Shorting Oil, Hedging Tesla

[adiggs]

That's true. I envision that power generation will double to balance the grid, generate gases and charge vehicles. But this may be another 20 to 30 year off.

In the history of everything, lowering the price of a good leads to new demand. For myself, the mental model I consider most relevant is communications (relevant to energy). With the internet bringing marginal cost of communication to approximately zero / free, we do a LOT more communicating today than we did 10, 20, 30, 50, 100 years ago.

Only 20 years ago, the idea of streaming videos over the communication infrastructure was borderline ludicrous. Today it's so ubiquitous, it's a core component of many product / service, and company strategies. We just accept it as normal to stream a GB worth of data for an ephemeral entertainment experience, that will need to be repeated if we want to watch the movie again tomorrow.


With energy, as renewable energy makes approximately zero marginal cost energy available, I don't expect the renewable sources to just replace the current mine and burn sources. Or even 10/20/100% growth to cover the peaks and to time shift.

I expect that in time, we'll have 1000% (I made that number up - something stupendously big) compared to today's worldwide energy consumption. After accounting for all of the wasted energy involved in burning hydrocarbons.

We're going to find new uses for energy that are ridiculous to even think about in a mine and burn energy economy.

Australia is starting to think about several interrelated ideas:
- Run a very high capacity electric wire over the seabed to Singapore, and provide Singapore with a large chunk of their electricity from panels and wind turbines located in Australia
- Start building electrolyzers (make hydrogen) for export to other countries (they think they can dominate that market - hydrogen from renewable sources)
- "in-source" (my term) more of the mining value chain. Instead of digging up ore bodies and shipping them overseas for processing and smelting, keep those very high energy consumption industries in Australia, and run them on the very high quality renewable sources available in Australia. Short version - ship finished iron / steel / aluminum / etc.., instead of rocks that contain that stuff.


What else will we think of and start doing, when regular daily use energy is fully covered, and there are seasonal (but not daily) patterns to oversupply of energy. What seasonal businesses can start up to absorb that extra energy?

 

[winfield100]

In the history of everything, lowering the price of a good leads to new demand.
With energy, as renewable energy makes approximately zero marginal cost energy available

What else will we think of and start doing, when regular daily use energy is fully covered, and there are seasonal (but not daily) patterns to oversupply of energy. What seasonal businesses can start up to absorb that extra energy?

@adiggs
Think a lot bigger. For inspiration, read science fiction for 60+ years
Item: beam riders where you have “big honking lasers” on say moon and Mars and your ship rides a laser @ 1 gravity the whole way there and back, suddenly planets are days away, not years.

 

[dc_h]

BTW. Did I ever share the calculation about oil&gas making the tradeoff between gasoline to power a car versus natural gas to generate a charge for EVs. I figure that 1 barrel (42 gallons) of gasoline can via EVs be replaced with 3 mmBtu of natural gas. At today's wholesale market prices of $1.664/gal gasoline and $2.109/mmBtu, this is a revenue difference of $69.89 versus $6.33, a 91% reduction in revenue.

So O&G folks can talk all they want about how natural gas they'll sell to keep EVs changed up, but retaining 9% of the value chain in fueling motor vehicles is bitter consolation.

Interested in calculating how much oil is offset by a single windmill? I saw a stat that a single offshore windmill can sustain 3000 homes. That could be a European home, which probably uses half the kWh of a USA home. If a windmill can support 3000 cars and each uses 500 gallons of gas that’s 1.5 million gallons annual displacement. 1.5 million gallons is 4750 tons. Round up to 5000 tons times 40 year lifecycle of windmill and one windmill can offset 200,000 tons of gasoline or about 60,000,000 gallons of gasoline.
The payoff seems absolutely huge and if I’m calculating correctly I can see why big oil wants to push back the future as long as possible. The math is devastating for them.

 

[adiggs]

@adiggs
Think a lot bigger. For inspiration, read science fiction for 60+ years
Item: beam riders where you have “big honking lasers” on say moon and Mars and your ship rides a laser @ 1 gravity the whole way there and back, suddenly planets are days away, not years.

