Geopolitical crises are forcing the issue, and the era of grid-parity for new energy has arrived ahead of schedule!

Ask AI · How do geopolitical crises reshape global energy security strategy?

Energy security is evolving from a long-term vision into an urgent issue at present, and the ongoing escalation of geopolitical conflicts is forcing the global energy transition to accelerate in the most forceful way.

In its latest report, Huatai Securities points out that the Middle East conflict has nearly disrupted shipping through the Strait of Hormuz, hitting global supplies of crude oil and LNG by 15.6 million barrels per day and 300 million cubic meters per day, respectively—accounting for 34% and 19% of global trade volume. The magnitude of impact exceeds the first two oil crises and the Russia-Ukraine conflict.

Rising oil prices not only amplify the volatility of energy prices, but also elevate energy security to the core position in strategic decision-making for countries. Against this backdrop, the meaning of energy security has been redefined—its essence lies in localization and diversification. And the improvement in electrification levels brought by the energy transition, along with the reduction in import dependence, aligns perfectly with this strategic demand, making it an inevitable choice for countries. The increase in traditional energy prices is accelerating the grid-parity process of new energy; energy transition equals energy security.

For investors, the surge in traditional energy prices is accelerating the grid-parity process of new energy (wind, solar, and storage) and electric vehicles. The new energy sector is expected to break through the ceiling of demand, bringing a twofold improvement in both profitability and valuation. Specifically, lithium batteries and energy storage will become the two main investment themes. Battery leading companies 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: Asia faces dual pressure on oil and gas; Europe is hit first

From the perspective of regional impact, the Asia-Pacific region is the first to be affected. About 75% of crude oil transported through the Strait of Hormuz flows to Asia-Pacific, while only 4% goes to Europe. LNG is even more concentrated: about 83% enters Asia-Pacific, and Europe accounts for just 11%.

More specifically, in some Southeast Asian countries such as Thailand, Pakistan, and Bangladesh, oil and gas account for as much as 40% to 80% of the power generation mix. They are extremely sensitive to external shocks and have relatively low inventories, and are facing a dual crisis of both lack of oil and lack of electricity.

In East Asia, the shortage of gas is more severe than the shortage of oil. In Japan and South Korea, oil accounts for 38% to 41% of energy consumption, while natural gas accounts for 20% to 25%. Of the crude oil imported from the Middle East, the share is as high as 64% to 97%, while natural gas from the Middle East accounts for 10% to 34%. At present, crude oil inventories can still support about six months, but natural gas inventories are at extremely low levels—31 days in Japan and 40 days in South Korea. The impact on gas prices is even more pronounced.

Some Asian countries and Europe, meanwhile, show a pattern of shortage of oil more than shortage of electricity. Countries such as India, Vietnam, and Indonesia are coal-led in their energy mix, so power supply is relatively sufficient. Although Europe has basically shaken off dependence on Russian natural gas and Middle East gas sources account for only 4% of its imports, its dependence on refined oil from the Middle East (24%) is higher than that for crude oil (17%), so the pressure brought by rising oil prices is more prominent.

Oil price surge accelerates electric vehicle penetration across the board

Sustained high oil prices are jointly driving a faster rise in electric vehicle penetration from two dimensions: economics and safety. The reversal in the oil-versus-electricity cost ratio and the growing prominence of physical supply security risks have become the core drivers of the electrification transition.

In Europe’s passenger car market, the shift of the oil-price “center of gravity” upward significantly strengthens the economic advantage of electric vehicles. It is expected that by 2026, EV penetration in Europe will rise to 31%, up 6.4 percentage points year over year, which will drive battery demand of 62.5 GWh.

In China’s commercial vehicle sector, in short-distance, high-frequency scenarios, electric heavy trucks have already achieved grid parity with diesel trucks. The corresponding oil-price break-even range is USD 49 to 65 per barrel. It is expected that by 2026, the electrification rate of China’s commercial vehicles will reach 42.4%, up 15.4 percentage points year over year, and incremental battery demand will be 79.8 GWh.

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

New energy with wind/solar/storage: gas prices transmit to power prices; storage has the strongest elasticity

Natural gas, as the marginal pricing power source for the European and Japan-Korea markets, means that higher prices will directly push up wholesale electricity prices and retail electricity prices. The transmission path is clear: oil prices raise gas prices, gas prices then transmit to wholesale electricity prices, and finally affect retail electricity prices. Based on estimates, if the TTF natural gas price rises by 51%, European wholesale electricity prices will increase by 32%.

In terms of the order of benefits, storage ranks first, followed by solar, then wind, and distributed projects perform better than centralized ones. Looking back at market performance during the Russia-Ukraine conflict, European residential storage installations achieved a fivefold increase within one year.

Japan-Korea solar-and-storage has already reached grid parity. If the crude oil price “center of gravity” rises to USD 100 to 130 per barrel, the return rates of Japan-Korea wind/solar/storage projects will improve by 5 to 22 percentage points. Compared with the peak LNG price in this Asia-Pacific cycle of USD 22.35 per million British thermal units, at 95% utilization rate, the levelized cost of electricity for Japan-Korea solar-and-storage is USD 174 and USD 162 per MWh, respectively—already achieving parity with gas power at USD 175 per MWh. Demand is expected to surge first.

Investment mainline: lithium batteries and energy storage

In its latest report, Huatai Securities points out that high oil prices are accelerating the energy transition process from both the perspectives of economics and security.

The report argues that the threefold growth in overseas passenger vehicles, domestic commercial vehicles, and energy storage demand is driving a resonance upward pattern in the lithium battery sector. As Europe’s Industrial Accelerator Act continues to advance industrial chain localization, battery and structural component companies with overseas capacity layout will be the first to benefit from this supply-side dividend.

The energy storage sector is also seeing significant improvements. Rising energy prices directly increase the investment return of distributed solar-plus-storage projects. In oil- and power-deficit regions such as Southeast Asia, residential and commercial/industrial energy storage demand shows very strong elasticity. In terms of the order of benefits, the residential storage segment’s market conditions will release first, and then gradually transmit to the commercial/industrial and large-scale storage segments.