Shorting Oil, Hedging Tesla

[jhm]

What Drives China’s Electric Vehicle Sales? | OilPrice.com

Fleet vehicles are 22.5% of NEV demand in China.

Fleet vehicles have an outsized impact on fuel consumption relative to private vehicles. They simply put on more miles per year. So fleets are in the best position to realize fuel saving value of an EV (be it a bus or car) in the shortest amount of time. An EV bus can offset as much fuel demand as about 20 private autos, and an EV car in ride hailing fleet can offset about 5 times as fuel as a private car. So the fact that as much as 22.5% of NEV are in fleet service is actually rather bad news for oil demand in China. From an oil demand perspective, you want that fraction to grow much smaller.

 

[mspohr]

Renewables Shine, Fossil Fuels Suffer As Australia Swelters In Record Heat | CleanTechnica

The sun doesn’t always shine! The wind doesn’t always blow! There’s never enough renewable energy when you need it most! Only fossil fuels can make the grid reliable! We hear this sort of blather from fossil fuel apologists all the time. But when the mercury soared in Australia recently, it was the fossil fuel powered generating plants that failed to deliver.
“We lost 1,800 MW of power capacity generation in Victoria,“ state energy minister Lily D’Ambrosio said. “That is an extraordinary figure to lose. Essentially most of that was a result of failed infrastructure from coal and gas – in particular coal. The fact is that our thermal generators are ageing, they are becoming less and less reliable. Wind power came through today, it produced sufficient power generation. Our largest batteries were available last night when we needed them the most. Renewable energy is the way of the future and the here and now.

 

[jhm]

Shale Gas Majors Succumb To Wall Street Pressure | OilPrice.com

For years, Wall Street rewarded shale gas companies for their production growth, which was the main metric investors used to gauge future financial prospects. But with so many companies posting very disappointing returns, despite huge production, investors are falling out of love with the growth model.

“Growth is a disease that has plagued the space, and it needs to be cured before the sector can garner long-term investor interest,” Matthew Portillo, director of exploration and production research at Tudor, Pickering, Holt & Co., told the WSJ. “The industry has been under significant shareholder pressure to change the way it allocates capital.”

A similar trend has been underway for some time in the oil industry, with shareholders rewarding companies that are hiking dividends and share buybacks instead of spending more on production growth.

Wind, solar and batteries will look a lot more attractive when gas producer stop trying to undercut them at a loss.

 

[jhm]

Softer U.S. Gasoline Demand Weighs On Oil Prices | OilPrice.com

US gasoline consumption fell 20kb/d in 2018 over prior. Analyst identifies slow traffic growth as drive, but ignores EVs. US bought 361k EVs last year. This is enough to erode about 14kb/d in gasoline demand. I would say EVs are now a material factor in US gasoline demand growth.

The real problem for US gasoline demand is that is becoming more elastic. So as prices go up, driving softens, yes, but demand for EVs goes up too and is presently at a scale that matters. Analysts unfamiliar with EVs will easily misdiagnose the situation. They will be inclined to look at macroeconomic factors or mistake declining vehicle-miles as a cause decline rather than a symptom of decline. We have seen in recent years that when the price of oil declines vehicle miles grow faster. Like with most economic behavior, causality tends to go both ways. This is why demand elasticity is important to have firmly in mind. It is only the assumption of strong demand inelasticity that makes one think that the causality only goes one way, that lower driving causes declines in consumption rather than that higher gas prices also cause a decline in driving. That we are moving into a glut whereby lower gas prices are needed to clear inventory suggests that demand has fallen well below supply. It also means that the industry need demand elasticity to correct the imbalance through increased consumption.

It is also problematic to not that this softening of demand is hitting gasoline heavier than diesel or other oil products. This shift in the demand mix argues against blaming it all on the general economy. Generic drivers of demand should not have a differential impact on specific products. Rather we must look for structural changes that explain why demand of gasoline as a share of all petroleum products may be declining. The EV effect explains that differential nicely since in the US most EVs are cars that substitute for other gasoline burning cars. I wish we had more heavy EVs displacing diesel vehicles, but we don't at this time. So the 14mb/d of motor fuel displacement by EVs in the US is mostly impacting gasoline.

My thesis remains that EVs are driving greater gasoline demand elasticity in the US. This means that the price of gasoline will need to be kept low to balance demand across the barrel of crude. This will be increasingly distressing for refiners as the margin on gasoline will be less favorable.