Yeah - like that.

I read something somewhere (and wish I could find it again) - you can define different civilizations in terms of the technologies in 3 primary areas. Communication, Energy, and Transportation.

Communication is my preferred mental model of what's coming to Energy, because the most recent advance in Comm (the internet) is the approximately zero marginal cost communication. When I grew up, long distance phone calls weren't hard to make, but they definitely had a cost to them and you didn't just call up grandma willy-nilly. It was an event.

The coming change in Energy is to approximately zero marginal cost energy. I figure one practical consequence that's coming is we'll stop metering the energy consumed at the household level (what a weird thing to say). The cost of doing the accounting will grow to equal the value of the accounting (which is a good reason to stop doing it). Or maybe it'll be unmetered up to a big cap (the way Comcast meters my internet usage).

The equivalent change / technology for transportation isn't yet on the horizon that I can see. I see the current big transportation technology change as, in a sense, being driven by the energy transition. The transport tech has to change to make use of ~free energy (it'll take a few decades to be obvious that the energy is ~free).


The biggest idea (and I do like your idea) that I've come up with, is big enough and productive enough desalination plants that we can desalinate ocean water, and pump it inland too uses for irrigating fields. Maybe in California (geography I know better), pump it inland and up into the mountains and dump it in river beds - let the river system distribute it from there. Maybe the farmers and city folk in California could stop arguing about water rights

Ooh - or if the surplus electricity was more cold season oriented - pump the water up into the mountains, and through mega-snow generators. Man made snow pack (at a scale that makes a difference to the river level as it melts).

 

[renim]

When was the last time capitalists objected to pulling stuff out of the ground and selling it? If renewables and EVs were actually driving a massive expansion of mining opportunities, greedy capitalists would be all up in that.

On the other hand, if renewables and EVs are substantially lower capital way to deliver usable energy, then there may well be a net decline in demand for all extractive resources. Keep in mind that the oil and gas industries are huge consumers of steel and other metals. Think about drilling rigs, drilling pipes, pipelines, train cars, refinery equipment, and so on. What happens to miners when the oil and gas industry stops expanding? Sure renewables and EVs need materials from miners, but is that anywhere close to replacing demand lost from the massive O&G industry? If these are truly more capital efficient, they will not.

So when greedy capitalists smear renewables and EVs for needing mineral resources too, beneath the projection of hypocrisy is a fear that these resources won't be needed nearly enough.

ahhh no
first year mining engineering, fundamental overview,
in a hypothetical world of unlimited energy, there is zero limit to what can be mined. That is to say, mining is essentially an energy bound industry. The no1 reason why gold, copper, iron ore etc etc is mined where-ever it is is because the energy to mine (and refine it) is finite.

To demonstrate the limit, the Earth's crust is 8% Al, and 5%Fe etc. Infinite energy would allow China, Japan anyone to dig the earth's crust and get the iron etc, further to that, as the earth's crust is 5% Fe anyway, not only would the entire planetary crust be considered a mineable reserve, the waste stream would also be a mineable reserve.

If energy was not an issue, anyone could extract the 5% iron form the crust anywhere and ignore the 50%iron high grade deposits.

 

[renim]

.... Sure renewables and EVs need materials from miners, but is that anywhere close to replacing demand lost from the massive O&G industry? If these are truly more capital efficient, they will not....

I'm not sure if you wrote that in jest or not, but renewables and EVs need a lot of materials from miners, a lot of high value / less common materials from miners.

copper, nickel, iron ore, the list goes on and on and on, miners are basically salivating at the thought of whats required for windmills and electric vehicles.

 

[Näky]

If energy was not an issue, anyone could extract the 5% iron form the crust anywhere and ignore the 50%iron high grade deposits.

Would it be more "efficient" to superheat landfill and other waste sources to plasma and extract all elements by nucleus weight and cool it down to solid matter again? Source material would be high concentration and less infra needed. Also positive environmental impact and more free land area after waste removal. Real recycling.
Core after cleaning environment and only if better solution than asteroid mining, maybe?

