Shorting Oil, Hedging Tesla

[renim]

I was referring to US demand, not US production.

2012 plan Chinese steel market, very important market
petrochem/energy is 2% of steel use.
What China's 12th Five-Year Plan Means for the Steel Industry - Part One - Steel, Aluminum, Copper, Stainless, Rare Earth, Metal Prices, Forecasting | MetalMiner

or a more up to date 2018

energy is both coal and oil and gas etc

mining companies spend a lot of money on oil, any reduction in diesel cost is most welcome

 

[renim]

>JHM

earlier in life, I got to drive trucks and loaders in an underground nickel cobalt mines.

i remember that approximately, pay was about similar to my fuel usage. The vehicles was comparable to this https://www.rocktechnology.sandvik/...ks/pdf/th545i-specification-sheet-english.pdf
point is, fuel capacity is sized for 12hour shift + reserve, the truck in the PDF has 620l fuel capacity so it probably uses around 80% of that in a productive shift (80% x 620l = 500litres per shift)

currently 500 litres diesel at 0.7 Aud is about Aud $350

How does a Filipino miner (Panasonic's Nickel/Cobolt mines are in the Philipines) feel about this, they probably get wages maybe 1/10th the value of the diesel they use. The mine managers would be salivating at the thought of cheaper oil and more expensive nickel.

These rough calcs are for undergound mining vehicles, I don't know much about surface, except that they are much larger vehicles and lower pay, the effect is even more pronounced.

 

[renim]

https://www.bhp.com/-/media/documen...8/180418_ehaegel_shanghaiconference_final.pdf

 

[adiggs]

Electric marine craft will revolutionize coastal operations but not long-haul shipping - FreightWaves

The shipping industry is thinking about fuel evolution towards a zero carbon economy. According to this article, the best guess is that long haul shipping will switch to natural gas, but it won't be a very long lived fuel for the fleet. Further out, they're thinking this will be hydrogen.


And that has me wondering - maybe somebody here can answer. I'm assuming that the hydrogen in these cases (where we're talking about long term fuel in a zero carbon world) is generated from renewable energy, rather than coming from a hydrocarbon source. The thing I don't understand is why there is so much interest in producing hydrogen from renewable energy as opposed to producing methane from renewable energy.

In both cases, the produced product is really an energy storage product. I don't work in the field, or know the chemistry really well, but it seems like there's a lot of reasons to love methane over hydrogen. Methane is a gas at normal temperatures and pressures, but becomes a liquid at -164C (and 1 atmosphere).

Methane - Wikipedia

It looks like hydrogen is a liquid below -253C (~20K). And hydrogen has lots of other problems with it due to the size of the molecules (metal embrittlement, works its way through most containment vessels, more).

Hydrogen - Wikipedia

So my outsider view of things - it looks like we've got much more widespread systems for managing liquid methane (roughly the same as natural gas) than we do hydrogen, it's less dangerous to be working with at all - so why not be using the excess renewable energy to manufacture liquid methane than hydrogen?

I feel like there is something I'm missing

 

[mspohr]

Electric marine craft will revolutionize coastal operations but not long-haul shipping - FreightWaves

The shipping industry is thinking about fuel evolution towards a zero carbon economy. According to this article, the best guess is that long haul shipping will switch to natural gas, but it won't be a very long lived fuel for the fleet. Further out, they're thinking this will be hydrogen.


And that has me wondering - maybe somebody here can answer. I'm assuming that the hydrogen in these cases (where we're talking about long term fuel in a zero carbon world) is generated from renewable energy, rather than coming from a hydrocarbon source. The thing I don't understand is why there is so much interest in producing hydrogen from renewable energy as opposed to producing methane from renewable energy.

In both cases, the produced product is really an energy storage product. I don't work in the field, or know the chemistry really well, but it seems like there's a lot of reasons to love methane over hydrogen. Methane is a gas at normal temperatures and pressures, but becomes a liquid at -164C (and 1 atmosphere).

Methane - Wikipedia

It looks like hydrogen is a liquid below -253C (~20K). And hydrogen has lots of other problems with it due to the size of the molecules (metal embrittlement, works its way through most containment vessels, more).

Hydrogen - Wikipedia

So my outsider view of things - it looks like we've got much more widespread systems for managing liquid methane (roughly the same as natural gas) than we do hydrogen, it's less dangerous to be working with at all - so why not be using the excess renewable energy to manufacture liquid methane than hydrogen?

