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Shorting Oil, Hedging Tesla

Discussion in 'TSLA Investor Discussions' started by jhm, Mar 15, 2016.

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  1. jhm

    jhm Well-Known Member

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  2. AudubonB

    AudubonB Mild-mannered Moderator Lord Vetinari*

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    There's usually very little short-term correlation between the effectively non-interchangeable products of crude oil and natural gas.
     
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  3. jhm

    jhm Well-Known Member

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    It's not the correlation of gas and oil that concerns me. Rather it is the response to easing of trade tension. That should also be boosting natural gas today. China is a big importer of LNG, while the US is becoming a big exporter. Meanwhile oil from the US was not part of China's tariffs against the US. So not much has changed there, and yet the price goes up. Had gas gone up and oil down that would have been easier to explain that oil up and gas down. But really I think both should respond positively. So I think we may have misattribution here; something else is moving prices today.
     
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  4. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    One of the things I've learned from this thread is that gas production is primarily a byproduct of oil exploration(fracking in the US). Seems the gas market here moves based on the viability of fracking at certain price points for WTI. Prospects for increased oil demand are therefore going to drive gas prices downward, no? When fracking we have gas coming out our ears, when WTI drops below $55.....not so much.
     
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  5. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Right.
     
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  6. mspohr

    mspohr Active Member

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  7. jhm

    jhm Well-Known Member

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    This would make sense, but it seems to more of a long term effect. So maybe traders are thinking that far ahead. You've got several step. Price of oil goes up. US shale ramps up production. Associated gas goes up. Price of gas goes down. This could take a year or more to see this effect play out in physical supplies, but traders could cut to the chase and trade in it today. Plausible, but the futures market is not really looking that far out for current price level.

    One possibility is that the run up of gas prices has simply run its course. The futures curve was expecting $4.5 out 3 more months with a fall to $3 4 months out. So any sort of spook could flatten the futures curve out a bit. Gas is still at $4.3.
    Natural Gas (Henry Hub) Physical Futures
     
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  8. skitown

    skitown Supporting Member

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    Good read, but I believe the author is blind to the fact that EVs are in fact offsetting any growth in oil demand. I think this is @jhm primary thesis. We are in fact likely at peak oil demand and EVs are playing a part.

    "The followers of that religion called economic liberalism will insist with all their strength that what is being observed here is a peak of demand, that old argumentative fallacy that does not agree with the data (who can think that people are stopping to consume oil because they want? Maybe because they have better alternatives? Which ones?)."
     
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  9. mspohr

    mspohr Active Member

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    I think the Spanish article focuses on diesel because it is much more prevalent in Europe.
    The graphs in the article are interesting... all going down.
     
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  10. TheTalkingMule

    TheTalkingMule Distributed Energy Enthusiast

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    Would Qatar leaving OPEC ripple this far away? Doesn't matter for oil, but certainly could drag down our pricing a bit since we're exporting more LNG to the global market and that's setting the price.

    Is there no concern out there for the cost of gas 2 years from now if we're barely fracking? Aren't we adding gas for every coal plant we close? I can't imagine medium term gas supply will be stable if fracking exploration goes to zero in 2021. Gotta haev something to run those peakers.
     
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  11. adiggs

    adiggs Active Member

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    I like to try and remember that these markets and commodities we're talking about are huge in a way that defies human intuition. One thing I use to inform that intuition is the coal market in the US. Coal is definitely into decline (well past peak), yet that still translates to something like 1/4th of primary energy for the US (and something like 99.99% value destruction as measured by market cap of the companies that own coal reserves). Coal is still a huge market and if the market capitalization is revised downward far enough, you still (today) get an economic activity that some are finding worth pursuing (it helps if carbon and pollution 'costs' are externalized by dumping into the atmosphere).

    The relevance here is natural gas is also a tremendously big market. Wells might be fading very quickly, but we're still talking a huge base to start, along with a huge pile of DUCs that represent future production that hasn't been started (sunk costs will make them valuable to bring online, even in a low revenue environment).


