Shorting Oil, Hedging Tesla

[adiggs]

I expect we'll start seeing more articles like this one:
Why Is Warren Buffett Ditching His Coal Plants? | OilPrice.com

Coal plants planning to be closed.
Nothing said about greenwashing / decarbonization.
Straight up cost problem, and this is with plants that don't need a railroad to get the mined coal from the mine to the electric generation plant.
Oh - and no plan to transition from coal to natural gas.

 

[ggies07]

I expect we'll start seeing more articles like this one:
Why Is Warren Buffett Ditching His Coal Plants? | OilPrice.com

Coal plants planning to be closed.
Nothing said about greenwashing / decarbonization.
Straight up cost problem, and this is with plants that don't need a railroad to get the mined coal from the mine to the electric generation plant.
Oh - and no plan to transition from coal to natural gas.

Oh yes please!

 

[Dave EV]

I expect we'll start seeing more articles like this one:
Why Is Warren Buffett Ditching His Coal Plants? | OilPrice.com

Coal plants planning to be closed.
Nothing said about greenwashing / decarbonization.
Straight up cost problem, and this is with plants that don't need a railroad to get the mined coal from the mine to the electric generation plant.
Oh - and no plan to transition from coal to natural gas.

Yep. Next on the line - natural gas plants will soon face the same fate as solar/wind/batteries continue to drop in price.

 

[TheTalkingMule]

Yep. Next on the line - natural gas plants will soon face the same fate as solar/wind/batteries continue to drop in price.

This is a major component of Battery Day a lot of people don't see coming. Pricing of renewables+battery, PPA or otherwise, is getting clearer and clearer. Utility and govt pushback is nearing a major tipping point where red and blue voter alike will turn on those opposed to progress.

If Elon walks out on stage with staggering cost and longevity improvements as expected, all he needs to do is help connect the dots in comparison to legacy systems and the floodgates will open for good.

I'd love to see some huge project announcements like a plan for Puerto Rico to go along with the more technical unveilings.

 

[jhm]

It's 2020. Time to crush fossil fuels.

Are Oil Stocks ‘Too Toxic To Trade’ | OilPrice.com

Oil companies are waking up to the reality that they have become a toxic industry. They can share the same stigma as tobacco companies. After all, they have shared the same merchant of doubt playbook, so they can share the same stigma for having lied about the science so as to evade public accountability.

If they really want to do the world a favor and make a little profit at the same time, oil and gas companies should just stop over supplying the markets and return capital to investors. The world can just go on a fossil diet and learn how to get by with less fossil fuels produced each year. Let the price of oil go up to $100 and two things would happen. Oil companies would be hugely profitable, and oil consumption would rapidly decline. But keeping the global economy addicted to cheap oil? That sht has got to go.

 

[STARR X]

It's 2020. Time to crush fossil fuels.

Are Oil Stocks ‘Too Toxic To Trade’ | OilPrice.com

Oil companies are waking up to the reality that they have become a toxic industry. They can share the same stigma as tobacco companies. After all, they have shared the same merchant of doubt playbook, so they can share the same stigma for having lied about the science so as to evade public accountability.

If they really want to do the world a favor and make a little profit at the same time, oil and gas companies should just stop over supplying the markets and return capital to investors. The world can just go on a fossil diet and learn how to get by with less fossil fuels produced each year. Let the price of oil go up to $100 and two things would happen. Oil companies would be hugely profitable, and oil consumption would rapidly decline. But keeping the global economy addicted to cheap oil? That sht has got to go.

Just from reading this tread and some of its’ links, it is my guess there is will be less oil produced in 2020 (at least in the USA) because of less money flowing into fracking. Am I understanding this correctly?

 

[TheTalkingMule]

Just from reading this tread and some of its’ links, it is my guess there is will be less oil produced in 2020 (at least in the USA) because of less money flowing into fracking. Am I understanding this correctly?

Unlikely. Two days ago growth might have been 400k barrels, now....who knows. Frackers are certainly rejoicing this morning.

