Shorting Oil, Hedging Tesla

[SebastianR]

New EIA International Energy Outlook is out: EIA - International Energy Outlook 2017

Oilprice has a comparison to other projections: China To Dictate Energy Growth In Coming Years | OilPrice.com

One word summary: China

Depending on China the world energy consumption will shift. So far no surprises...

I noted a few interesting bits:
1) Their reference case projects 1.3% growth of oil consumption until 2040 for non-OECD countries + a slight decline in OECD countries
2) EIA seems to think that non-OECD countries are not price sensitive to oil (or at least not a lot): Page 33
3) Even the "high oil price" case does not foresee a dramatic impact on oil consumption
4) I think they have renewables wrong: I think their growth rates are too conservative. (And of course there is past history on this matter)
5) On EVs:

The use of refined petroleum and other liquid fuels in the transportation sector continues to increase through 2040, but their share decreases from 95% to approximately 88% as the use of alternative fuels slowly increases. Motor gasoline, including biofuel additives, remains the primary fuel for transportation, accounting for 36% of the world’s transportation-related energy use in 2040.

This says it all - a pretty useless report in my opinion...

My take: the EIA can't help themselves and while they would of course go back and argue that their reference case is not an actual prediction about the future, this report - once again - demonstrates these guys are pretty fast asleep...

 

[jhm]

The article I read talked about 78,000 wind turbines off shore. Maybe with that scale there maybe some influence.

Link to a thread with a link to the article:

The US Virgin Islands

Very interesting. I think there is a basic opportunity to engineer wind turbines that can battle hurricane winds. At some point you reach a trade off between sustaining damage to wind turbines versus allowing that hazard to batter communities. So you can see it as a sort of crumple zone. You design these wind farms to take the economic hit that would otherwise imperil humans.

I could see here a role for the government to set up a subsidized insurance program for wind farms to replace damaged wind turbines when exposed to high wind speed. The level of subsidizarion could depend on how much protection to down wind communities may be worth. In other words, tax payers fund infrastructure that mitigates the risk of a hurricane, which is nothing new.

 

[GoTslaGo]

Very interesting. I think there is a basic opportunity to engineer wind turbines that can battle hurricane winds. At some point you reach a trade off between sustaining damage to wind turbines versus allowing that hazard to batter communities. So you can see it as a sort of crumple zone. You design these wind farms to take the economic hit that would otherwise imperil humans.

I could see here a role for the government to set up a subsidized insurance program for wind farms to replace damaged wind turbines when exposed to high wind speed. The level of subsidizarion could depend on how much protection to down wind communities may be worth. In other words, tax payers fund infrastructure that mitigates the risk of a hurricane, which is nothing new.

Yes! Like a giant bumper, designed to mitigate damage downwind.

Could encourage the tourism industry (cruise lines) to help with this mega-development.

Caribbean tourism sets new performance records - OneCaribbean.org

30 billion spent by tourists in the Caribbeans for 2016. If large scale off-shore turbines could mitigate Hurricanes, how much more could be earned by the Caribbeans? How much will the Caribbeans have to spend to reconstruct and for the lost tourism revenue this time around? And we're not done yet.

I wonder if the authors of the article/research have looked at setting up the wind farms off the eastern edge of the Caribbeans? IIRC the looked at the farms being along the southern US gulf coast.

 

[dc_h]

Yes! Like a giant bumper, designed to mitigate damage downwind.

Could encourage the tourism industry (cruise lines) to help with this mega-development.

Caribbean tourism sets new performance records - OneCaribbean.org

30 billion spent by tourists in the Caribbeans for 2016. If large scale off-shore turbines could mitigate Hurricanes, how much more could be earned by the Caribbeans? How much will the Caribbeans have to spend to reconstruct and for the lost tourism revenue this time around? And we're not done yet.

I wonder if the authors of the article/research have looked at setting up the wind farms off the eastern edge of the Caribbeans? IIRC the looked at the farms being along the southern US gulf coast.

This is interesting. Island energy would be mostly diesel today. Putting enough turbines to power each island on the windward side could be cost effective and provide some storm relief.

 

[TheTalkingMule]

This is interesting. Island energy would be mostly diesel today. Putting enough turbines to power each island on the windward side could be cost effective and provide some storm relief.

St Croix produces most of the electricity for the USVI and I believe they're fully converted from diesel and oil to propane. Ratepayers were quoted 30% savings vs diesel but lo and behold that never materialized.

In my googling just now I came across an additional 21MW propane plant scheduled to be built in St Thomas for operation in 2018. Pretty ridiculous that an island would still be adding turbine capacity.

Anyone want to take a stab at retail rates in USVI? They're around $.35/kWh and were scheduled to jump to about $.40/kWh. Who knows what they'll be now. Time to make a sharp transition.

