Shorting Oil, Hedging Tesla

[Mader Levap]

Ah, clarification: they were KSA and UAE *contracted oil cargos*, that was my point.

Okay. And? Why it is so important? Can't they (SA, Iran, Russia, Armenia, whoever was perpetrator) attack just two random tankers? I mean, they weren't random (I don't think it is accident they attacked Japanese tanker while Japanese dignitaries were visiting Iran), but I do not see why being contracted specifically by KSA and UAE is so important.

They don't own the tankers, but they sure did have means and opportunity. And motive, which Iran lacks.

Iran is rekted by USA sanctions that lately escalated. Will you deny that? It can be disputed that this would be enough to do something as drastic as attacking tankers, but don't pretend they do not have motive.

 

[mspohr]

Actors Allegedly Paid To Support New Orleans Power Plant | OilPrice.com
It's a sad day for natural gas when they have to pay starving actors to support a new natural gas power plant. Entergy denies paying the actors, but more clandestine fossil money is easily behind this. Did someone put Michael Cohen on retainer?

Update on this fiasco
New Orleans City Council must re-consider gas plant
That being said, Entergy does not always get its way, and particularly not today. This morning Judge Piper Griffin of the New Orleans Civil Court ruled that the New Orleans City Council had violated the Open Meetings Law by shutting opponents of a gas plant out of a public meeting, while actors paid by Entergy New Orleans occupied the seats in council chambers.
This means that the New Orleans City Council must reconsider its approval of the gas plant, which it voted 6-1 to approve and has declined to reconsider, even after it was revealed that Entergy New Orleans knowingly hired the actors to fake support for it, and boo solar.
In February, Strategen Consulting prepared an analysis of the costs of battery storage for the site, and found that while batteries would likely represent higher capital costs, that the estimated lifetime levelized cost of electricity from a battery system was much lower than those of the gas peaker plants that Entergy is planning.

 

[dc_h]

Saudi Arabia's governmental collapse is IMO the second most likely cause of a major shove upward in the oil price, after the end of fracking. I still doubt that either side would deliberately stop oil production as happened in Iraq. I don't see any outsider willing to invade Saudi Arabia, so they'll just collapse on their own...

Long term an empire leader in the Middle East is a natural historic reality. This has been limited by Britain previously and now by the USA and Russia. I’m no expert in middle eastern history, but the Ottoman Empire has only been gone for 100 years. It may be in the interest of China to also limit a global power rising in the Middle East, but as long as the historical norm is short circuited, the longer will unrest continue. Saudi Arabia, to me, seems unlikely to survive as a regional power in a post oil economy. It’s cash reserve is not strong enough to survive on and it has not built an infrastructure outside of oil. Turkey does have a complex economy and the Syria crisis is an opportunity for them to expand their border. Iran is Persia and has a manifest destiny of itself over the Middle East. Egypt could be a leader, but seems to defer to Saudi ‘s. Perhaps that changes as Saudi fortunes decline, but Egypt doesn’t seem to have a sense of destiny anymore to rule the region. If they did, they’d probably get Libya under control and provide some big brother support for any government. In the medium term the stable instability of the region will continue until Saudi fortunes fall below 200 or 300 billion and the welfare state ends. The mask of the benevolent dictator will not be sustainable and the state will either adapt or die. They’ve tried adapt already. Each passing year means adapt is less likely, or involves harsh measures.
I think instability is a function of oil based economies and the vacuum of political power in the absence of a clear regional superpower. Ruling oil economies is a lottery ticket to vast wealth and the opportunity to rise up as an entrepreneur is limited by cronyism. Military and political opportunism is the path to wealth and power. That wouldn’t change under a regional empire, but by then oil wealth will be a historic artifact, like logging or railroading.

 

[mspohr]

Climate crisis: aviation industry hears clamour for electric planes

Climate crisis: aviation industry hears clamour for electric planes
The industry will move towards hybrid and electric engines for regional travel (below 1,000 miles) much quicker than many think, according to a report published this week by analysts at investment bank UBS. They predict annual demand for about 550 hybrid planes, using a mixture of fossil fuel and electric power, between 2028 and 2040. This would create a $178bn (£140bn) industry over that time period.

Yet for the larger commercial aircraft which are responsible for the bulk of global emissions, a change from carbon-emitting propulsion systems is still 20 years away, according to Paul Everitt, chief executive of ADS, the UK aerospace group. Emissions from aviation will have to fall less slowly than in other parts of the economy because of the “fundamental reality” of increasing demand and a lack of alternatives, he said.