 

[jhm]

Just from reading this tread and some of its’ links, it is my guess there is will be less oil produced in 2020 (at least in the USA) because of less money flowing into fracking. Am I understanding this correctly?

Investment levels look to decline, but it's not clear to me how much investment levels must fall for production to decline. Less growth, but maybe not negative growth.

Then there is the Iran situation. Geopolitical risk is driving the price of oil up right now. So that could get US producers back into all out production.

 

[jhm]

The Next Ten Years In Oil Markets | OilPrice.com
IEA: Peak Oil Demand Is Less Than A Decade Away | OilPrice.com

How did I miss this? The IEA is now saying that demand for oil may peak near 2025. They are recognizing the role of renewables and EVs in restructuring oil demand. But they are holding out for a platuea that stretches into the 2030s. Moreover, they speculate that oil prices could be about $90/b in 2030 out of consideration natural decline rates. Platts and other representatives of oil industry wisdom are also coming to similar conclusions.

It is satisfying to see the IEA and others continue to walk back their estimates of peak demand. I've had to do the same. When I first started looking at this 2025 or 2026 seemed to be the peak, and now I have walked that back to 2023 to 2025. But that is a much smaller trek than IEA has made from 2040 or later now down to 2025.

What these insider analysts seem to be missing however is still that tech like EVs will continue to grow exponentially after oil peaks. This means mathematically that the post peak fall off will be steeper than pre peak run up. The demand plateau scenario is simply at odds with an exponential disruption. So the IEA seems to be in some sort of bargaining stage of grief. They are willing to accept peak near 2025 if the industry can get a long plateau with high oil prices. Reality doesn't bargain in this way. If you replace the gentle plateau with exponential decline, natural decline rates may tested. E&P players will be cut to ribbons. It will be hard to cut production fast enough to maintain prices above $30 a barrel. So the IEA analysts still appear to be walking half asleep into the apocalypse.

My prediction is come this time next year, the will have walked back this golden plateau narrative.

The ace up my sleeve is that the IEA still does not recognize that heavy duty EVs are a thing. Moreover, the combination of BEV drivetrains and near autonomy will make trucks like the Tesla Semi hugely compelling. Hopefully within the next 12 months they can wake up to just disruptive AEVs can be to commercial fleets. Very quickly we will get to a place where the only thing holding back AEVs is the time it takes to ramp up the battery supply. Oil demand from freight is very much a risk and can be disrupted more quickly than oil demand from private autos.

 

[mblakele]

Jeremy Grantham on divesting from Big Oil
A contrarian investor on the hazards of owning fossil-fuel stocks

[...] The s&p index returned an average of 9.71% annually between 1989 and 2017; the index excluding energy stocks returned 9.74%. The range of returns, from the worst portfolio to the best, was just 0.5 percentage points.

[...]

Mr Grantham believes that oil might yet prove an exception. Oil demand has already peaked in rich countries and, as climate fears grow and green technologies become cost-effective, it will eventually peak worldwide. But not everyone is keenly focused on this prospect. Scepticism regarding climate science is common in America. To the extent that sceptics are investors, and are betting on business as usual, at least some of the risks facing Big Oil may not be in the price.

[...]

A lot of finance types quietly suspect that greenery is anti-capitalism in metastatic form. Mr Grantham is clearly not of this anti-business persuasion. That makes it far harder to dismiss his arguments out of hand. “This is the first time that a major industry has been put on notice that it is going out of business, even if it may take a long time,” he says. His arguments pose a challenge to investors: do you really want to go along for such a bumpy ride?

​

 

[jhm]

Average U.S. Natural Gas Prices Hit Three-Year Low In 2019 | OilPrice.com

Average Henry Hub price in 2019 was $2.57/mmBtu, down $0.60/mmBtu or 19% from the prior year. 2020 is starting out at about $2.15/mmBtu.

Will gas come down another 19% in 2020? Given that gas is competing with wind, solar and batteries which are collectively coming down some 15% or so, it seems reasonable that gas price must continue down the price path. Perhaps we'll see the average come down to about $2.20/mmBtu.

