Shorting Oil, Hedging Tesla

[jhm]

Portugal runs on 100% renewables for 4 days

Here's a nice little case in point of what happens when a country becomes well supplied with renewables. The logical next step is to electrifying vehicles. Note that Portugal does not have strong transmission assets with which to export surplus renewables as other European states have. So EVs provide an alternative "export" market into the transportation sector.

I've been watching California ISO more closely lately. This month the state has imported about 32% percent of energy it consumes, about 8 GW of imports from other states. Renewables provide about 33% of the state's power consumed. As renewables gain ground in California, we may see the state become a net exporter of power at times of high renewable supply. But at least they have the transmission infrastructure to do this. I suspect as this starts to turn it will be a big moment for EVs across the western US. States that used to supply California will find wholesale power market prices drop rapidly, and there will be an emerging need to find an alternative export market for surplus power.

 

[jhm]

We are rapidly approaching a scenario where massive warfare is the only way out for monied interests.

This is a horrific thought. But one does have to wonder if the attacks of ISIS and other militant groups on oil assets and personnel is already funded by certain oil interests.

 

[neroden]

How long to wean the world off fossil fuels?

It may be worth discussing whether oil producers can get into renewables in a capital efficient way or should focus on returning maximum capital to investors as fossil demand declines.

Total's doing OK by owning most of SunPower. BP was doing OK until they forced Lord Browne out and *sold off all their renewables*. I think basically the problem is that they think of themselves as "oilmen" and *cannot* make the mental shift. They will not get into renewables and they will not return capital to investors. They will continue setting fire to capital through "exploration". Exxon, Chevron, and Shell are *still* engaging in "exploration", remarkably.

I think this is a self-identity, psychology issue. These companies are run by "oilmen". If they were run by cold, unemotional investors they'd behave differently -- if they were diversified conglomerates like Adani Group or Berkshire Hathaway or the former Gulf & Western, they wouldn't have the same *attachment* to the business.

 

[kenliles]

As renewables gain ground in California, we may see the state become a net exporter of power at times of high renewable supply...

Oh the irony...
Home of MGM Studios powering MGM gamblers next door--
all while NV Power sucks wind

 

[Lessmog]

Total's doing OK by owning most of SunPower. BP was doing OK until they forced Lord Browne out and *sold off all their renewables*. I think basically the problem is that they think of themselves as "oilmen" and *cannot* make the mental shift. They will not get into renewables and they will not return capital to investors. They will continue setting fire to capital through "exploration". Exxon, Chevron, and Shell are *still* engaging in "exploration", remarkably.

I think this is a self-identity, psychology issue. These companies are run by "oilmen". If they were run by cold, unemotional investors they'd behave differently -- if they were diversified conglomerates like Adani Group or Berkshire Hathaway or the former Gulf & Western, they wouldn't have the same *attachment* to the business.

Don't know about now, but a few years ago BP used to call itself "beyond" petroleum instead of "British". Hmm.

 

[neroden]

Don't know about now, but a few years ago BP used to call itself "beyond" petroleum instead of "British". Hmm.

Yep, that was under Lord Browne, before they ginned up a sex scandal and forced him out. His successor got rid of all the renewables. Lord Browne really did intend to move the company beyond petroleum, but the corporate culture wouldn't let him do it.

 

[replicant]

Time for a joke. There were oil companies in a car...

 

[neroden]

That was fun, thank you.

 

[jhm]

Oh the irony...
Home of MGM Studios powering MGM gamblers next door--
all while NV Power sucks wind

I didn't really want to go there, but Buffett has ambition of building out solar in Nevada and exporting it to California. I don't really see how this has a sustainable future. Just in the last few months California imports have dropped to about 2 GW around 1 PM. So once the state adds another 2 GW of solar whether utility or rooftop, there's just not much demand left for importing solar from Nevada. Exporting ice to Alaska would make as much sense.

 

[Lessmog]

Or snow to Nevada, for the filologists here ...
No offense to any dope-pushers intended.

 

[neroden]

I didn't really want to go there, but Buffett has ambition of building out solar in Nevada and exporting it to California. I don't really see how this has a sustainable future. Just in the last few months California imports have dropped to about 2 GW around 1 PM. So once the state adds another 2 GW of solar whether utility or rooftop, there's just not much demand left for importing solar from Nevada. Exporting ice to Alaska would make as much sense.

Well, I doubt it would stay in California. Right now California imports power from the Pacific Northwest, but with rising local production in California, those lines will end up carrying power the other direction, northward to the Pacific Northwest. Maybe Buffett hopes to export north? I'm not sure there will be much demand there either, though -- despite the low sunlight they have a *lot* of renewable energy in the PacNW. I think any exports from Nevada would want to go further east.

 

[jhm]

Well, I doubt it would stay in California. Right now California imports power from the Pacific Northwest, but with rising local production in California, those lines will end up carrying power the other direction, northward to the Pacific Northwest. Maybe Buffett hopes to export north? I'm not sure there will be much demand there either, though -- despite the low sunlight they have a *lot* of renewable energy in the PacNW. I think any exports from Nevada would want to go further east.

Right. So my basic thesis is that as California adds solar, there really is no place for it to go economically. So surplus solar needs to "export" into storage to compete in the peak power market or into EVs to compete in the transportation energy market. This makes Tesla the well positioned beneficiary of surplus solar.

Germany is also facing this. German nets about EUR 2B in electricity exports, but they have pretty much tapped out what can be exported. Even France is getting negative spot prices when Germany is oversupplied. So import/export solutions to oversupply have limits. The next step is that Germany needs to seriously embrace electric mobility. They need to create an export pathway into transport energy market.

