Shorting Oil, Hedging Tesla

[mspohr]

The oil industry vs. the electric car

Groups backed by industry giants like Exxon Mobil and the Koch empire are waging a state-by-state, multimillion-dollar battle to squelch utilities’ plans to build charging stations across the country. Environmentalists call the fight a reprise of the “Who Killed the Electric Car?” battles that doomed an earlier generation of battery-driven vehicles in the 1990s.

 

[jhm]

The oil industry vs. the electric car

Groups backed by industry giants like Exxon Mobil and the Koch empire are waging a state-by-state, multimillion-dollar battle to squelch utilities’ plans to build charging stations across the country. Environmentalists call the fight a reprise of the “Who Killed the Electric Car?” battles that doomed an earlier generation of battery-driven vehicles in the 1990s.

Thanks. I suspect that none of this is a surprise to us here, but it is important to have it documented.

In my personal view, I'm not so sure I want to see utilities dominate the charging space or use their privileged status as a regulated monopoly as an unfair point of leverage. That said, I think this is a losing battle for oil companies. At best they can disadvantage incumbent auto makers, but I don't think they can halt Tesla. The reason is that Tesla has had a consistent strategy of building its own charging networks. In deed I think the key strategy for defeating Tesla would actually be to get the utilities to use their market power to disadvantage Superchargers and destination chargers. So the oil companies are attacking this from the wrong side. They should be siding with the utilities against all non-utility charging networks. Honestly, I think these political lobbyist types are too stupid about the technology to actually slow it down.

 

[TheTalkingMule]

Overnight funding soared to nearly 8% last night. Is that frackers?

 

[DaBagBoy]

I've had my Model 3 since last November. Loved the car so much I finally bought into TSLA shares in June and it's been a wild ride to say the least.

Recently I was thrilled to be ahead so much since 9/5 and last week. But as I learned of the bombing and oil price increases this weekend I assumed (hoped) for a huge TSLA open on Monday, but nope....not today either?

Anyone have a guess why we aren't seeing more gains this week???

 

[jhm]

Why Oil Prices Just Fell 6% | OilPrice.com

Oil production is expected to return to normal within two to three weeks, anonymous Reuters sources suggested, contrary to yesterday’s reports that took a more pessimistic view of how long it would take for Aramco’s production to come back online.

Additionally at time of attach Aramco had 28 days of storage at full production levels. Only half was impacted, so the storage was good for 56 days. Restoring production within 21 days means that this event is barely a flicker of Suado supply.

So yeah, oil prices drop back 6% after yesterday's 15% overreaction. Brent is now back to $64/b. I expected Brent to be flirting with $60/b by mid-October or sooner.

 

[replicant]

I've had my Model 3 since last November. Loved the car so much I finally bought into TSLA shares in June and it's been a wild ride to say the least.

Recently I was thrilled to be ahead so much since 9/5 and last week. But as I learned of the bombing and oil price increases this weekend I assumed (hoped) for a huge TSLA open on Monday, but nope....not today either?

Anyone have a guess why we aren't seeing more gains this week???

You probably assume that the market value the financial prospects of Tesla as being related to the prospects of the EV market. I did, and sometimes continue to do so, but it appears that Wall Street considers TSLA as just a stock whose isolated fate only depends on Tesla's ability to focus on selling millions of high-margin vehicles. Until this has been proven without doubt, the market will continue to value TSLA as a proxy of Elon Musk's popularity and his deference to big finance.

 

[jhm]

Art Berman on Twitter

Art Berman has sources that say the Saudi strikes were probably an inside job.

Some say the Twin Towers was an inside job too.

 

[TheTalkingMule]

So yeah, oil prices drop back 6% after yesterday's 15% overreaction. Brent is now back to $64/b. I expected Brent to be flirting with $60/b by mid-October or sooner.

Not to mention we probably just created a huge bubble of artificially inflated futures contracts. Everyone and their mother likely sold tons of what was 24hrs ago uneconomic future production.

 

[jhm]

Beijing to have 20,000 electric taxis in 2020 - Chinadaily.com.cn

China expects to have a fleet of 20k electric taxis in 2020. Nice point of focus, but the real impact is cumulative 5 million NEVs on the road in 2020. Depending on the mix of fleet and private vehicles, this has the potential to displace some 200kb/d of demand for motor fuels.

Will the rest of the world match China in uptake of EVs? If so we are looking at 10 million EVs globally in 2020, up from a fleet of 5.2 million in 2018. This looks possible

 

[ABCTG]

University of California Endowment fund and Pension fund to divest fossil fuel assets, mostly, they say, because of the financial risk of holding on to them.



Opinion: UC investments are going fossil free. But not exactly for the reasons you may think

We believe hanging on to fossil fuel assets is a financial risk. That’s why we will have made our $13.4-billion endowment “fossil free” as of the end of this month, and why our $70-billion pension will soon be that way as well.