 

[TheTalkingMule]

Plasma gasification of waste is cooler tech than EVs and solar IMO. Drives me nuts that were not perfecting this process that's so close to mainstream.

Much like fusion, I think we'll look back once it's running and agree it was the legacy service provider hindering adoption. You know who runs the garbage industry....

 

[Unpilot]

I stop in here to get my hopes up....cause if I stop by the global warming thread I get the sense we are all doomed anyway.

 

[jhm]

ahhh no
first year mining engineering, fundamental overview,
in a hypothetical world of unlimited energy, there is zero limit to what can be mined. That is to say, mining is essentially an energy bound industry. The no1 reason why gold, copper, iron ore etc etc is mined where-ever it is is because the energy to mine (and refine it) is finite.

To demonstrate the limit, the Earth's crust is 8% Al, and 5%Fe etc. Infinite energy would allow China, Japan anyone to dig the earth's crust and get the iron etc, further to that, as the earth's crust is 5% Fe anyway, not only would the entire planetary crust be considered a mineable reserve, the waste stream would also be a mineable reserve.

If energy was not an issue, anyone could extract the 5% iron form the crust anywhere and ignore the 50%iron high grade deposits.

FWIW, I do not envision a world of unlimited energy. Even as energy becomes more capital efficient to produce, it still requires capital to expand capacity, and the world is full of more interesting things to put capital into than energy. For example, I find it more interesting to put more money into a nice Tesla than into energy, both as an investor and as a consumer.

Edit. I should have also reminded us that total annual investment in energy has been declining. Maybe it's a bit early to call this trend, but it does help us think about what the future could look like. Do we expect total energy investment as a percent of global GDP to increase, decrease or generally stay about the same? I know I've got my bias, but I'd like to hear from others.

 

[jhm]

I'm not sure if you wrote that in jest or not, but renewables and EVs need a lot of materials from miners, a lot of high value / less common materials from miners.
View attachment 441105

View attachment 441107


copper, nickel, iron ore, the list goes on and on and on, miners are basically salivating at the thought of whats required for windmills and electric vehicles.

Um, your only looking at the growth side of the story. The O&G industry in US is about 10% of US demand for steel. What's going to make up for the loss of that demand? There are other sorts of demand that will be displaced too. I have no doubt that miners are salivating for growth opportunities, but they will also be sweating demand decline in other areas. So you have to look at both sides.

 

[TheTalkingMule]

FWIW, I do not envision a world of unlimited energy. Even as energy becomes more capital efficient to produce, it still requires capital to expand capacity, and the world is full of more interesting things to put capital into than energy. For example, I find it more interesting to put more money into a nice Tesla than into energy, both as an investor and as a consumer.

Edit. I should have also reminded us that total annual investment in energy has been declining. Maybe it's a bit early to call this trend, but it does help us think about what the future could look like. Do we expect total energy investment as a percent of global GDP to increase, decrease or generally stay about the same? I know I've got my bias, but I'd like to hear from others.

Investing in mortgages isn't necessarily fun either, but we sure did a hell of a lot of that for a period of time. In my mind, the major investment shift happens once the far far far more lucrative investment options like oil and gas become stranded and are no longer on the menu. After that, the next best option will be building out wind and solar. Hopefully we'll over do that like we did with mortgage securities, my assumption is we will.

 

[adiggs]

FWIW, I do not envision a world of unlimited energy. Even as energy becomes more capital efficient to produce, it still requires capital to expand capacity, and the world is full of more interesting things to put capital into than energy. For example, I find it more interesting to put more money into a nice Tesla than into energy, both as an investor and as a consumer.

Edit. I should have also reminded us that total annual investment in energy has been declining. Maybe it's a bit early to call this trend, but it does help us think about what the future could look like. Do we expect total energy investment as a percent of global GDP to increase, decrease or generally stay about the same? I know I've got my bias, but I'd like to hear from others.