I feel like there is something I'm missing

I think what you're missing is the fossil fuel industry point of view.
They like H2 because most of it is made from natural gas. It could be made from renewable energy but it is very inefficient so the FF industry look to H2 as a long term driver or demand for natural gas.

 

[mblakele]

So my outsider view of things - it looks like we've got much more widespread systems for managing liquid methane (roughly the same as natural gas) than we do hydrogen, it's less dangerous to be working with at all - so why not be using the excess renewable energy to manufacture liquid methane than hydrogen?

I also like the idea of turning excess renewable energy into CH4, so we can use all the existing LNG and natural gas infrastructure. However methane is a powerful greenhouse gas itself, so we have to be careful about leaks. Also combustion of methane produces CO2; we have to find ways to capture that CO2 and feed it back into methane synthesis. That may be easy in some applications: imagine an efficient gas turbine co-located with CO2 storage and a methane synthesis plant. But capturing the CO2 from an oceangoing freight vessel sounds more difficult.

 

[jhm]

>JHM

earlier in life, I got to drive trucks and loaders in an underground nickel cobalt mines.

i remember that approximately, pay was about similar to my fuel usage. The vehicles was comparable to this https://www.rocktechnology.sandvik/...ks/pdf/th545i-specification-sheet-english.pdf
point is, fuel capacity is sized for 12hour shift + reserve, the truck in the PDF has 620l fuel capacity so it probably uses around 80% of that in a productive shift (80% x 620l = 500litres per shift)

currently 500 litres diesel at 0.7 Aud is about Aud $350

How does a Filipino miner (Panasonic's Nickel/Cobolt mines are in the Philipines) feel about this, they probably get wages maybe 1/10th the value of the diesel they use. The mine managers would be salivating at the thought of cheaper oil and more expensive nickel.

These rough calcs are for undergound mining vehicles, I don't know much about surface, except that they are much larger vehicles and lower pay, the effect is even more pronounced.

Thanks. This is helpful. It explains an important way the price of oil influences mineral commodities. Basically, if the price of the mineral is too low relative to the cost of fuel, miners get laid off.

Longer term we should see more electrification of mining equipment. That could help to decouple commodities from oil.

 

[mblakele]

Here's some coverage of Aramco's latest earnings call and prospective IPO, by The Economist. It sounds to me like Aramco plans on increased demand from developing economies to counter weakening demand in developed ones. I think we've heard a similar story from other oil majors?

Saudi Aramco debuts in an earnings call

[...]

Like others in the industry, it expects appetite for petrochemicals to jump. In March Aramco said it would buy 70% of sabic, a petrochemical giant, from Saudi Arabia’s public investment fund for $69bn. On August 12th Reliance Industries, an Indian conglomerate, said that Aramco would pay $15bn or so for a 20% stake in its refining-and-petrochemicals business. The Saudi firm will supply Reliance with up to 500,000 barrels a day of crude, helping to lock in a long-term customer. It has struck deals in China, Malaysia and South Korea.

[...]

The Saudi kingdom is hungry for revenue; dividends in the first six months of 2019 were 22% larger than free cashflow because Aramco paid a “special dividend” of $20bn on top of an ordinary one of $26.4bn (the company invoked the “exceptionally strong financial performance” of 2018).

[...]​

​

 

[jbih]

Electric marine craft will revolutionize coastal operations but not long-haul shipping - FreightWaves

The shipping industry is thinking about fuel evolution towards a zero carbon economy. According to this article, the best guess is that long haul shipping will switch to natural gas, but it won't be a very long lived fuel for the fleet. Further out, they're thinking this will be hydrogen.


And that has me wondering - maybe somebody here can answer. I'm assuming that the hydrogen in these cases (where we're talking about long term fuel in a zero carbon world) is generated from renewable energy, rather than coming from a hydrocarbon source. The thing I don't understand is why there is so much interest in producing hydrogen from renewable energy as opposed to producing methane from renewable energy.

In both cases, the produced product is really an energy storage product. I don't work in the field, or know the chemistry really well, but it seems like there's a lot of reasons to love methane over hydrogen. Methane is a gas at normal temperatures and pressures, but becomes a liquid at -164C (and 1 atmosphere).

Methane - Wikipedia

It looks like hydrogen is a liquid below -253C (~20K). And hydrogen has lots of other problems with it due to the size of the molecules (metal embrittlement, works its way through most containment vessels, more).

