Shorting Oil, Hedging Tesla

[mspohr]

Why you have (probably) already bought your last car
Provocative article.
Why you have (probably) already bought your last car
A growing number of tech analysts are predicting that in less than 20 years we'll all have stopped owning cars, and, what's more, the internal combustion engine will have been consigned to the dustbin of history.

 

[RobStark]

The incremental supply of gas to China is coming by of LNG, also pipelines could bring more imports.

Russia’s Huge Natural Gas Pipeline To China Nearly Complete | OilPrice.com

 

[RobStark]

 

[jhm]

View attachment 342724

It's pretty scary to think that only half of current coal consumption would be reduced by 2050. This is not adequate for limiting climate change.

 

[jhm]

Russia’s Huge Natural Gas Pipeline To China Nearly Complete | OilPrice.com

Gazprom has a 30-year contract with CNPC for the supply of an annual 1.3 trillion cu ft of natural gas via the infrastructure.

This year, Gazprom plans to invest nearly US$3.2 billion (218 billion Russian rubles) in the pipeline project, up from the US$2.3 billion (158.8 billion rubles) investment last year, according to Russia’s TASS news agency.

Thanks!!

Note China consumed 1893 Mtoe of coal last year. 1.3 Tcf of natural gas is 31.2 Mtoe. So this pipeline is only sufficient to replace 1.65% of coal consumption in China. This comes at an infrastructure cost of $3.2B embedded within a 30-year supply contract.

Meanwhile, from 2016 to 2017 non-hydro renewables increased from 81.66 Mtoe to 106.73 Mtoe, net 25.07Mtoe.So this annual growth increment in renewables is nearly at scale with adding this gas line from Russia. Also from 2016 to 2017 natural gas consumption increased from 180.09 Mtoe to 206.74 Mtoe, an increment of 26.65 Mtoe. On relative basis, renewables grew 31%. So if China is able to sustain this rate of growth, the increment will quickly surpass the increments in natural gas. For example, incremental renewables in 2018 could be around 33 Mtoe, then 43 Mtoe in 2019, 57 Mtoe in 2020, and so on.

I think this can give us some perspective on gas a bridge. As incremental renewables outpace incremental gas, gas begins to look less important. Some 25 to 30 Mtoe in gas is still a big deal, but when renewables are adding 50 to 100 Mtoe each year, it becomes clear that renewables are driving the replacement of coal. The story was very different years ago when renewables could only must an increment of 10 Mtoe or so. When that was the case, one could say that renewable just do not have the scale to drive down emissions. Gas was needed just to deal with the problem at a meaningful scale. But in the coming years the scale argument flips. Renewables can deliver at much higher scale than gas, and you start to wonder just how much gas and infrastructure do you really want to lock in for the next 30 years. It looks like China is quite near that tipping point.

But let's go back to the objective of reducing 1893 Mtoe to zero within the span of 20 years. To do that, renewables need to scale to an annual increment of about 100Mtoe, which is about 4 times the scale in 2017. Growing at 31%/y, this will take about 5 more years of scale up. So natural gas can supplement the effort for a while. But once renewables are at a level where is can knock out coal in less than 30 years, it might not make much sense to enter into new 30-year gas supply agreements. So I think China gets to this point about 2020.

Just thinking aloud here, trying to put this pieces together.

 

[Oil4AsphaultOnly]

View attachment 342724

I took that chart and added annual lines just to figure out where the historical figures switch to projections. This is what I got (red line is 2018):

There's a huge decline in US and ROW coal consumption this year that's projected to stay stagnant after 2019? I'm having trouble agreeing with that.

 

[jhm]

CNBC Chats "The Tesla Effect" & Oil Stocks (Video) | CleanTechnica

Ah, the Tesler Effect!

 

[ggies07]

So we know China is moving away from their coal plants, but found this article interesting.

40% Of China's Coal Plants Are Losing Money, Reports Carbon Tracker | CleanTechnica

the method combines satellite imagery with advanced machine learning techniques to estimate the utilization of fossil fuel power plants.

The report shows that, with over 1,000 operating coal plants, 40% of China’s coal-fired power plants are already losing money, a figure which could rise to 95% by 2040.

Carbon Tracker tested its satellite-based modelling techniques in countries where information about coal plant utilization is available and found that it was 91% accurate in the United States and 92% accurate in the European Union.

I didn't understand how the new method worked, so I went and read the actual Carbon Tracker article and it states:

Nowhere to hide: Using satellite imagery to estimate the utilisation of fossil fuel power plants - Carbon Tracker Initiative

Modelling accuracy was strongly influenced by a number of factors, including:

(i) available images due to both cloud cover and satellite revisit rate;
(ii) differences in cooling technology between plants; and
(iii) the size of the plant.

 

[jhm]

China’s Car Sales Slump Amid Sluggish Economy, Trade War | OilPrice.com

Hey, this is pretty fair reporting on EVs and China and Tesla plans therein.

In September, auto sales are down 11.6% while plug-in EVs are up 54.8%. So EVs are gaining 66.4% on market share. YTD plugins are 721k out 20.49M vehicles sold. That is a solid 3.5% market share for plugins. If this continues to grow at 66%, we see 5.8% and 9.7% in the next two years. I'd love to see China end 2020 with 10% EV market share!

 

[jhm]

Bloomberg - Are you a robot?

This is good too.

Shanghai plant, two estimates of capex, Musk $2B for 250k vehicle annual capacity, "person familiar with the plan" $5B for 500k capacity. That's $8k to $10k per annual car capacity. This should be near par with marginal income per Model 3 produced. This looks super easy on the cash flow.