The reason we sold some $150 million in fossil fuel assets from our endowment was the reason we sell other assets: They posed a long-term risk to generating strong returns for UC’s diversified portfolios.

We have been looking years, decades and centuries ahead as we place our bets that clean energy will fuel the world’s future. That means we believe there is money to be made. We have chosen to invest for a better planet, and reap the financial rewards for UC, rather than simply divest for a headline.

 

[adiggs]

This the sort of investment decisions that we need to start seeing - divesting from fossil fuels because of the investment risk. Divesting because of climate change, greenwashing, etc.. is a fine way to get the ball rolling. But what will carry it through into a world altering movement will be when the economics dictate the shift.

And it's the economics that will also make it a permanent change, not just marketing buzz (or as they say, a headline).

 

[TheTalkingMule]

Yesterday was a great day to fully divest. Hopefully there will be an equally pronounced bump up before the big US fracking decline.

Occidental went up past $48 yesterday. Probably never gonna see that again.

 

[jhm]

Why 200 per cent renewables would be better for Australia than 100 per cent | RenewEconomy

Yup, this idea is getting more traction. Generate twice as much solar and wind power, grid uses what it need, electrolyze what's left.

 

[ggies07]

Why 200 per cent renewables would be better for Australia than 100 per cent | RenewEconomy

Yup, this idea is getting more traction. Generate twice as much solar and wind power, grid uses what it need, electrolyze what's left.

Interesting...so where would battery storage come into play then? Not needed in this scenario? Or would battery storage become an individual thing where this would be large scale situations? So many questions....ahaha.

 

[jhm]

Interesting...so where would battery storage come into play then? Not needed in this scenario? Or would battery storage become an individual thing where this would be large scale situations? So many questions....ahaha.

Short-term storage and transmission, however, remain part of the optimised system, and are used to distribute generation – both from A to B and at different times – and also to smooth electricity input to electrolysers, to increase their capacity factor and bring down the costs of producing hydrogen.

You can see that the battery charging cycle is about the same in the left and right scenarios in graphic above. The big differents is that in the 200% scenario the solar spikes are about twice as big and electrolyzers soak up the difference. What is harder to appreciate from this graphic is that if you typically generate more than twice the solar you need for a week, then with very high reliability you always generate the minimal amount that the grid needs. If there is an unusual situation where wind and solar production is low on a given day, you can dial back the electrolyzers and ride it out. But you do need some storage capacity that helps you with multiday renewable shortages. This requirement is probably higher in the 100% scenario than the 200% scenario. So daily battery cycling is about the same, but weekly battery cycling could be much lower. So I suspect this is how they drive down some of the costs.

So this is the chart that tells the story for me. Notice that both generation costs and grid transmission and storage costs come down as you approach the 200% scenario. I think there is avoided curtailment going on here along with reducing demand for weekly cycling. Beyond the 200% scenario you likely get to a place where it is demand for hydrogen that is the driving force, stable and cheap grid power becomes a side benefit of the electrolyzer business.

 

[jhm]

So we've been looking at this hybrid solar plant for LA that has 400MWac solar plus 1.2GWh of battery storage. The PPA is about $40/MWh, but if you break down the pricing, it like $20/MWh for direct solar and $120/MWh for stored solar. What is interesting is that the direct solar is so cheap. Suppose the utility only wanted to to lock in the stored solar, not the direct. You could have a PPA for stored solar at $120/MWh. Then with what is left you could set up 400MW of electrolyzers and make hydrogen at $0.90/kg for the energy cost alone. So if market conditions made say $1.45/kg the break even cost, then the plant could run the electrolyzer whenever grid power is below $3/MWh or sell into the grid above that price. Thus, there does not need to be a buyer for the direct solar portion of the PPA.

This is how solar capacity can grow beyond the needs of the grid.

 

[mblakele]

The Economist published its perspective on recent infrastructure attacks in KSA and possible effects on the Aramco IPO.

Despite American shale, oil markets still rely on Saudi Arabia
Aramco’s valuation is also on a slippery slope

[...] In April possible investors drooled over the figures in its first ever bond prospectus: Aramco’s $111bn net income was almost twice that of Apple’s, the world’s most profitable public company, and larger than the earnings of ExxonMobil, Royal Dutch Shell, Chevron, Total and bp combined. Some also fretted that its production is much more dependent on a single country than its major competitors. Mr Nasser has sought to downplay such concerns, insisting that its production was reliable. But Aramco’s vulnerabilities have been laid bare and this may be reflected in the valuation it attracts.