    Anyway - my point is that peak oil and/or gas in the next few years is a LONG ways away from natural gas not being mined in the US, or exploration for new sources going to 0 in 3 years.

    I have no 'concerns' (only wishes) that we will be barely fracking (in the US), or that fracking exploration will go to 0.

    Partly because in the US, natural gas is a waste by-product of oil mining (and especially fracking for oil). So natural gas will be mined as a by-product as long as the US is fracking for oil.
     
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  12. dkemme

    dkemme Supporting Member

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    I once asked a fracker what could help them, avoiding natural gas was the answer.
     
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  13. jhm

    jhm Well-Known Member

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    Good catch with Qatar.

    If you look at the futures curve, it is striking just how low prices are 2 years out. I know this is not exactly a prediction, but damn, it's low. You know I've argued that renewable put a cap on gas at around $3/mmBtu, and the futures market pretty much agrees that something will keep it that low.
     
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  14. jhm

    jhm Well-Known Member

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    I can't account for why the authors are so hostile to the peak demand idea, other than some sort of ideological beef with neoliberalism.

    I don't think they have really made their argument in economic terms. One has to look at both price and volume changes to know if a decline in consumption is driven by supply or demand. For the most part, the price of diesel has kept in line with gasoline. So it's not clearly demand or supply shifting. What does seem to be happening is that consumption of residual fuel is declining without an increase in price, so that sounds like low demand for residual fuel. Naturally, refiners would be interested in shift production from a super cheap fuel to a higher value fuel (diesel), which shifting to lighter crude could help accomplish. This does not appear to be a supply constraint. Rather an adjustment to low demand. So if you lump all heavy fuels together, you can show a decline in production. But is this just a response to prices? Could be. The author does not really explain why this is not just a simple response to prices. Invectives against neoliberalism are beside the point.

    Having said all that, as I've pointed out before, we seem to be drifting into a gasoline glut. In a way this would support the author's thesis, but it runs counter to his purpose to raise alarm about peak supply for oil. A gasoline glut is a clear case production advancing faster than consumption. So supply is stronger than demand. I expect that both consumers and producers will react to the price spread of diesel to gasoline. Refiners can try to shift the production mix while consumers can migrate from diesel vehicles to gasoline or alternatives. Is such an adjustment as sign of peak supply or peak demand? Meh.

    You need something more than a shift in product mix to actually force a peak. Gains in vehicle efficiency and vehicle electrification seem to be the real drivers.
     
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  15. jhm

    jhm Well-Known Member

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    BTW, checking BP data for global consumption growth from 2007 to 2017, annualized.

    Total 1.20%
    Gasoline 1.63%
    Diesel/Gasoil 1.20%
    Kerosene/Jet 1.25%
    Fuel Oil -2.13%

    Differences in growth rates do imply shifts in product mix.
     
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  16. jbih

    jbih Member

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  17. jhm

    jhm Well-Known Member

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    This really is important progress. My favorite application of CCS is with bioenergy (BECCS). Bioenergy is carbon neutral, but when you capture some 90% of emissions, you have negative net emissions, plus some fuel based dispatchable energy to help balance out the grid. I suspect the only way that we stay within a 2 degree climate change scenario is to deploy negative emissions technologies such as BECCS. So we need CCS tech to advance rapidly down the cost curve.
     
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  18. mblakele

    mblakele pre-jackpot member

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    Power-to-gas can also benefit, since it uses CO2 as an input. Or looked at one way, P2G is a kind of CCS technology.
     
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  19. ItsNotAboutTheMoney

    ItsNotAboutTheMoney Well-Known Member

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    Not really.

    2H20 + CO2 => CH4 + 2O2

    Then you use it:
    CH4 + 2O2 => 2H2O + CO2

    It's carbon neutral as long as you don't let it escape before you use it.
     
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  20. mblakele

    mblakele pre-jackpot member

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    Right, so you also put P2G CCS where you burn the gas.
     
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