If my thesis is correct, it means that peak oil demand will have an adverse impact on refiners well before the peak actually arrives. Additionally, producers of light crude are at a disadvantage and may find demand for light crude fall before demand for other crude peaks. A lot of the denial tactics of the oil industry has been to focus on a peak well past 2030 and demand growth for non-motor fuel products. But I think the reality is a differential softening of demand for gasoline creates worrisome economic dislocations well in advance of any clearly discerned peak. These dislocations are happening now, but industry blinders may make this hard to diagnose accurately.

 

[jhm]

Added a few more paragraphs to above post. I accidentally posted before I was done.

 

[mblakele]

US gasoline consumption fell 20kb/d in 2018 over prior. Analyst identifies slow traffic growth as drive, but ignores EVs. US bought 361k EVs last year. This is enough to erode about 14kb/d in gasoline demand. I would say EVs are now a material factor in US gasoline demand growth.

I like your thesis. Devil's advocate: does that ~14-kb/d number account for EVs on the road for less than a full year? An EV sold on 2018-01-01 will displace more 2018 gas consumption than a car sold on 2018-07-01, 2018-08-01, etc. So I'd think 50% or more of the impact from 2018 EV sales would lag into 2019 gas consumption.

If increased numbers of EVs are having a material impact on gas consumption, it might show up in a month-by-month comparison of 2017 and 2018. The largest impact should be in the most recent months.

 

[jhm]

I like your thesis. Devil's advocate: does that ~14-kb/d number account for EVs on the road for less than a full year? An EV sold on 2018-01-01 will displace more 2018 gas consumption than a car sold on 2018-07-01, 2018-08-01, etc. So I'd think 50% or more of the impact from 2018 EV sales would lag into 2019 gas consumption.

If increased numbers of EVs are having a material impact on gas consumption, it might show up in a month-by-month comparison of 2017 and 2018. The largest impact should be in the most recent months.

Yes, that is always a tricky issue when comparing whole years on an impact that bleeds in over the course of the year. The way to wave a hand at this is just to say that EV sales in 2016 are also impacting the annual comparisons. So EVs sold in 2018 are also a proxy for EVs sold in the prior year. The thing that make this hand wave not so satisfying is that the growth in sale from 2017 to 2018 is pretty substantial. Certainly a month by month analysis could fine tune the impact, but would take more time and more granular data. (You want the 12 month average of rolling 12-month EV sales.)

But getting back to my essential point, the scale of EV sales is approaching materiality where 20 kb/d is material. So in this comparison I'm not too concerned about precisely how much EVs explain the 20 kb/d as I am just trying to understand the magnitudes of concern.

 

[ABCTG]

jhm, great post. Analysts should no longer ignore EVs.

I have posted this before and it is a "back of the napkin" estimate.
However something that may have radically changed to affect total gasoline consumption with the number of Tesla 3s on the road is a difference from the previous driving habits of a non Tesla EV owner.

Excluding Tesla S and X, most EVs were local use/commuter vehicles with short predictable routes and low mileage.

Thanks to the Supercharger network the Tesla 3 owner has no range limitations, is able to drive spontaneously almost anywhere in the US. Some may have previously consumed a lot of gas in their BMWs that they traded in.

My estimate shows 15.5 no longer needed Costcos gas stations out of a total 1111 Costco and Sams Clubs combined. A 1.4% decrease in consumption.

With the large number of Tesla 3s that now drive on the road with the same freedom of gas vehicles the decrease in gas consumption may actually be larger.



My back of the napkin estimate;

Based on going once a week and 12.7 gallons per vehicle.

approx. 3000 vehicles per day

approx. 38,000 gallons per day

For every 1312 Teslas (EV) sold, one Costco gas pump dies forever.

For every 21,000 Teslas sold a 16 pump Costco gas station dies.

There are 514 Costco in US

and 597 Sams club

EV sales Costco equiv.

2018 325K 15.5

2017 90K 4.38

2016 70K 3.4

2015 50K 2.43

 

[RobStark]

In the US we should see the effects of EVs displacing gasoline in California first.

Has California Gasoline Demand Peaked? - Stillwater Associates


California Net Taxable Gasoline Gallons Previous Years

https://www.cdtfa.ca.gov/taxes-and-fees/MVF_10_Year_Report.pdf

 

[jhm]

jhm, great post. Analysts should no longer ignore EVs.

