Shorting Oil, Hedging Tesla

[SwTslaGrl]

Will Tesla solar/storage jump on this?

"blockchain will change user behavior and utilities will only be used when prosumers’ demand and supply don’t match"

"Like the network protocols in the early days of the internet, blockchain “will drive dramatic transformation of the energy industry and unlock value” for everyone involved."

As energy markets evolve, blockchain powers up

 

[TheTalkingMule]

There's already a solar block chain up and running in Brooklyn. Maybe Tesla can begin their own nationwide energy blockchain where users can "mine" watt-dollars for every kWh their rooftop produces?

 

[DurandalAI]

Apologies if this has been covered before, but some quick napkin math tells me some of the effect the Model 3 alone will have on oil/gasoline demand...
Once Model 3 production hits 5,000 vehicles a week, multiply that times 50 weeks for 250,000 copies. Average vehicle miles per year is over 13,000 miles a year but we will round to 13,000 miles. That’s 3.25bil miles a year. 2016 CAFE standard is 34.1mi/gal. That’s 95,307,917 gallons of gasoline offset each year. That’s just for the Model 3 alone when producing at 5,000/week. Double it when we hit 10,000/week, and add in 110,000 Model S and X units if you want too.

Average Annual Miles per Driver by Age Group

 

[dc_h]

Apologies if this has been covered before, but some quick napkin math tells me some of the effect the Model 3 alone will have on oil/gasoline demand...
Once Model 3 production hits 5,000 vehicles a week, multiply that times 50 weeks for 250,000 copies. Average vehicle miles per year is over 13,000 miles a year but we will round to 13,000 miles. That’s 3.25bil miles a year. 2016 CAFE standard is 34.1mi/gal. That’s 95,307,917 gallons of gasoline offset each year. That’s just for the Model 3 alone when producing at 5,000/week. Double it when we hit 10,000/week, and add in 110,000 Model S and X units if you want too.

Average Annual Miles per Driver by Age Group

The downside is that this is only 2 million barrels of displacement, and 4 million at 10,000 per month. This is additive, so every year the number doubles, so 250,000 cars this year saves 96 million gallons and another 96 million next year. Next years 500,000 car saves another 192 million gallons, getting up to saving 6 million barrels. You can see you need about 2 million in EV sales to displace one day of USA consumption. Hopefully by 2021 Tesla alone will be selling that many cars.

 

[SebastianR]

We have been focussing on China quite a bit lately. And the scale & determination of China leads me to believe that we will see the most drastic change in oil consumption coming from there. However, India is also starting to get more serious:

These 11 cities in India are getting all-electric 390 buses, 370 taxis, 720 autos and Rs 437 crore subsidy

These numbers may not be that impressive but I think the signal is quite clear. I would say it is about time if India wants to go ICE-free by 2030 but it is a start. And if you consider that these numbers are better than many European countries all I have to say is "good going!"

As 2017 is slowly coming to a close I also would like to extend my deep gratitude to everyone in this thread: THANKS A LOT! I truly enjoyed this year on TMC, too and I particularly liked to read (and maybe here and there also contribute a tiny little bit) to the analysis here. Thanks again and to an oil-free 2018!

 

[Reciprocity]

The downside is that this is only 2 million barrels of displacement, and 4 million at 10,000 per month. This is additive, so every year the number doubles, so 250,000 cars this year saves 96 million gallons and another 96 million next year. Next years 500,000 car saves another 192 million gallons, getting up to saving 6 million barrels. You can see you need about 2 million in EV sales to displace one day of USA consumption. Hopefully by 2021 Tesla alone will be selling that many cars.

Good and bad. It's a huge market for the taking and Tesla is in the lead. 2 million vehicles is 1/365ths? One note to add, a Tesla semi will consume 34x as much electricity. So 100,000 semis is 3.4 million cars, so if 10% of those 2m vehicles by 2020 are semis then it's more equivalent to 5/365ths. Huge market to attack means massive growth potential.

 

[dc_h]

Good and bad. It's a huge market for the taking and Tesla is in the lead. 2 million vehicles is 1/365ths? One note to add, a Tesla semi will consume 34x as much electricity. So 100,000 semis is 3.4 million cars, so if 10% of those 2m vehicles by 2020 are semis then it's more equivalent to 5/365ths. Huge market to attack means massive growth potential.