Those alternatives could include advanced biofuels – those that do not contribute towards deforestation – and “electrofuels” such as synthetic kerosene, which are produced from carbon dioxide in the atmosphere using energy from renewable sources. Alternative fuel sources could be then substituted relatively easily for kerosene – reducing the need for radical adjustment.

 

[jhm]

So currently with Tesla's retail prices, that's $500/kWh capacity or $0.50/W


So the current batteries are half the price.





Well, let's look demand-side. With the new peaker market not yet filled by batteries, producer margins should expand, yes. Once the peaker market is supplied, the retail prices should drop to the $300/kWh capacity level to compete with the transmission market (cutting retail prices, not allowing producer margins to increase). Then further cost cuts should see producer margins increase, since the transmission market is very large and it will take a very long time to displace all of it. Price cuts in transmission may happen but probably not below $0.04/kwh delivered, so the retail battery prices won't go much below $200/kWh capacity for a long time even if production costs drop well below that.

Yep, on the same page. I'd add that the peaker market for new capacity is about 6GW per year. So this creates demand for about 6 GW / 12 GWh of batteries. Depending on the local needs substituting gas peaker capacity for could call for 1 to 4 hours. So an average of 2h for the whole market ought to be in the neighborhood.

Also this, Battery Storage Markets to See Growth Across the Globe

So in 2017 the grid-scale battery market was 1.4 GW and 2.3 GWh. It also looks to be growing at 60% per year. So maybe 2018 saw about 3.7 GWh. (If someone can find better numbers, that would be great!). Maybe 2019 and 2020 come in around 5.9 and 9.4 GWh respectively. So it seems plausible that the battery market could reach 12 GWh by 2021, and at this point the average producer cost should be below $100/kWh. It seems that would be a string enough position for battery demand to jump well beyond the peaker market.

What's out there? Simply pairing a small amount of battery capacity to solar and wind installations is a huge market. Think about adding just 1h of storage per GW of wind and solar, very modest degree of power firming. Wind and solar installation were 140 GW in 2018. Even growing this at a super conservative 10%/y gets to 225 GW by 2023. So I'm not at all worried about batteries exhausting a 225 GWh market opportunity by 2023. Demand would be to more than double every year till 2023 just to get to this scale.

And notice that this amount of capacity would suffice to out another 4million EVs on the road. So the tradeoffs between stationary and automotive markets are pretty substantial. Automotive demand could take a huge bite out of net supply for grid batteries, or vice versa.

But this 1 hour pairing level is really quite modest. Consider a solar farm that achieves 20% capacity factor. That is 4.8 hours of solar power per average day. Storing just 1 hour of this per day still leaves 3.8 hours per average day to be immediately consumed. Longer term we'll be looking at pairing about 2 hours. Reaching a 1TWh market by 2030 is a plausible scenario.

Looking out even further where batteries max out their potential to economically balance the grid, we are looking at 6 to 8 hours of storage at average power consumption. Imagine charging on the cheapest 6 to 8 hours of the day to then discharge at the most expensive 6 to 8 hours of the day. This is about all that is needed to do daily balancing. To do seasonal balancing we're looking at something like 50% to 100% overcapacity of renewables to be curtailed or exported via electrolytes and such. So right now average power demand is about 2.5TW. By 2030 we're looking at around 4 to 5 TW. Thus, we are looking at a cumulative battery install as big as 30 TWh. The replacement burden and modest growth on this would be about 2 to 3 TWh per year.

 

[jhm]

Is it enough to prop up the price of oil?

Total oil production is 18% US, 12% Saudis, 11% Russia, 5% Canada, 5% China, 5% Iraq, 5% Iran, 4% UAE, 3% Brazil, 3% Kuwait, 30% Other.

How many disruptive proxy wars does it take to really keep the price of oil propped up? And for how long?

Having one in Venezuela and one in Libya doesn't seem to be holding the price up much. I guess the Iraqi invasion of Kuwait in the 1990s and the US invasion of Iraq in the 2000s, each of which shut down a meaningful percentage of oil production, managed to prop the price up. But those were both before peak oil demand.

Reduction in oil demand will be eating over 5% of oil demand per year by 2026, so even shutting off Iran's supply would do nothing at that point.

Let's be more specific. To counteract this year's *electric car adoption*, 0.3% of world oil supply needs to go offline. Bloomberg was estimating 3 times as much displacement by buses, so call it 1.2% reduction to balance the market. Next year, there will be an additional 1.7% to displace, and in 2021, an additional 2.5%.