So I'm hopeful that as different states discover that EVs are key to soaking up surplus renewable energy we will see more supportive policies for EVs and increased sales. Utilities need to view EV charging as an export opportunity. This would be a double win for my Tesla oil hedge: more EVs, less gasoline demand.

 

[jhm]

Is OPEC A U.S. National Security Threat? | OilPrice.com

US shale producers can't hack competition in the real world. So obviously this is a time to call up the US military. WTF?

Or we could just produce so many electric vehicles that OPEC is no longer relevant to anything.

 

[TheTalkingMule]

Imagine someone writing this article 2, 5, 10 years ago. Being 10% invested in oil is now a big financial red flag, how times have changed.

I really hope the global economy doesn't implode, I've got fun plans for the 2020's.

Energy Bet of $459 Billion Seen as Overlooked Risk for Insurers

U.S. insurers are risking financial stability by holding $459 billion of energy-related investments without considering the “broad and deep” threat that climate change poses to the assets, according to an environmental advocacy group.

Ameriprise Financial Inc., Lincoln National Corp. and Voya Financial Inc. have more than 10 percent of their bond investments in the oil and gas sectors, roughly double the median of the industry, Boston-based Ceres said in a report Tuesday. Prudential Financial Inc., with the biggest equity and bond holdings in oil and gas of the 40 insurer groups analyzed, has about 6.3 percent of its bond portfolio in those investments.

Investments in fossil-fuel companies are a “systemic financial risk” as the holdings may decline amid a focus on renewable energy, Ceres said. Sovereign wealth funds and European insurers including France’s Axa SA and Germany’s Allianz SE committed to exiting some coal-related holdings as global leaders step up efforts to limit effects from climate change. Meanwhile, some U.S.-based firms are sticking with the investments, the Ceres report shows.​

 

[neroden]

Imagine someone writing this article 2, 5, 10 years ago. Being 10% invested in oil is now a big financial red flag, how times have changed.

Heh. Yeah. I called this in 2008, but I was waaaaay ahead of the curve apparently.

 

[jhm]

Big Oil struggles with speed of renewable energy transition

This is interesting. Activists shareholders are petitioning big oil companies to get assessments of stranded assets under climate change action and are getting up to 41% of the votes. This is quite near a tipping point. Executives will not get away with claiming that society will need oil and gas for long. Shareholders will divest and next year these sort of initiatives will only get more votes.

This is the sort of thing Rex Tillerson, CEO of ExxonMobile, is spouting:

Tillerson also argued that oil and gas would provide 60 per cent of the world’s energy needs in 2040, and would need to invest trillions to do that.

He said Exxon had invested $US7 billion in green technology, but claimed that the science and technology had not yet achieved the breakthroughs needed to compete with fossil fuels.

“Until we have those, just saying ‘turn the taps off’ is not acceptable to humanity,” he said.“The world is going to have to continue using fossil fuels, whether they like it or not.”

This sort of response is arrogant and paternalistic. It is not Exxon's job to make trillions of dollars in bad investment for oil that the world will not need. It is his job to return capital to shareholders.

I do think it is a bad strategy for big oil shareholders to push these companies into renewable investments. Rather, they should simple demand return of capital in dividends and stock buy backs. Shareholders can better deploy this capital to renewable investment if they so choose. But the key thing is to make sure that these companies do not destroy capital on bad investments that just oversupply the world with oil and gas.

 

[jhm]

What Does Recovery Look Like

I like the four points here.

• Oil prices impact natural gas production and natural gas prices impact oil production.Growth in production volumes of one commodity impacts supply and prices of the other. A higher gas price means operators don’t need as much for their crude barrels to break even, and vice versa.
• The oil markets remain unbalanced. Unless a structural change or "black swan event" effectively takes 2.0 MMb/d out of the market for the long-term, a price comeback in 2016 is unlikely.
• Recent price rallies have been driven by trader speculation, FOREX market dynamics and short-term supply disruptions. The prices have risen too high, too quickly.
• The natural gas market resets every winter; as long as normal winter weather shows up. The U.S. always ends the summer with storage inventories near 4.0 Tcf; prices will do whatever they need to do between now and then to make that happen.

It's very good to see this linkage between oil and gas markets expressed here. They really do impact each other over the long term, specifically the NGL market bridges the two markets.

The next does of reality will come when analysts recognize that wind and solar prices impact demand for natural gas.

 

[jhm]

Rising Oil Prices May Hit Asian Consumers | OilPrice.com

So with oil going above $50/b, will China and India return to subsidizing consumption? I sure hope not. It would be much better to build up an EV industry and renewables.

If there really is a need to subsidizing consumptuon above $60/b, this is a huge weakness in demand. It definitely supports my thesis that developing countries cannot afford oil priced high enough to support growth of oil supplies. That is real economic demand in developing contries does not exist to grow oil production.

 

[renim]

an interesting article by chris cook
http://seekingalpha.com/article/3978490-oil-taking-stock-big-long

 

[neroden]

Big Oil struggles with speed of renewable energy transition

This is interesting. Activists shareholders are petitioning big oil companies to get assessments of stranded assets under climate change action and are getting up to 41% of the votes. This is quite near a tipping point. Executives will not get away with claiming that society will need oil and gas for long. Shareholders will divest and next year these sort of initiatives will only get more votes.

Actually.... think about it for a minute. Divesting and having more votes for the initiatives are *alternatives*. If the investors are patient, there will be more votes for the initiatives next year. If the investors are impatient, there will be massive divestment and the stock prices will start crashing through the floor... but the remaining owners of the stock will be the nuts who think oil & gas has a bright future.