I have posted this before and it is a "back of the napkin" estimate.
However something that may have radically changed to affect total gasoline consumption with the number of Tesla 3s on the road is a difference from the previous driving habits of a non Tesla EV owner.

Excluding Tesla S and X, most EVs were local use/commuter vehicles with short predictable routes and low mileage.

Thanks to the Supercharger network the Tesla 3 owner has no range limitations, is able to drive spontaneously almost anywhere in the US. Some may have previously consumed a lot of gas in their BMWs that they traded in.

My estimate shows 15.5 no longer needed Costcos gas stations out of a total 1111 Costco and Sams Clubs combined. A 1.4% decrease in consumption.

With the large number of Tesla 3s that now drive on the road with the same freedom of gas vehicles the decrease in gas consumption may actually be larger.



My back of the napkin estimate;

Based on going once a week and 12.7 gallons per vehicle.

approx. 3000 vehicles per day

approx. 38,000 gallons per day

For every 1312 Teslas (EV) sold, one Costco gas pump dies forever.

For every 21,000 Teslas sold a 16 pump Costco gas station dies.

There are 514 Costco in US

and 597 Sams club

EV sales Costco equiv.

2018 325K 15.5

2017 90K 4.38

2016 70K 3.4

2015 50K 2.43

I think you are raising an important point. The Model 3 is an excellent vehicle for heavy commuters.

Consider a light commuter who travels say just 30 miles per day. Replacing a car with 25 mpg with an EV (one with an 80 mile range may suffice) means that 35 light commuters offset 1 b/d of gasoline demand. Here 35 day/barrel = 25 mpg × 42 gal/barrel ÷ 30 miles/day

But let's consider a heavy commuter who drives 100 miles per day. 10.5 heavy commuters can replace 1 b/d gasoline demand with Tesla range EVs. To comfortably travel 100 miles per day, you really do want range in excess of 200 miles, but even 310 range would be really nice.

So the point here is that long range is key for tapping heavy commuters and getting a bigger fuel offset. If I had to drive over 35k miles per year, I would definitely want a Model 3 LR.

 

[Oil4AsphaultOnly]

In the US we should see the effects of EVs displacing gasoline in California first.

View attachment 373613

Has California Gasoline Demand Peaked? - Stillwater Associates


California Net Taxable Gasoline Gallons Previous Years

View attachment 373614


https://www.cdtfa.ca.gov/taxes-and-fees/MVF_10_Year_Report.pdf

Lovely charts! Too bad it stopped at Jun '18, when model 3 sales were just starting to ramp. Went to the cdtfa.ca.gov site and pulled down the "total" (versus the net in the report) motor vehicle tax receipts for July, Aug, and Sept '18:
July - 1,317,961,038
Aug - 1,362,356,570
Sep - 1,280,820,977

Looks like it's starting to decline (below 2016 consumption).

Edit: I guess we are there!

 

[jhm]

I grabbed monthly data from EIA for PADD 5 West Cost Gasoline Supplied. I rolled it into 12 month periods ending in November (last month available. I've included the annual 12 month change in annual rates. This is all to get a more stable estimate of how much consumption is changing.

Recently the rate of annual growth in consumption peaked in Nov-2015 adding 41 kb/d y/y. Past this year the rate of growth has been declining. Looks like it could cross over into decline over the next year. You can see other periods of decline like around 2008 when oil was priced high and we headed into a recession.There is some price sensitivity here. While the West Coast is at a new peak, it is not that far up from the local peak in 2006. Long term there is not much growth going on here. So easing a tough economy, high gas prices, growing displacement from EVs or any combination of these can take consumption down in the coming years.

12MonthsEnding    Gasoline kb/d    AnnChg kb/d
Nov-1998    1423    45.6
Nov-1999    1432    9.0
Nov-2000    1471    38.7
Nov-2001    1498    26.9
Nov-2002    1565    67.5
Nov-2003    1558    -7.5
Nov-2004    1599    41.5
Nov-2005    1617    17.5
Nov-2006    1638    20.8
Nov-2007    1630    -7.3
Nov-2008    1579    -51.8
Nov-2009    1529    -49.3
Nov-2010    1533    3.9
Nov-2011    1507    -26.0
Nov-2012    1497    -10.5
Nov-2013    1502    5.0
Nov-2014    1534    32.3
Nov-2015    1575    41.0
Nov-2016    1609    34.3
Nov-2017    1631    22.1
Nov-2018    1649    17.3

 

[jhm]

For comparison with this above, here is the whole US.