Now, since the oil companes *still* haven't given up on exploratio nor increased production, let's assume steady or increasing supply everywhere else. Then if some idiot starts a war with Iran and shuts down all the Iranian oil wells (unlikely, some would still be produced), the market will rebalance at the end of 2021 at prices even lower than last year's.

Seems like the majority of traders are starting to understand this:

Bloomberg - Are you a robot?

Perhaps the only invasions which could *really* prop the price of oil up would be invasions of the US, Russia, or Saudi Arabia. An invasion or civil war where the oil supply from the US was cut off seems implausible to me, and the same for Russia; I think in any such situation both sides would keep the oil going.

US fracking could go away for financial reasons, though. It appears that the optimal thing for the Saudis is to get the frackers to stop.

Saudi Arabia's governmental collapse is IMO the second most likely cause of a major shove upward in the oil price, after the end of fracking. I still doubt that either side would deliberately stop oil production as happened in Iraq. I don't see any outsider willing to invade Saudi Arabia, so they'll just collapse on their own...

Good thinking here. I think supply disruptions are at best a short term prop. If all of Iran went offline, in just a few years other producers could replace it. It's pretty nasty to contemplate just how much military action would be required to make a serious long lasting impact on supply. And this also suggest a massive military budget on the side of aggressors. So if we war game this out, it looks pretty futile for all involved. But sadly when an regime is facing existential threat, some pretty nasty and ultimately futile things can ensue. Nevertheless, it is good to see just how futile the attempt can be.

 

[ZachF]

Example from media. Gallery of pictures is in middle of article. And someone would thought crew of those tankers would be "witnesses".


Let me google that for you. Incidentally, contrary to Neroden's claims, neither of tankers involved were owned by SA or UAE. One is Japanese, other is Norwegian. So SA wouldn't really be able to "set a few barrels ablaze on deck" anyway.

Those claiming "Iran is least likely one to do it" are hyperbolic to point of silliness. I can imagine literally hundred countries less likely than Iran. Context matters. Sanctions against Iran matter and give possible motive. Iran is also known for threats in reaction to escalating sanctions (though they historically do not act on them).

My stance? I don't trust anyone involved there.

The Saudi, Israeli, and Defense lobbies are all screaming from the rooftops to "do something" now, but thankfully it seems no one from really any side of the political isle is buying what they're selling anymore.

 

[neroden]

For historical perspective, coal peaked in 2015/16 and all coal companies were dead before it even happened.

Good point. But the wave of bankruptcy filings didn't actually occur until 2017-2018.

I'm calling the first major uprising in SA for next spring. A nice 10 months of sub-$55 Brent should do it.

Daring call.

I figure inertia means it takes longer. There might be uprisings before then, but if I had to pick a year, I'd guess 2025 for the collapse of the government.

 

[neroden]

Okay. And? Why it is so important? Can't they (SA, Iran, Russia, Armenia, whoever was perpetrator) attack just two random tankers? I mean, they weren't random (I don't think it is accident they attacked Japanese tanker while Japanese dignitaries were visiting Iran), but I do not see why being contracted specifically by KSA and UAE is so important.


Iran is rekted by USA sanctions that lately escalated. Will you deny that? It can be disputed that this would be enough to do something as drastic as attacking tankers, but don't pretend they do not have motive.

Iran doesn't have motive.

Motive means "doing this would help Iran in some way". Cui bono. I don't see how random tanker attacks help Iran in any way.

If Iran were run by stupid people, the way Israel and the US are run by stupid people, I might believe this argument, but Iran is run by smart people.

If attacking the tankers would cause US sanctions to be lifted, then Iran would have a motive, but it doesn't.

 

[RobStark]

America's renewable energy capacity is now greater than coal - CNN

 

[RobStark]

Iran doesn't have motive.

Motive means "doing this would help Iran in some way". Cui bono. I don't see how random tanker attacks help Iran in any way.

If Iran were run by stupid people, the way Israel and the US are run by stupid people, I might believe this argument, but Iran is run by smart people.

If attacking the tankers would cause US sanctions to be lifted, then Iran would have a motive, but it doesn't.

Iran is runned by bat *sugar* crazy religious fanatics.

That is why Iran GDP per capita is ~$5500 while Israel is ~$40k per capita.

Because Israel is runned by smart people.

Iranian leaders make bat *sugar* crazy religious messianic rantings at the United Nations.

Raising the price of oil is in Iran's interest.

Stopping Sunni oil from exiting the straits of hormuz could very much be Iran flexing their muscles.

Iran denying they blew up tankers immediately doesn't mean they didn't do it.