Article in elektrek about ebuses is Shenen. Interesting that 16000 buses is 345,000 tons of oil, which equals about 2mm barrels. By 2020 the Shenzhen model will be in process of repeating in all China super cities and china will likely start funding exports in Africa and other strategic trading partners. These buses may be more highly utilized than many cities would, but basically every 8 to 10,000 buses displaces 1mm barrels of oil. Semi trucks should be about the same.

10,000 buses = 1mm barrels annually (bpy)
10,000 truck = 1mm bpy
125,000 cars = 1mm bpy

Jhm had a model to estimate how much oil is displaced vs how much new demand is reduced. If 60% of vehicles replace old and 40% are new modeling ev impact gets pretty simple.

1 bus = 12.5 cars = 1 truck
2018 projection
1mm cars + 100,000 buses + 0 buses = 18*.6=10.8mm bpy displaced and 5.2 million in new demand avoided.
2020 cumulative sales
3mm cars + 300,000 buses + 10,000 trucks = (24mm+30mm+2mm)*.6=33.6mm barrels per year

Am I underestimating total ev car sales? Who else is making lots of ev trucks? Hardly bending the needle in 2020, but the numbers start going up much faster after 2020 when the 50% yoy numbers start getting big.

 

[SebastianR]

... and just as I write my post about a few hundred electric buses this one rolls in: Shenzhen shows the world how it’s done, electrifies all public transit with massive fleet of 16,000+ electric buses

16,359 electric buses in Shenzhen + 62% of their taxi fleet (>7500 cars) electric, too.

China is making a dent. I think most people don't realise how fast this is going.

EDIT: Ah, I see I'm late to the party. Thanks @dc_h!

 

[SwTslaGrl]

On BEV trucks and China (I posted this in the semi thread)

The truck market is moving chess pieces around, a future Volvo BEV truck?

"Geely’s expertise in the Chinese market and skills in developing electric and autonomous vehicles should help the truckmaker to expand, although there were no plans to reunite with Volvo Cars, which was split from AB Volvo in 1999.

AB Volvo owns 45 percent of Dongfeng Commercial Vehicles, one of China’s largest truckmakers, and also has a significant construction equipment business in China."

China's Geely turns to Volvo trucks in latest Swedish venture

 

[neroden]

Article in elektrek about ebuses is Shenen. Interesting that 16000 buses is 345,000 tons of oil, which equals about 2mm barrels. By 2020 the Shenzhen model will be in process of repeating in all China super cities and china will likely start funding exports in Africa and other strategic trading partners. These buses may be more highly utilized than many cities would, but basically every 8 to 10,000 buses displaces 1mm barrels of oil. Semi trucks should be about the same.

10,000 buses = 1mm barrels annually (bpy)
10,000 truck = 1mm bpy
125,000 cars = 1mm bpy

Jhm had a model to estimate how much oil is displaced vs how much new demand is reduced. If 60% of vehicles replace old and 40% are new modeling ev impact gets pretty simple.

1 bus = 12.5 cars = 1 truck
2018 projection
1mm cars + 100,000 buses + 0 buses = 18*.6=10.8mm bpy displaced and 5.2 million in new demand avoided.
2020 cumulative sales
3mm cars + 300,000 buses + 10,000 trucks = (24mm+30mm+2mm)*.6=33.6mm barrels per year

Am I underestimating total ev car sales? Who else is making lots of ev trucks? Hardly bending the needle in 2020, but the numbers start going up much faster after 2020 when the 50% yoy numbers start getting big.

I like this. You're underestimating 2018 EV car sales but you have 2020 sales about right.

My model for EV car sales is a simple 40-50% YOY growth model based on the total worldwide plug-in sales as reported by InsideEVs (there are obviously year-to-year fluctuations), but basically we're at 1 million per year in 2017, and should be at 3 million per year in 2020.

I don't have a particularly good model for buses or trucks. I think buses will exceed the growth rate for cars, but I can't get good numbers on *current* electric bus sales! And trucks -- really it's Tesla, BYD, and nobody else, but neither is selling in high volume yet, so I don't have a good projection for when they will. Tesla's reservation numbers may be our best starrting point.