Hydrogen - Wikipedia

So my outsider view of things - it looks like we've got much more widespread systems for managing liquid methane (roughly the same as natural gas) than we do hydrogen, it's less dangerous to be working with at all - so why not be using the excess renewable energy to manufacture liquid methane than hydrogen?

I feel like there is something I'm missing

I wondered the same, and I'm guessing it's too expensive at the moment. I believe Elon Musk will try to run his rockets on renewable methane and will thus find a way to bring prices down.

Which could well mean that Musk attacks big oil from two angles - demand (Tesla) and supply (cheap CH4 via SpaceX) side!

 

[jhm]

Here's a little chart I've put together to see how demand growth is holding up in China. Specifically I am lumping together middle distillates and fuel oil as these are central to the economy (and as 2020 IMO will shift demand from fuel oil to diesel). I've also included a cubic polynomial to show the basic trend.

As we've long discussed, China is going through structural changes in energy consumptions. Specifically the electrification of heavy duty vehicles will exert downward pressure on growth rates as long as there is a substantial ICE fleet left to electrify.

Declining use of coal in China also erodes demand for distillates used in mining coal, transporting coal domestically, and importing coal (return trip fueling).

There is substantial variation in annual growth rates around local trends. It is curious that this volatility seems to be dampening in the most recent decade. This too can reflect structural changes where demand for particular fuels become less linked to macroeconomic forces that have historically induced volatility. Look at the volatility before 1985. This is enormously large. As the Chinese economy has grown in sophistication, it has found ways to tame this extreme level of volatility. Moreover, we have little expectation that the next decade will have nearly this much volatility. So we see evidence of structural shifts throughout this timeseries.

 

[Oil4AsphaultOnly]

I also like the idea of turning excess renewable energy into CH4, so we can use all the existing LNG and natural gas infrastructure. However methane is a powerful greenhouse gas itself, so we have to be careful about leaks. Also combustion of methane produces CO2; we have to find ways to capture that CO2 and feed it back into methane synthesis. That may be easy in some applications: imagine an efficient gas turbine co-located with CO2 storage and a methane synthesis plant. But capturing the CO2 from an oceangoing freight vessel sounds more difficult.

Controlling methane leaks is something to consider (since it's harder to extract from air), but the CO2 emissions isn't. There's nothing to be gained from storing the CO2 in a container versus storing it in the atmosphere and re-extracting it later for the sabatier process [for converting to methane].

So not a concern. The problem holding this idea back is that it takes much more energy to produce methane versus H2, and you don't get as much back burning methane versus running H2 through a fuel cell stack.

 

[mblakele]

Controlling methane leaks is something to consider (since it's harder to extract from air), but the CO2 emissions isn't. There's nothing to be gained from storing the CO2 in a container versus storing it in the atmosphere and re-extracting it later for the sabatier process [for converting to methane].

So not a concern. The problem holding this idea back is that it takes much more energy to produce methane versus H2, and you don't get as much back burning methane versus running H2 through a fuel cell stack.

I felt this was getting off-topic for this thread — my fault — so I've responded here: Power to Methane

 

[TheTalkingMule]

Check out this embarrassing load of nonsense from a current NRG Finance Director....

Why 100% renewables isn't feasible by 2050

Sad to see a once ambitious renewables transition turn to crap. My assumption was they'd jump back in eventually, but if this is the attitude of their finance wing....perhaps it's a shorting opportunity for investors here?

 

[TheTalkingMule]

Can someone help me out with a historical parallel to what we're starting to see in the Middle East between rival oil producers?

So Iranian entities are attacking the oil infrastructure of Saudi Arabia. Sounds perfectly normal and to be expected of heated rivals. But really it's almost in SA's interest to have these attacks happen periodically since that's what juices the price of oil. We're seeing fake international dust ups in the Straight of Hormuz for this same reason.

As peak demand nears the horizon, certainly these activities will accelerate. What the hell does that even look like? Will we see SA and Iran winking at each other as they half heartedly "attack" each other?

I'm trying visualize the ineviable death of oil interests over the next 10 years and I'm starting to think it won't be as low priced as we keep assuming.

Fracking in the US will crumble soon and my thinking has always been that oil countries will simply pump like mad til the end creating a perma-glut that's already started. But if this self-reinforcing pattern of attacking rivals accelerates, we could see catastrophic supply disruptions all the way through the end.

SA hates Iran AND needs Brent prices higher. There's an easy way to remedy both those things.

Drone attack: Iran-linked rebels bomb Saudi oil fields ‘Global threat’

 

[jhm]

Check out this embarrassing load of nonsense from a current NRG Finance Director....