 

[SebastianR]

This is an interesting way to look at things: Here is a guy that looks at historic tech disruptions and calculated based on a doubling of EV sales every 15 months, that by 2026 only EVs will be sold:

Google Translate: The end of ICE by 2026

A few pointers: Spiegel is one of the most influential / widely read German new media (aside from tabloids).
This was their leading article all day yesterday. It is still pretty high up on their "most read articles..." section.
The comments tell you a lot about the denial that Germans are in.

On the other hand, I think it give reassurance on the peak oil demand debate: If by 2026 only EVs will be sold, then by the very latest 2026 marks the time we passed peak oil demand. Now, let's give or take a few years - I think peak oil demand will be before 2030 for sure.

Thoughts?

PS: Oh and did I mention he worked at Daimler when he did his calculations?

 

[jhm]

This is an interesting way to look at things: Here is a guy that looks at historic tech disruptions and calculated based on a doubling of EV sales every 15 months, that by 2026 only EVs will be sold:

Google Translate: The end of ICE by 2026

A few pointers: Spiegel is one of the most influential / widely read German new media (aside from tabloids).
This was their leading article all day yesterday. It is still pretty high up on their "most read articles..." section.
The comments tell you a lot about the denial that Germans are in.

On the other hand, I think it give reassurance on the peak oil demand debate: If by 2026 only EVs will be sold, then by the very latest 2026 marks the time we passed peak oil demand. Now, let's give or take a few years - I think peak oil demand will be before 2030 for sure.

Thoughts?

PS: Oh and did I mention he worked at Daimler when he did his calculations?

Wow, doubling every 15 months is blinding fast, 74%/y. While I think we could see that for a few years at stretch, I'm generally much more conservative with doubling every 24 months. (I can't see the article.) Does this analysis include commercial and heavy vehicles or just light vehicles?

 

[SebastianR]

Wow, doubling every 15 months is blinding fast, 74%/y. While I think we could see that for a few years at stretch, I'm generally much more conservative with doubling every 24 months. (I can't see the article.) Does this analysis include commercial and heavy vehicles or just light vehicles?

Sorry, try this link: Google Translate

Or the original here: Zukunft des Autos: "2026 kommt das Aus für den Verbrennungsmotor" - SPIEGEL ONLINE - Auto

This is only cars as far as I understand it.

The key graph is this:

 

[transpondster]

U.S. Diesel, Heating Oil Inventories At Historical Low | OilPrice.com

Here's a piece that runs against my theme of a near diesel peak. We'll see how this plays out.

I have trouble seeing how it is at "historical low"...

 

[jhm]

Sorry, try this link: Google Translate

Or the original here: Zukunft des Autos: "2026 kommt das Aus für den Verbrennungsmotor" - SPIEGEL ONLINE - Auto

This is only cars as far as I understand it.

The key graph is this:

Hey, thanks for trying on the link. I think the problem is on my end with a particular network. I'll try again at home.

The chart is helpful. Separating BEV from PHEV seems to be key. I tend to lump these together which can obscure the dynamics. Notice how PHEVs level off in 2015. Not sure where 2016 PHEV is. But that leveling off could be a combination of cheap gasoline and more competition from BEVs. Thus, BEVs may well be set for 74% annual growth while PHEVs stall out.

I noticed in the China bus data at first HEV did well, then both PHEVs and BEVs took off, and later PHEV and HEVs dropped back as BEVs charged on. So we've seen this kind of competitive dynamic play out before. At some point, the market figures out that if you can plug it in, you replace pricey fuel with cheap power. But then the market realizes that the ICE engine as onboard back up charging is not needed and exposes the owner to maintenance costs which can be avoided. Also as pack costs come down, the incremental cost of more range is cheap with batteries than an ICE. So the value of PHEVs becomes limited to making up for limited charging infrastructure. You carry a backup generator because you don't have better charging options. So I think something along these lines explains why HEVs and PHEVs drop out of competition over time and in that order.

Also the way this analysis is set up, it is not so critical to do both heavy and light EVs. I believe heavy EVs will grow faster than light EVs because the economics are inherently more favorable the more heavily used a battery is. Higher use EVs will advance more quickly than lower use EVs. So when we look at just light EVs, these are predominantly lower use vehicles. So this 74% growth rate is likely an under estimate of what is happening with commercial EVs.

So finally, this author is assuming exponential growth, which does not slow down as EV penetration increases toward saturation. Again to be conservative I like to use a logistic curve instead, which slows down as you reach saturation. This can put the crossing of these two lines, 100% penetration, off by many years. However, the practical importance of this is limited. Even if by 2026 there is some stubborn 10% of market share holding out for more ICE, they is really not consolation prize for ICE makers. That hold out market will be saturated with desperate ICE makers that can't make money on EVs to save their company. Also there will be a lot of used ICE to compete with. So it is hard to imagine making much money in that segment. So the logistic curve may be useful for answering questions about demand for fuel, but for an automaker, that tail market is just not worth fussing over.