So using your model, in 2020 that year's sales of EVs eliminate about 1/1000 of global oil demand. But I don't trust the 60% factor. I'm going to run with a 100% factor. The interesting question for me, then, is when this number exceeds the growth rate of oil demand from other causes, thus causing dropping oil demand.

If we assume an average 4% YOY growth in the vehicle fleet, it would be 2028.
(4% seems to be a slight overestimate for passenger cars and more so for commercial vehicles, which are more like 3.5%.)
By 2030, the drop in oil demand exceeds the decline rate of the oilfields and it becomes unprofitable to ever drill another well.

This is too late an estimate for many reasons. First is that newer gasmobiles have better mpg than older gasmobiles being retired, which I have completely ignored. Second is that higher-miles-driven-per-year vehicles will be replaced with electric preferentially, frontloading the reduction in oil demand.

Third, I don't know how to estimate the reduction in oil demand from heating, electricity, and & industrial fuel shifts. It is probably substantially less than the shift from transportation but it will pull these dates forward somewhat.

Fourth, I actually don't think my 50% YOY growth model keeps working for the next decade, because at some point capital pours into the electric vehicle business in real volume, and the shift accelerates. This will also pull these dates forward somewhat.

Finally, of course, political policies can have an effect. They tend to "follow the parade" rather than leading it, but we're already seeing them happen, and I predict we'll see more by 2025. I just don't see it taking until 2030 for oil drilling to turn permanently unprofitable; it'll be a few years before that.

 

[jhm]

Apologies if this has been covered before, but some quick napkin math tells me some of the effect the Model 3 alone will have on oil/gasoline demand...
Once Model 3 production hits 5,000 vehicles a week, multiply that times 50 weeks for 250,000 copies. Average vehicle miles per year is over 13,000 miles a year but we will round to 13,000 miles. That’s 3.25bil miles a year. 2016 CAFE standard is 34.1mi/gal. That’s 95,307,917 gallons of gasoline offset each year. That’s just for the Model 3 alone when producing at 5,000/week. Double it when we hit 10,000/week, and add in 110,000 Model S and X units if you want too.

Average Annual Miles per Driver by Age Group

Math seems fine, about 6212 b/d in gasoline displacement from 250k Model 3.

There is a question, though, about what reference mpg to use. Average light vehicle efficiency for the fleet in existence is around 25 mpg. CAFE standards are met to improve that fleet economy as old vehicles are replaced with new ones. The new ones should have a higher efficiency like 34 mpg. So should we compare EVs to CAFE targets for new or the efficiency of the old cars being replaced? One can certainly argue either way, but it is important to understand the caveats this implies. I suspect that oil analysts like to compare EVs with the highest efficiency comparables they can find. This is because it makes the impact of EVs seem small. But if the point is to understand the impact on oil demand, this already misses the loss in demand due to high CAFE standards. Indeed, vehicle miles traveled in the US is already growing at such a small pace that CAFE standards threaten growth in gasoline demand already. In that, soft demand growth context, it really does not take much incremental demand loss to EVs to tip demand into decline. EVs become the proverbial straw that breaks the camel's back.

On the other hand, we may view EVs as a means to fulfill CAFE and other mandates. Thus, EVs help replace old gasmobiles that get worse than 25 mpg efficiency and should get recognized for that full displacement of demand, while other higher efficiency new gasmobiles also displace gas demand as well. The pessimistic view here is that when other OEMs sell EVs, they do so to satisfy their compliance burden. Thus, the average of new ICEV mpg goes up, while EVs satisfy the fleet average. In this case, non-Tesla EVs may do nothing to bring new fleet averages below the mandated levels. EVs simply facilitate selling more gas guzzlers. Even when Tesla is selling regulatory credits to other automakers, this undermines the ability of Tesla to make a difference in excess of mandated levels. So this view is very pessimistic because EV sales must exceed some critical level of scale before making any environmental difference beyond mere compliance.