Why 100% renewables isn't feasible by 2050

Sad to see a once ambitious renewables transition turn to crap. My assumption was they'd jump back in eventually, but if this is the attitude of their finance wing....perhaps it's a shorting opportunity for investors here?

Perhaps they need to rationalize building out new gas generators with a 30-year useful life. Yeah, sure, it's a good investment.

 

[jhm]

Platts: Slumping Car Sales Weaken China’s Appetite For Gasoline, Petchems | OilPrice.com

So China auto sales are down 4.3% y/y in July, continuing 13 straight months of declining sales. This is starting to impact gasoline consumption. China is looking to export surplus gasoline.

The Osborne hypothesis seems to be holding up. Moreover, it looks to be at a scale that starts to impact domestic consumption of gasoline and maybe gasoline export prices too.

Plugin EVs comprise about 6.3% of tha auto market in China so far this year. Under the Osborne hypothesis, that 6.3% is insufficient to cover demand. So demand for all cars is down 4.3%. Adding the the two, 10.6%, is roughly how much the PEV producers would need to produce just so that growth in total auto sales would be flat. But that does not even cover ordinary auti sales growth that ordinarily would be more than 5%. So it is reasonable that demand for EVs in China may be in range of 10% to 15%, but EV makers are only able to supply 6.3%. EV production could double and that not be enough to help the auto market return to ordinary growth rates.

So one way to test the Osborne hypothesis is to see if the auto market can return to growth before PEV market share exceeds 10%. If were to happen would could reject the Osborne hypothesis.

Another tricky issue here is that China has recently cut NEV subsidies, particularly for shorter range vehicles. So this suggest some pull ahead of EV demand. But even a drop in PEV sales does not mean the Osborne effect is not in play. Consumers can react to subsidy declines by slowing the pace of EV sales, even while the Osborne effect is inducing other would-be auto buyers to put of a car purchase until better EV products come onto the market. The Osborne effect is only about consumers delaying purchases until the desired product is in well supply. So we'll see if total auto sales continue to wane.

 

[jhm]

Diesel Car Sales Plunge In The World’s Hottest Electric Car Market | OilPrice.com

Gasoline consumption down 6.1%/y, diesel down 2.6%, and total petroleum consumption down 4.0%. This is approaching some of the fastest decline rates we have expected post demand peak. But Norway is only at about 58% PEV in the new car market. Norway could breach 90% PEV by 2025 (without government prohibition), five years before most of the globe. So maybe we could see demand decline rates near 6% per year.

The oil industry can pretty much ignore Norway if it wants because it is a tiny fraction of global demand. But imagine the wailing and gnashing of teeth that will happen with China hits 50% PEV new car sales and oil consumption declines 4% per year.

 

[Doggydogworld]

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

Offshore doesn't cost much to operate on a per barrel basis. The big cost is capex, then lease/royalties.

Tipping points are hard to predict. S-curves are gospel around here, but capital infrastructure projects are not color TVs or smartphones. They tend to ramp to a certain level then hold steady for decades. BNEF reports renewable spending was lower in 1H19 than 1H10. That's 9 year of flattish spending. China drove the recent drop, but Europe is lower than a decade ago and US grew very modestly.

The picture looks better on a annual kWh basis, because solar costs have fallen a lot and wind productivity has improved. But it's still not an S-curve.

 

[adiggs]

Diesel Car Sales Plunge In The World’s Hottest Electric Car Market | OilPrice.com

Gasoline consumption down 6.1%/y, diesel down 2.6%, and total petroleum consumption down 4.0%. This is approaching some of the fastest decline rates we have expected post demand peak. But Norway is only at about 58% PEV in the new car market. Norway could breach 90% PEV by 2025 (without government prohibition), five years before most of the globe. So maybe we could see demand decline rates near 6% per year.

The oil industry can pretty much ignore Norway if it wants because it is a tiny fraction of global demand. But imagine the wailing and gnashing of teeth that will happen with China hits 50% PEV new car sales and oil consumption declines 4% per year.

Or the US, with it's famously more transparent (and kinda big) O&G market. Oh yeah - that's gonna go over well.

 

[renim]

But it's still not an S-curve.

S-curves do not predict final market share, that is an input to the S-curve, not a resultant
S-curves less than 5% are premature to predict the outcome
but
S-curves greater than 15% are very difficult to change course, their trajectory is almost set in stone.