive to investors due to high oil and gas prices. However, successful investment in this industry requires careful risk analysis and readiness for potential changes in legislation and regulation.

The cost of one barrel of Brent crude oil on 12.01.2024 is $78.01.

The natural gas futures price on 12.01.2024 is $3.17.

The oil refining industry

The oil refining market is highly unstable, with revenues heavily dependent on spot prices and current market conditions. The industry is strictly regulated, and unforeseen expenses may arise due to changes in legislation. The chemical industry is contingent upon the global economic situation.

The liquefied natural gas sector

The liquefied natural gas (LNG) sector in the United States faces several key risks, including global demand. Sustaining the growing demand for LNG requires a significant increase in global consumption.

It is anticipated that there will be an increase in demand for gas for power plants; however, there are no guarantees that governments of different countries will be able to achieve their goals of increasing generating capacity. Although the revenues of some companies involved in LNG are not directly tied to commodity prices, their clients are directly affected by the cost of importing LNG from the US compared to spot prices. If spot prices are lower than the cost of import, it could negatively impact clients, and contract fulfillment may be at risk.

The electric vehicle industry

The demand for electric vehicle batteries and charging stations is largely dependent on the electrification of transportation worldwide. If the adoption of electric vehicles slows down due to issues in OEM manufacturers’ production or consumer preferences, it will lead to a contraction in the market for these products and services.

The pace of electric vehicle deployment may be heavily influenced by political decisions, subsidies, and legislative requirements. Stock price reports and financial results may be subject to changes in policy, and forecasts may be complex due to the political nature of the process.

The global economic situation

The global economic situation is a major source of risk, as demand for raw materials is strongly correlated with economic growth. A sharp deterioration in the global economy could significantly impact results. Fluctuations in the cost of raw materials can substantially affect companies’ profitability.

Additionally, there are other threats, including managerial, environmental, regulatory, operational (accidents, incidents, protests, and weather conditions), developmental/technical, currency, and financial risks.

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