There is yet a third position that is a bit more optimistic. This view is that EV leadership will spur more competition in fuel economy. Consider Tesla Semi. Tesla thinks they can shave about 25% off the per mile cost of trucking. This is through both a lower cost of fuel and lower cost of maintenance. For diesel trucks to compete, they will have to become more fuel efficient. And the price of diesel may need to fall too. Thus, we may see new diesel trucks become more aerodynamic and have lower roll resistance. The average mpg of new trucks may go up from 6 mpg to say 8 or 9 mpg. If so, would that mean we should compare the fuel replacement of electric semis with 9 mpg rather than 6 mpg? I don't think that would be quite right. To the extent that electric trucks put competitive pressure on diesel trucks to become more energy efficient, this would actually lead to a much bigger impact on oil demand than merely the direct displacement of a few EV trucks.

So personally, I lean toward optimism. I expect that EVs of all sorts will push competitors toward greater fuel efficiency. Just think of all those hybrids that are supposed responses to EVs. This competitive leadership of EVs may in fact be the biggest near term impact of EVs.

 

[SebastianR]

Math seems fine, about 6212 b/d in gasoline displacement from 250k Model 3.

There is a question, though, about what reference mpg to use. Average light vehicle efficiency for the fleet in existence is around 25 mpg. [...] In that, soft demand growth context, it really does not take much incremental demand loss to EVs to tip demand into decline. EVs become the proverbial straw that breaks the camel's back. [1]

On the other hand, we may view EVs as a means to fulfill CAFE and other mandates. [2]

There is yet a third position that is a bit more optimistic. This view is that EV leadership will spur more competition in fuel economy. [3]

Happy New Year - indeed, the question is which of the above it is for what market segment. I think they are all in use right now. I see [1] play out for everything that is replaced by a credible EV (Tesla, Nissan Leaf, the bulk of what is happening in China etc.). My reason is, that folks like Tesla and BYD don't have a reason to get their average fuel economy down. And I think that while Nissan could use the lower fleet consumption, their division is doing something to bring credible EVs to market.

I see [2] as the declared strategy of any hybrid and plug-in hybrid maker (e.g. Porsche, Audi, VW, BMW, Mercedes & Co). In fact, there are many articles that show frustration that people should buy more plug-in hybrids, because otherwise car makers have to pay penalties. I found and interesting (German) article pointing to fuel consumption issues of BMW 7-Series plug-in hybrids: Essentially the politicians complaint to BMW about the very poor electric range of the cars. The 7-Series plug in is clearly just there to cheat European fuel economy standards but does not offer any meaningful electric range / fuel savings otherwise. The answer of BMW was pretty much "we get you are disappointed, but other car makers have huge discrepancies between expected fuel consumption and actual fuel consumption, too".

Elektromobilität: Ministerien beschweren sich über Hybrid-Dienstwagen - SPIEGEL ONLINE - Auto (sorry for German text, use Google translate if need be)

I see [3] only pan out in the Semi / Industrial markets. But I think EVs will come in masses / very quickly as soon as the TOC is proven to be cheaper there. An interesting piece of gossip here is that the CEO of VW publicly asked for an end to the Diesel subsidies, to help the transition to EVs. Naturally this was met with a storm of protest from the ICE fetishists. E.g. this morning the industry association for contractors in Germany released a statement that VW for years sold vans/delivery vehicles/light trucks to companies with the promise of "fuel efficient and environmentally friendly transport". They feel their vehicles will cost too much if the Diesel subsidies in Germany go away.

On a very different note: things like this make my heart all warm and fuzzy:
China stops producing 553 auto models over fuel consumption - Xinhua | English.news.cn
China is stopping the production/sale of some 553 different car models as they consume too much fuel...

 

[jhm]

This is fun.

The Very Hungry Energy Industry – Michael Liebreich – Medium

 

[jhm]

U.S. Expects Domestic Crude Output to Hit Records in 2018, 2019

Things are looking up for US oil producers. The EIA expects US production to reach 10 mb/d in about a month and 11 mb/d around Nov 2019. These levels are significant because they roughly bump US into the second and first positions. Currently, Suadi production is about 10 mb/d and Russia is a little above 11 mb/d.

Will this lower prices? I'm not going to take a position. Clearly OPEC can cut production faster than the US can increase it. So the question is whether Saudi Arabia will quietly accept being bumped into the number 3 position? Would this symbolic demotion hurt prospects for a favorable Aramco IPO valuation?

Dunno. But 2018 will pose new questions. With WTI at about $63/b, this could be a spectacular year for US oil.