 

[jhm]

View attachment 248375
I have trouble seeing how it is at "historical low"...

Hmm, the original Reuters article said low in last THREE years, but the OilPrice.com rehash of this article makes it sound like an all time low! Demerit points for OilPrice.

Excellent catch! It's interesting how the amplitude of seasonal cycles have come down in the last ten years.

 

[neroden]

So finally, this author is assuming exponential growth, which does not slow down as EV penetration increases toward saturation. Again to be conservative I like to use a logistic curve instead, which slows down as you reach saturation. This can put the crossing of these two lines, 100% penetration, off by many years. However, the practical importance of this is limited. Even if by 2026 there is some stubborn 10% of market share holding out for more ICE, they is really not consolation prize for ICE makers. That hold out market will be saturated with desperate ICE makers that can't make money on EVs to save their company. Also there will be a lot of used ICE to compete with. So it is hard to imagine making much money in that segment. So the logistic curve may be useful for answering questions about demand for fuel, but for an automaker, that tail market is just not worth fussing over.

I actually think once the market size gets down to 10% or so, the governmental (and corporate!) bans will start kicking in. Once ICE cars are a small enough percentage of the market, it'll be like the social disapproval of smoking, only ICE cars aren't addictive, so it'll go a lot faster. So I think the tail end will accelerate. There could be some slowdown between 50% and 10%.

 

[jhm]

Many years ago I became a vegetarian. I was motivated mostly by health and environmental concerns. Going into it I was not so concerned about animal welfare or other moral questions. But as I came to see that I really did not need meat, that it was not some sort of existential requirement of my body, my view of the ethics began to change. You see cruelty differently when you understand just how unnecessary it is.

So I think that as more compelling EVs hit the road, our collective view about the necessity of burning fossil fuels will change. As we come to see that it is wholly not need, it becomes more of a cruel and selfish act to continue. So the public may well turn against fossil burning.

 

[gavine]

I actually think once the market size gets down to 10% or so, the governmental (and corporate!) bans will start kicking in. Once ICE cars are a small enough percentage of the market, it'll be like the social disapproval of smoking, only ICE cars aren't addictive, so it'll go a lot faster. So I think the tail end will accelerate. There could be some slowdown between 50% and 10%.

Not to mention the fact that gas stations will be mostly out of business by then so ICE cars will have nowhere to fuel, or at least a very compromised infrastructure. I guess the landscaping industry better start converting to electric then too.

 

[neroden]

I guess the landscaping industry better start converting to electric then too.

Landscaping already should have converted. I think there's a lack of awareness. The electric tools are all there -- even riding mowers, as of this year -- and are better than the gas tools.

 

[gavine]

Landscaping already should have converted. I think there's a lack of awareness. The electric tools are all there -- even riding mowers, as of this year -- and are better than the gas tools.

Agreed. I sent my landscaper a link to a manufacturer who makes commercial-grade electric landscaping gear to open their eyes to the idea. They said they would look-into it. I would love to see them convert. It will give them a cost advantage against their competitors and they might get new customers due to the green (and quiet) aspects. If the Tesla pickup has AC outlets on it, they can have a Tesla pickup towing their trailer and charging their equipment off of the truck's battery. Cool stuff.

 

[ValueAnalyst]

Volkswagen believes Tesla is not a threat and plans to stick with diesel engines

 

[jhm]

Volkswagen believes Tesla is not a threat and plans to stick with diesel engines

Hmm, Tesla sells less than 100k units while VW sells 10M units. VW will sell 1M EV units by 2025, while Tesla will sell 1M by 2020. Tesla will keep growing to sell 8M by 2025, while the rest of the auto industry is at 20% to 30% EV penetration. Yeeeeaaah, VW has nothing to worry about. They can just keep selling the diesels. "We can't compare apples with pears."

 

[ValueAnalyst]

Hmm, Tesla sells less than 100k units while VW sells 10M units. VW will sell 1M EV units by 2025, while Tesla will sell 1M by 2020. Tesla will keep growing to sell 8M by 2025, while the rest of the auto industry is at 20% to 30% EV penetration. Yeeeeaaah, VW has nothing to worry about. They can just keep selling the diesels. "We can't compare apples with pears."

Obviously, we agree on the first part.

It's the second part of the sentence to which I wanted to draw your attention, since IIRC, you estimate diesel demand has already peaked.

 

[ValueAnalyst]

Also - I'm quite confused about the diesel peak call.

EIA data is showing record distillate demand: This Week In Petroleum Distillate Section (graph at the bottom of the page)

What am I missing?