I don't literally think a world of unlimited energy is coming. But the best mental model I have of how this world might develop is communications and the internet. Marginal communications are approximately free - capital investment in expanding the internet is still going on. This is how I see the energy system developing.

Maybe we'll have some monthly charge for our household energy consumption, sort of how we do for Internet, garbage - stuff where the bill is reasonably constant month to month, regardless of our usage of the resource (at least within some window).


I also foresee technologies that, maybe at smaller scale, make some energy generation just about literally free. The Tesla Solar Roof, at volume that brings it cost down in line with comparable roofing system - why not have your roof generate some free electricity when it's the same cost roof either way?


On investment in energy - my own expectation is that will be declining. What I see coming is that the fraction of worldwide economic activity devoted to acquiring the energy needed to support worldwide economic activity will be declining. Somebody, somewhere recently (I think Neroden) made the point that there is a good version of deflation, and we last saw it with all the big technology advances of the late 1800's and early 1900's. I see that same thing coming to the world as a result of energy becoming steadily cheaper to acquire.

 

[renim]

Um, your only looking at the growth side of the story. The O&G industry in US is about 10% of US demand for steel. What's going to make up for the loss of that demand? There are other sorts of demand that will be displaced too. I have no doubt that miners are salivating for growth opportunities, but they will also be sweating demand decline in other areas. So you have to look at both sides.

big picture, iron ore

USA production is so small that it lumped into the 'others' category



dig deeper https://prd-wret.s3-us-west-2.amazo...on/s3fs-public/atoms/files/mcs-2019-feore.pdf

so USA is about 1.6%-2.0% of global iron ore, that is essentially irrelevant.

 

[renim]

now, onto copper
https://www.copper.org/publications/pub_list/pdf/A6191-ElectricVehicles-Factsheet.pdf

from memory, the UBS report was prorata from a teardown of the GM Bolt. Obviously the world can not do 20 fold increase in coBolt.

 

[jhm]

big picture, iron ore

USA production is so small that it lumped into the 'others' category



dig deeper https://prd-wret.s3-us-west-2.amazo...on/s3fs-public/atoms/files/mcs-2019-feore.pdf
View attachment 441815

so USA is about 1.6%-2.0% of global iron ore, that is essentially irrelevant.

I was referring to US demand, not US production.

 

[jhm]

Listen to The Decline Rate Delusion by Carbon Tracker on #SoundCloud
The Decline Rate Delusion

This is really good, worth the 31 minutes to listen.

This is Cabon Tracker interviewing Harry Benham.

 

[renim]

so what happens when new shale oil is cheaper than maintaining offshore oil facilities? particularly in a declining market.

 

[jhm]

now, onto copper
https://www.copper.org/publications/pub_list/pdf/A6191-ElectricVehicles-Factsheet.pdf
View attachment 441820

View attachment 441821

from memory, the UBS report was prorata from a teardown of the GM Bolt. Obviously the world can not do 20 fold increase in coBolt.

This gets a little closer to the issue, but I suspect the analysis is only comparing demand from the auto industry. Does is look at demand from the oil&gas industry? Naturally the mix of minerals demanded are different.

I'd also point out that the EV technology is not yet mature. We still don't know how much cobalt EV batteries will require in 2030 or how much copper will be needed to wire in the future. We do know that Tesla is making progress toward less cobalt and less copper. To a large extent this depends on how the economics shake out. If cobalt is too pricey, battery makers will pursue lower cobalt chemistries. But the broader point here is that as EV and renewable energy become cheaper, part of the cost decline is a reduction in raw materials especially the more expensive ones, per unit. So it is a bit dicey to use current mineral content to anticipate future demand.

 

[jhm]

so what happens when new shale oil is cheaper than maintaining offshore oil facilities? particularly in a declining market.

Yeah, that would intensify the risk of stranded assets for offshore. I think this was what Harry was referring to regarding how exposed the IOCs are, because they are more heavily invested in these long cycle assets.