Zsolt Hernádi: Does anyone need a ventilator?


The whole world was slapped in the face

At the beginning of his presentation, Zsolt Hernádi, president and CEO of the Mol Group, spoke about the political and economic events of the past few months. Regarding current risk management strategies, the company manager quoted Mike Tyson as saying:

Everyone has a plan until they get punched in the face

According to Hernádi, Europe and the whole world was hit hard by the current situation, suddenly a lot of changes happened and are happening, which are difficult to adapt to. Here you can think of the coronavirus, the rise in raw material prices, the unprecedented energy crisis caused by the war and, looking further, the slowdown of globalization, which can be attributed to the emerging bipolar world order led by the USA and China.

“We really enjoyed” globalization and it was impossible to imagine the problems of supply chains before, but along these lines, a an astonishing degree of interdependence has developed years, which was first shaken by the tariff war against China by Donald Trump, who pursues a protectionist economic policy. And after that, Covid arrived, where human lives were at stake, so the sovereignty of the countries came to the fore, and the priority became obviously the need to protect people.

As a result, European countries export food were introduced on various products, as a result of which there were not enough masks, there were not enough ventilators, which led to panic reactions from large companies and national governments, Mol also panicked and bought 70 ventilators

Does anyone need it?

– asked the company manager jokingly, because they don’t really know what to do with the tools anymore. They also relocated one of their factories to a disinfection factory,

and panic reactions like this have shown how vulnerable the global market economy is,

which we imagined to be unbreakable before.

Political decisions override market decisions

Then came the war and getting rid of Russia’s energy dependence came into focus, which is by no means an easy task, as a result of the war, Russia drifted towards China in this new system, and in fact it was formed along these lines

the bipolar world order between the USA and China, which is a serious deglobalization process.

The expert emphasized that this world order is not economic, but it was formed in the course of political decisions and interests and it goes like this

European sanctions determine what we can buy from, US sanctions determine where, what, when and how much American companies can invest.

Political decisions override market decisions – emphasizes Hernádi, as a result of which you can see the various market-influencing interventions. Because of this, according to the company manager, the world as we have known it will not return with continuous GDP growth and inflation around zero.

this world is over

and in an inflationary environment that can be seen now and is expected in the future, many people do not know what and how to do it, the central banks are trying to fight against this by raising the base interest rate, but this change is incredibly fast and for now we are looking for the tools for all of this.

How big is the problem?

Returning to the difficulty of detaching from Russian energy products, Hernádi emphasized again that the energy dependence of European countries for the construction of the energy system of the last 30-40 years is extremely high, and changing all this takes a lot of time and a lot of money. Dependence in numbers: Russian imports as a proportion of total imports

for natural gas, 38 percent, or 160 billion cubic meters, for oil, 27 percent, or 135 million tons of crude oil, and for diesel, 10 percent.

However, the cheap and reliable flow of Russian energy has ended for good, both sides are looking for alternatives, Europe ‘started buying LNG like crazy’ and the Russians deliver more to China – regarding liquefied natural gas, which is widely considered to be an efficient alternative, Hernádi explained that this product, in addition to its extremely high carbon footprint, is currently very expensive, especially if it is imported from far away. All in all, it looks like 35-40 billion cubic meters of natural gas will be missing from the system, Hernádi emphasized:

The problem will not be this winter, as the Russian gas is still coming this year, the problem will be next winter.

As a result of the extremely high energy prices we have seen recently it is not possible to produce competitive goods in Europe according to the Mol leader, especially in industries with high energy intensity. The first manifestations of this are already visible, many nitrogen-based fertilizer factories have already partially stopped production on the continent, but aluminum factories, for example, are also significantly reducing their production, leading players in several industries are reorganizing their activities to the United States, for example, according to Hernádi, as a result of all this

industries will disappear in Europe.

The European Union naturally reacts to the situation primarily by focusing on the protection of the population, for example the German government increased the use of coal-fired power plants, coal imports are increasing in the German economy, and firewood has become the new gold, and official prices and quantity restrictions for energy products are coming next, Hernádi lists the international trends – and the latter

they cause serious problems for supply chains.

To illustrate the situation through a concrete example, Hernádi said that the fuel price freeze actually brought the supply situation to a head at home due to the stoppage of imports, to illustrate the difficulties, he said that if, for example, a problem occurs in a refinery (which happened over the weekend), it was easy to react and eliminate it until now, but now such a problem, which occurs up to 20 times a year, can cause a supply problem and it is by no means a rare event, because neighboring Austria cannot now be asked to “open the tap a little more because part of our capacity just fell out“, because with such domestic fuel prices, they do not deliver here, imports have stopped.

What can be the solution?

According to the expert, three things must be done to resolve the situation and ensure energy security:

  • it must be ensured that there is enough and available energy,
  • billions of dollars must be spent to minimize dependence on Russian energy carriers and
  • it is necessary to continue on the path of the green transition.

In order to do this, must be expanded on the supply side, we must gradually get off gas and diversify, we must give space to renewables, but with the current pace and investments, this goal can only be realized within a very long time. In terms of diversification, the continent is not doing well at all, Hernádi points out; previously said that

WITH REGARD TO HUNGARY, AN ANNUAL GDP IS REQUIRED TO TRANSFER THE ENTIRE ECONOMY TO RENEWABLES,

if we spread this over 30 years, it means 3 percent of GDP per year, which is a very large number.

Meanwhile it will be difficult to get rid of Russia, since the Russian economy is one of the most important producers of the raw materials needed for the green transition. Earlier, Hernádi also emphasized that if Europe does not follow the right path in the coming years, then we will dock on the losing side of the bipolar system, therefore, we have to make our own way and fit into this new system, we have to learn to make the most of it.

In response to a student question, the company manager also gave his opinion on the fuel price freeze in Hungary, which you can read here.

Cover image: Portfolio


Source: Portfolio.hu – Befektetés by www.portfolio.hu.

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