[...] Despite talk of America as a new swing producer, it is Saudi Arabia that remains the oil market’s central banker, with its ability to dial production up and down quickly, helping to keep prices steadier. But markets can no longer ignore the threats to its supply. Meanwhile claims of American energy independence have never looked so hollow. Even with America set to become a net exporter of oil, it still imported 10m barrels a day last year, not least because shale produces light, sweet crude and many of its refineries need heavy, sour stuff. If oil prices rise elsewhere, they rise in America, too.

​

 

[renim]

So we've been looking at this hybrid solar plant for LA that has 400MWac solar plus 1.2GWh of battery storage. The PPA is about $40/MWh, but if you break down the pricing, it like $20/MWh for direct solar and $120/MWh for stored solar. What is interesting is that the direct solar is so cheap. Suppose the utility only wanted to to lock in the stored solar, not the direct. You could have a PPA for stored solar at $120/MWh. Then with what is left you could set up 400MW of electrolyzers and make hydrogen at $0.90/kg for the energy cost alone. So if market conditions made say $1.45/kg the break even cost, then the plant could run the electrolyzer whenever grid power is below $3/MWh or sell into the grid above that price. Thus, there does not need to be a buyer for the direct solar portion of the PPA.

This is how solar capacity can grow beyond the needs of the grid.

sanity check, how much does an electrolyser cost?
https://nelhydrogen.com/assets/uploads/2019/01/Nel-ASA-Company-presentation-Jan-2019.pdf

25 NOK/kg is about $2.5USD/kg which when compared to natural gas at $2.5/mmBTU is about 9x more expensive.

so roughly speaking, electrolyser cost alone need a 10 fold price reduction to become viable, assuming electricity is free.

 

[generalenthu]

sanity check, how much does an electrolyser cost?
https://nelhydrogen.com/assets/uploads/2019/01/Nel-ASA-Company-presentation-Jan-2019.pdf
View attachment 456808
25 NOK/kg is about $2.5USD/kg which when compared to natural gas at $2.5/mmBTU is about 9x more expensive.

so roughly speaking, electrolyser cost alone need a 10 fold price reduction to become viable, assuming electricity is free.

I haven't seen this elsewhere, but I'd think excess electricity from solar can be used to power reverse osmosis and the fresh water should relatively easy to store. Given water consumption peaks in summer, the seasonality matches pretty well.

Don't have any numbers to back up there extent of electricity that can be used this way though, that can provide Demand Response.

 

[jhm]

sanity check, how much does an electrolyser cost?
https://nelhydrogen.com/assets/uploads/2019/01/Nel-ASA-Company-presentation-Jan-2019.pdf
View attachment 456808
25 NOK/kg is about $2.5USD/kg which when compared to natural gas at $2.5/mmBTU is about 9x more expensive.

so roughly speaking, electrolyser cost alone need a 10 fold price reduction to become viable, assuming electricity is free.

Let's see. The electrolyzer consumes about 45 kWh per kg H2. So at 0.40 NOK/kWh, the power cost is about 18 NOK/kg. Thus, cost of capex is about 7 NOK/kg. That's not bad, but it could be better.

The current capex on a Nel electrolyzer is about $700/kW. We current expansion projects, they see a pathway to cut this by 40% to about $420/kWh, and with further scale up to $320/kWh. So Nel sees this technology on an ambitious scale up and learning curve.

It would be nice to know what sort of outlook other electrolyzer makers have. I'm in no position to critique how feasible this is. But the thing with learning curves is that the early scale ups of production are really critical. Hopefully, makers can cut capex by 50% within the next 10 years. This would be modest compared with solar and batteries. But this would be enough to see a strong scale up in the 2030s. As I have posted before, I do see the 2020s as the decade of the battery and 2030s as the decade of the electrolyzers. That's decarbonizing the grid will require a massive build up of batteries in this next decade. Much of this needs to be in place before electrolyzers become a critical component of grids.

So over the ten years I could see solar and wind PPA falling from $20-$40 /MWh to $5-$20 /MWh without storage. Stored solar and wind also falls 50% to 75%. So with electrolyzers and perhaps other hydrogen equipment falling 50% or more, we could see the cost of power to hydrogen fall more than 50%.

Does this compete so strongly as to SMR+CCS as to push gas out of the hydrogen market? Uncertain. natural gas could be in a very different price regime 10 years from now, and the CCS piece is really up in the air. But its not altogether critical. Rather it suffices for electrolysis to be competitive enough as to give the grid an export market for surplus power. If solar is coming down to $10/MWh, there is going to be a lot of surplus sloshing around at near $0/MWh. So picking up that surplus, has the value of keeping the value of solar high enough to keep building out more capacity. So the point here is not that solar and wind become so cheap that we can just roll out more capacity for the exclusive use of electrolyzers, but that the value of solar and wind can be preserved. So there is definitely are range of competition where both electrolyzers and SMR+CCS coexist.