 

[TheTalkingMule]

Stopping Sunni oil from exiting the straits of hormuz could very much be Iran flexing their muscles.

You don't "flex your muscles" by doing exactly what your enemies want.

Iran denying they blew up tankers immediately doesn't mean they didn't do it.

Sound logic.

Why now? The day after Brent hits $61, inventories rise, and the benchmark is clearly headed to $50? None of that matters to Iran 1/100th as much as it does to SA(and US).

 

[Mader Levap]

Iran doesn't have motive.

It has motive to do something, anything about sanctions. They are crippling and escalating. If realistic and rational solutions are out, desperation will point other "solutions". Like senseless attacks on tankers.

If Iran were run by stupid people, the way Israel and the US are run by stupid people, I might believe this argument, but Iran is run by smart people.

I would be inclined to believe you sliiightly more than RobStark, but you already said some things in past that I consider silly (like whole immigration thing), so.

Why you have such good opinion about Iran leaders and bad about Israel leaders* anyway? I hope it is not done by "is it friendly to USA" criteria.

* Though I will agree certain policies of Israel are extremely doubtful. But that's neither here nor there.

 

[Doggydogworld]

So this creates demand for about 6 GW / 12 GWh of batteries.

Two hour grid battery systems aren't $0.30/W, though. More like a buck per watt today. And most are 4 hour systems, at 1.80/W.

A large EV fleet connected to smart chargers can provide these same grid services for a fraction of the cost. We just need to build EVs a lot faster.

 

[mspohr]

Two hour grid battery systems aren't $0.30/W, though. More like a buck per watt today. And most are 4 hour systems, at 1.80/W.

A large EV fleet connected to smart chargers can provide these same grid services for a fraction of the cost. We just need to build EVs a lot faster.

Watt or Watt Hour?

 

[Doggydogworld]

Watt or Watt Hour?

Per Watt. @jhm is comparing capex required per watt of peaking power. A NG turbine costs around $800k/MW or 80 cents/W. He gave the example of a 1 hour battery system that costs $300/kWh. If you could buy such a system at that price, it would be 30 cents/W of peaking power, much less than NG. 1 hour grid batteries currently cost about twice that much, though (e.g. Tesla's famous system in Australia had a one hour portion which drove overall cost well above $500/kWh. That's still cheaper than the NG plant, but a single hour of peaking power is not all that useful. 4 hour systems are the norm. They run about 450/kWh, which comes to 1.80/W. That's double NG's upfront cost. And the NG plant is more flexible, e.g. can run more than 4 hours if needed.

The full cost/benefit equation is complicated and can't be reduced to a single number. You have to compare NG+fuel+O&M vs. Battery+whatever you use to charge it. And the competition isn't really new NG peakers - it seems we already have plenty which are becoming obsolete as more efficient combined cycle NG plants gain fast-response capability.

 

[jhm]

https://paa.confex.com/paa/2017/mediafile/ExtendedAbstract/Paper15302/PAA%20Abstract%20Draft_v3.pdf

Does closing a power plant hurt the local community? Well, maybe not. Prior research has found that the opening of a power plant tends to have a negative impact on home prices nearest to the plant, inspite of the promise of new jobs. Poorer air quality and negative health impacts for a disamenity that discourages homebuyers, renters (and quite possibly business owners) from locating in impacted neighborhoods. So if the opening a power plant can reduce the desirability of local housing, can the closure of such a plant lead to a recovery of home values.

These authors show that it does. Specifically they find and incrementa 8.4% jump in home prices.

This is very promising. Home prices are a very good proxy for the desirability of living in a particular area. Job creation, local investment and reductions in health hazards all feed into home valuations. So a jump in home prices like this signal that a neighborhood has become more desirable along many dimensions.

Often political resistance to closing a plant is focused on certain jobs lost. However, the number of jobs lost may be a small portion of what drives lower home prices and the prospects for new job creation can more than compensate. Imagine for example the home renovation jobs that follow immediately upon an 8.4% boost to home prices. That may just be a short term impact, but it does set the stage for more broad based job creation. All in all closing the local power plant may be the best thing that has happened to a smokestack blighted local economy in a very long time.

 

[jhm]

Two hour grid battery systems aren't $0.30/W, though. More like a buck per watt today. And most are 4 hour systems, at 1.80/W.

A large EV fleet connected to smart chargers can provide these same grid services for a fraction of the cost. We just need to build EVs a lot faster.

I'm not really advocating for stand alone battery peakers, not when there are many other advantages to pairing storage with solar and wind.