 

[TheTalkingMule]

Clearly OPEC can cut production faster than the US can increase it.

Can it?

I don't have any way of knowing if the global oversupply has eased in any meaningful way. We know US commercial inventories are down 100Mb since April, but we also know the Saudis have trimmed their exports to the US by nearly half over this same period. Not to mention we're still sitting on an unprecedented 422Mb stockpile at precisely the the season where stockpiles start to grow again. Is there really any rational reason for oil to be at $62/$67 today?

And what are the prospects of the-organization-formerly-know-as-OPEC holding it together long enough for this IPO to happen? I would say it's 50/50 that assets even get monetized in 2018 and it's 50/50 for all the required parties to continue with production cuts through the summer.

With WTI at about $63/b, this could be a spectacular year for US oil.

The US is going to be quite literally floating in stimulus for the next 2-5 years as we pump like mad and build out renewables at the same time. Imagine if we actually wanted to trim the debt!

I think everyone's getting rich so the ruse is being perpetuated. The Saudis want their IPO, the frackers bought our government, and the Russians just flat out need the revenue. Without an ethical leader in the bunch, who's there to push back? At least this will all speed adoption of renewables.

 

[replicant]

I highly recommend this (frightening) meta-analysis These 'missing charts' may change the way you think about fossil fuel addiction

I can't imagine a scenario where things go right. Even if Tesla gets all the capital and ressources it needs, the situation is deteriorating too fast. I'm a huge Tesla supporter, but the crisis that's bound to happen will disrupt Tesla like any other organization/institution.

At this pace, innovation in EV and solar energy won't cut it.

 

[TheTalkingMule]

Coal is done, oil is going to peak within 5-10 years....all while China and India are ramping up their middle class. I don't know anyone who 8 years ago thought it would be going so well today.

 

[neroden]

The baseline scenario is still total human extinction; that hasn't changed since 2000 when W stole the Presidency from Al Gore.

However, the situation is not as grim as that article suggests. The situation with China and coal is poorly understood by most people, but the bottom line is they really *are* phasing it out. The apparent boom was due to a conflict between the provinces and the central government (the provinces were on the bad side); corrupt provincial governments built a lot of stranded assets, most of which are operating less than half time, essentially to get kickbacks. The central government is now forcing them to shut them down.

Everything You Think You Know About Coal in China Is Wrong - Center for American Progress

Japan's deranged attempt to build more coal plants is a problem, but it seems to be facing serious resistance.

Gas is very tricky to forecast for a multitude of reasons but the bottom line is that gas-for-electricity can be phased out at extreme speed, and will be: the slow part is gas-for-heating, which needs to be phased out on an accelerated basis.

The oil phaseout is definitely slower than I would like but nobody seems to know how to accelerate the 50% per year growth rate of EV adoption by much. China is doing massive amounts to make sure it keeps going at that rate, though.

 

[replicant]

Coal is done, oil is going to peak within 5-10 years....all while China and India are ramping up their middle class. I don't know anyone who 8 years ago thought it would be going so well today.

We might have done more in the past 8 years that expected, but that's next to nothing compared to the challenge. Oil peaking in 5-10 years means that we'll aggravate the situation for years to come. How many decades will it take for gas to peak? For deforestation to stop?

We're losing the permafrost. Fast.

 

[replicant]

The oil phaseout is definitely slower than I would like but nobody seems to know how to accelerate the 50% per year growth rate of EV adoption by much.

At this point, the problem doesn't seem to be with EV or even transportation/logistics, but about our willingness to preserve the biosphere *at GDP expense*. Conflicts of many kinds will delay the transition even further if we don't reduce emissions *now*.

Imagine Tesla in a world with nonfunctioning regulators and global political instability... Don't forget that China and India's middle class aren't rich enough to keep the economic engine running in a global crisis.

I'm not really helping with "Hedging Tesla" here, but although the company is doing a good job, I haven't been so worried about the situation since 2012. Sorry but what Tesla is doing isn't enough: the rest of the industry is doign some PR (expecting bailouts when the next crisis will strike) and investors are still heavily betting on fossil fuel dividends.

I do agree that things are moving in the right direction but just not quick enough. And the more I learn about this, the more I realize that we (the world) don't want to compromise anything about "our way of life" (more energy consumption) unless everybody loses.