 

[generalenthu]

Looks like the tensions with the Saudis are going to be up for a while. Some strong words from a proxy.

Khashoggi case: Saudi Arabia vows to retaliate against any sanctions - CNN

But in a strongly worded op-ed published later on Sunday, Turki Aldakhil, general manager of the Saudi-owned Al-Arabiya news channel, warned that if the US imposed sanctions on Riyadh "it will stab its own economy to death," cause oil prices to reach as high as $200 a barrel, lead Riyadh to permit a Russian military base in the city of Tabuk and drive the Middle East into the arms of Iran.
"The information circulating within decision-making circles within the kingdom have gone beyond the rosy language used in the statement," Aldakhil wrote, referring to the earlier comment.
"There are simple procedures, that are part of over 30 others, that Riyadh will implement directly, without flinching an eye if sanctions are imposed," he said.

"If US sanctions are imposed on Saudi Arabia, we will be facing an economic disaster that would rock the entire world," he added.
He warned that any sanctions would lead to the kingdom's "failure to commit" to specific levels of oil production and "if the price of oil reaching $80 angered President Trump, no one should rule out the price jumping to $100, or $200, or even double that figure."

I for one wouldn't mind a low triple digit oil. Not too high to derail the economy, but strongly tilting the economics away from oil. The time is right.

 

[SebastianR]

I have no idea what the Saudis are thinking: statements like this will encourage the US to seek sanctions; as otherwise they would look very weak. At the same time, this is a threat that works exactly once this day and age: unlike in the 70s we have alternatives to oil technically feasible and financially viable. Last not least the US is a net oil exporter, I could see other countries be thrown into chaos but not the US...

 

[TheTalkingMule]

The click ticks faster and faster. How long until actual concerted effort is taken to transition off oil in a managed fashion? It's starting to look like peak toleration is about 2 years off, perhaps peak demand gets pushed forward by 18 months.

 

[EVNow]

Looks like the tensions with the Saudis are going to be up for a while. Some strong words from a proxy.

Khashoggi case: Saudi Arabia vows to retaliate against any sanctions - CNN

Ofcourse they'll always point to the Iran boogeyman.

There are a number of things US can do, short of sanctions. First should be to stop refueling Saudi war planes in mid-air that helps them bomb Yemeni civilians. This was a particularly bad failing of Obama administration, continued by Trump.

Khashoggi case also illustrates what happens when POTUS signals that he views journalists as enemies, dictators as great friends.

 

[jhm]

Hawaii to add more than 1GWh of storage as it heads to 100% renewables

Note from this application of replacing diesel generation with stored solar, 1GWh battery capacity can displace 1.14Mb per year, 3116 barrels of diesel per day, and over 5000 cycle life 15.5Mb.

So when I think about oil going to $200/b, I think about Hawaii saving over $250M per year on a 1GWh installation of batteries. The batteries last about 15 years, but breakeven in the first year. This is crazy good ROI.

 

[winfield100]

Hawaii to add more than 1GWh of storage as it heads to 100% renewables

Note from this application of replacing diesel generation with stored solar, 1GWh battery capacity can displace 1.14Mb per year, 3116 barrels of diesel per day, and over 5000 cycle life 15.5Mb.

So when I think about oil going to $200/b, I think about Hawaii saving over $250M per year on a 1GWh installation of batteries. The batteries last about 15 years, but breakeven in the first year. This is crazy good ROI.

When I was wandering all over Kaua'i the last few weeks (no, even if you go up Ma'alo road and turn left at the place, you cannot see or tour the PV/batteries array but KIUC is in Lihue ,) BUT, there were and are a heck of a lot of PV panels every where and a random assortment of local folks said they wanted batteries also

 

[TheTalkingMule]

Please explain to me what is driving oil prices. Saudi Arabia just last week threatened a resource war for the first time since the 70s......Brent is down.

I guess the Saudis actually considering accepting blame for murder might be taken as a macro indication our overlords are loosing power.

 

[jhm]

Are U.S. Oil Exports Really Unstoppable? | OilPrice.com

I suspect one of the more adaptive US responses to Saudi barrel rattling would be to upgrade a few US refiners to use more domestic light crude and less heavy crude, which is principally what the Saudi export to the US. For the Saudis to "weaponize" oil, it exploits US refiner's inability to digest a lighter mix of crude. This makes US refiners dependent on imports of heavy crude from Saudi Arabia. It takes capital investments to do the upgrades needed to reduce this dependency, but there is nothing like a crisis to overcome inertia and motivate the investment.

The basic point we need to be clear on is that the critical step toward US oil independence is primarily in terms of refiner capabilities, not crude production. The US is nearly a net exporter of oil. So the question is whether the US can refine the mix of crude that closer to what is produced in North America.

My suspicion is that cultivating a domestic market for domestic crude is more strategic than cultivating export markets. Once oil has peaked oil exporters will be at greatest risk. The natural response of many countries will be to give priority to their domestic producers and curtail imports as demand declines. Thus, I envision that the crude export market will bear the brunt of declining oil demand. So I don't see how it is robust strategy for US crude producers to be heavily dependent on demand in the export market.

 

[RobStark]

I guess the Saudis actually considering accepting blame for murder might be taken as a macro indication our overlords are loosing power.

They are considering the dog ate my homework excuse.

Rogue KSA agents accidentally killed Khashoggi while using enhanced interrogation techniques.

 

[Off Shore]

They are considering the dog ate my homework excuse.

Rogue KSA agents accidentally killed Khashoggi while using enhanced interrogation techniques.

...and then chopped the body up and carried it out in suitcases.