The cheapest way to a Watt or Wh of peak power is to pair it with solar. For example, you have no incremental interconnection cost or even need extra inverter capacity. You simply leverage the connection and inverter that the solar plant must already have. So if you pair just 1Wh of battery to 1W of solar capacity, you still have the ability to compete directly to supply peak power. The 6GW market for gas peakers largely gets wiped out when solar and wind are pairing some 12GWh of batteries.

In comparison with this sort of pairing, stand alone battery peakers with 4 hours just don't seem to be the better value at this point. I do think that the utility industry is fairly slow on the uptake here. They have a strong predilection for capital expensive solutions over less capital intensive alternatives. I think this is largely why the option of batteries paired with solar or wind, a more capital efficient choice, does not register immediately in their minds as a direct competitor to gas peakers. Somehow a stand alone battery peaker feels more like a gas peaker analog in their imagination. In the short run a bidirectional inverter may give the utility more flexibility than paired batteries. But once you have a critical level of that for ancillary markets, the paired batteries will be just fine. So pushing out to a 12GWh market, I think we the bulk of this paired with VRE. Also by the time paired batteries has killed the 6GW market for gas peakers, paired batteries will be addressing a market that is 10 to 20 times as large as 12GWh.

Adaptive EV charging is also a huge low capital intensity solution as you point out. But it runs contrary to the perverse incentive that utilities have to build up the asset sheet so they may be allowed to earn more regulated income. So it absolutely is the best deal for the public, but utilities will resist it every step of the way. Sigh.

 

[TheTalkingMule]

Hesitant to drift further OT, but you guys bring up an interesting topic.

We have a relatively new "Energy Authority" in Philadelphia that sits in City Hall advocating and planning of behalf of the City, it's businesses, and residents. They've in very short order put some real muscle behind residential solar and have e en signed a PPA to get 22% of city power from a new solar farm.

As we move into EVs I see a HUGE opportunity for this group to push poverty alleviation and mobility through some kind of public charging scheme. Keep your car plugged into the Philadelphia smart charging system and as overflow hits the grid at peak(or overnight), your car will "fuel up" for free.

I've been to a bunch of PEA meetings and this is precisely the kind of move they'll make once it's appropriate. Especially as we're a massive impoverished city in a fracking state with a GOP led puppet legislature. Local govts can identify and act on these opportunities way faster than individual consumers can figure it out and gain momentum.

I'm very excited for individuals to become a valuable battery resource for the grid. Just think of all the money we could keep in Philadelphia rather than leeched out to Exelon and Texas fracking companies.

 

[Doggydogworld]

I'm not really advocating for stand alone battery peakers, not when there are many other advantages to pairing storage with solar and wind.

The cheapest way to a Watt or Wh of peak power is to pair it with solar. For example, you have no incremental interconnection cost or even need extra inverter capacity. You simply leverage the connection and inverter that the solar plant must already have. So if you pair just 1Wh of battery to 1W of solar capacity, you still have the ability to compete directly to supply peak power. The 6GW market for gas peakers largely gets wiped out when solar and wind are pairing some 12GWh of batteries.

In comparison with this sort of pairing, stand alone battery peakers with 4 hours just don't seem to be the better value at this point. I do think that the utility industry is fairly slow on the uptake here. They have a strong predilection for capital expensive solutions over less capital intensive alternatives. I think this is largely why the option of batteries paired with solar or wind, a more capital efficient choice, does not register immediately in their minds as a direct competitor to gas peakers. Somehow a stand alone battery peaker feels more like a gas peaker analog in their imagination. In the short run a bidirectional inverter may give the utility more flexibility than paired batteries. But once you have a critical level of that for ancillary markets, the paired batteries will be just fine. So pushing out to a 12GWh market, I think we the bulk of this paired with VRE. Also by the time paired batteries has killed the 6GW market for gas peakers, paired batteries will be addressing a market that is 10 to 20 times as large as 12GWh.

Adaptive EV charging is also a huge low capital intensity solution as you point out. But it runs contrary to the perverse incentive that utilities have to build up the asset sheet so they may be allowed to earn more regulated income. So it absolutely is the best deal for the public, but utilities will resist it every step of the way. Sigh.

In fact, batteries placed at the solar/wind farm can reduce your interconnect cost. Instead of sizing connection hardware and transmission lines for 100% of output, downsize them 10% and charge your batteries when output hits max levels. It doesn't happen that often, and is pretty predictable. Recent PPA bids in AZ, CO, etc. use this approach.

Utilities historically earn a guaranteed return on capital, so "capex light" approaches are anathema...