12MonthsEnding    Gasoline kb/d    AnnChg kb/d
Nov-1998    16890    512
Nov-1999    17178    288
Nov-2000    17425    247
Nov-2001    17623    198
Nov-2002    17430    -193
Nov-2003    17812    382
Nov-2004    18435    623
Nov-2005    18644    209
Nov-2006    18554    -90
Nov-2007    18473    -81
Nov-2008    17582    -891
Nov-2009    16716    -866
Nov-2010    16874    158
Nov-2011    16690    -184
Nov-2012    16229    -461
Nov-2013    16399    170
Nov-2014    16632    233
Nov-2015    16994    362
Nov-2016    17108    114
Nov-2017    17280    172
Nov-2018    17489    209

 

[renim]

a bit of topic, but the global perspectives on DC charging

come 2020, GBT and Chademo will merge into a new standard called ChaoJi China and Japan Push for a Global Charging Standard for EVs

One Ring to rule them all, One Ring to find them,
One Ring to bring them all, and in the darkness bind them,

 

[RobStark]

Globally, GBT is in only one country. China.

Globally, CHAdeMo is only dominant in Japan.

It is possible I suppose South Korea and some Southeast Asian nations could adopt ChaoJi in the future. Europe and North America will not. Latin America and India will not. Doubtful Africa nations adopt ChaoJi but I suppose some may be bullied by China into doing so.

 

[renim]

Globally, GBT is in only one country. China.

Globally, CHAdeMo is only dominant in Japan.

It is possible I suppose South Korea and some Southeast Asian nations could adopt ChaoJi in the future. Europe and North America will not. Latin America and India will not. Doubtful Africa nations adopt ChaoJi but I suppose some may be bullied by China into doing so.

that graphic is a demonstration of economies of scale, no way ever will CCS catch up, it basically demonstrates that CCS will primarily be designed as ChaoJi but locally implemented as CCS. There are long term competitive dis/advantages because of that. Tesla enjoys an advantage, because Tesla SC and GBT are rather similar.

Other than punitive taxation/fees, I'm challenged to think of a more stupid way to slow down vehicle electrification than for governments to pursue the CCS standard.

anyway, a few million here, a few million there, sooner or later it all adds up.

 

[RobStark]

Other than punitive taxation/fees, I'm challenged to think of a more stupid way to slow down vehicle electrification than for governments to pursue the CCS standard.

Doesn't matter how stupid it is. The E.U. and USA will never adopt a Chinese standard.

I will never drive to China, Korea,or Japan

Doubt many Europeans will drive to China,Korea or Japan.

What superchargers are in China and their standard is largely irrelevant to the outside world.

Ramifications for that is India,Latin America, Middle East, and most likely Africa will not adopt Chinese standard. That is more than sufficient economies of scale.

 

[mspohr]

Doesn't matter how stupid it is. The E.U. and USA will never adopt a Chinese standard.

I will never drive to China, Korea,or Japan

Doubt many Europeans will drive to China,Korea or Japan.

What superchargers are in China and their standard is largely irrelevant to the outside world.

Ramifications for that is India,Latin America, Middle East, and most likely Africa will not adopt Chinese standard. That is more than sufficient economies of scale.

Perhaps we could think of this as similar to homologation standards. Each region has its standards and manufacturers tweak their cars to adjust. It's not difficult to install a different connector for each region. Tesla does that now for US, Europe,China. It would be nice if they were all the same but probably not going to happen.

 

[mspohr]

HA!
Call for deal to protect oil and gas sector

Urgent steps are needed to protect Scotland's oil and gas industry, the UK government has been told.

The Scottish Affairs Committee at Westminster said the sector was facing significant challenges.

It has published a report calling on the government to agree a deal to secure the future of the industry.

 

[jbih]

Are oil companies getting locked out of the bond market? - CNN

[...]US oil exploration and production companies, long mainstays of the bond market, have gone missing.

US oil exploration and production companies have issued no bonds since October 5, according to research firm Dealogic. Only a handful of more diversified companies focused on oilfield services and pipelines have sold debt.
[...]
"The high-yield market went into a tailspin," said Mark Howard, senior multi asset specialist at BNP Paribas. "It just wasn't a good time for oil companies to issue debt, even if they wanted to."