 

[mspohr]

Average U.S. Natural Gas Prices Hit Three-Year Low In 2019 | OilPrice.com

Average Henry Hub price in 2019 was $2.57/mmBtu, down $0.60/mmBtu or 19% from the prior year. 2020 is starting out at about $2.15/mmBtu.

Will gas come down another 19% in 2020? Given that gas is competing with wind, solar and batteries which are collectively coming down some 15% or so, it seems reasonable that gas price must continue down the price path. Perhaps we'll see the average come down to about $2.20/mmBtu.

There is price inelasticity because all of these modes depend on built infrastructure. You can't just switch from NG to solar without the infrastructure and that is where to look for change. As long as solar and wind are cheaper than NG, they will get built and NG plants will close.

 

[winfield100]

There is price inelasticity because all of these modes depend on built infrastructure. You can't just switch from NG to solar without the infrastructure and that is where to look for change. As long as solar and wind are cheaper than NG, they will get built and NG plants will close.

@mspohr
https://www.bp.com/content/dam/bp/b...l-review/bp-stats-review-2019-full-report.pdf
Look at page 12 and how renewables are increasing

 

[mspohr]

@mspohr
https://www.bp.com/content/dam/bp/b...l-review/bp-stats-review-2019-full-report.pdf
Look at page 12 and how renewables are increasing

I agree renewables are increasing. NG can't compete on price. My point was that it will take time to build the infrastructure.

 

[winfield100]

I agree renewables are increasing. NG can't compete on price. My point was that it will take time to build the infrastructure.

@mspohr
Agreed, however, the infrastructure has been being built probably last 40-60 years in tiny bits and is finally becoming evident.

 

[jhm]

There is price inelasticity because all of these modes depend on built infrastructure. You can't just switch from NG to solar without the infrastructure and that is where to look for change. As long as solar and wind are cheaper than NG, they will get built and NG plants will close.

True in the short run, but I'm talking about changes in annual average prices.

We might focus on global LNG trade, which also bears substantial infrastructural costs too. If you are building out generation capacity in an LNG import market, you are pricing out alternatives based on longterm gas supply contracts that can be negotiated. That's you basis for investing in the infrastructure to import more gas or to transmit power. All that gets factored into these decisions.

Wherever WSB is cheapest in places where LNG might trade, it will negatively impact demand growth for LNG and prices. It can increase LNG supply in LNG export markets by decreasing domestic demand for gas. And it can decrease demand in LNG importing markets. Either way LNG markets become oversupplied and prices fall.

As the global LNG price goes, so goes Henry Hub and other domestic producer prices that are connected to LNG trade.

 

[jhm]

Another point regarding infrastructure, is that batteries play a unique role in avoiding infrastructure costs. They can increase the utilization of transmission capacity and avoid need for other peaking capacity and grid services. They can also avoid the need to build out gas import/export and distribution capacity. Utilities are just starting to figure out how flexible batteries can be in avoiding infrastructural capacity.

But the real kicker is that batteries are rapidly deployable. A 100MW system can be deployed in as little as one quarter. Compare that with years of development to add transmission capacity or LNG import terminal.

There are reasons to believe that WSB will have infrastructural advantages over gas generators. This will become increasingly clear as the stationary battery industry scales up.

 

[jhm]

Low Gas Prices Crush Appalachia Shale Boom | OilPrice.com

So it looks like gas prices below $2.5/mmBtu are too low to sustain production in Appalachia. Starting to see production declines. And producers are headed for bankruptcy. Associated gas can tolerate even lower prices.

So maybe $2.2/mmBtu at Henry Hub is about as low as it can get.

It seems a nasty act of climate aggression to be flooding the markets with so much surplus gas.

 

[jhm]

U.S. refinery sales hit the brakes, with 5% of capacity on block

Anybody want to buy a refinery in the US? About 5% of US capacity has a For-Sale sign on it.

Concerns are margin compression, expensive upgrades needed, and competition from other refineries re-opening in the Caribbean. But unstated in the article is that fuel consumption in North America is declining too. Declining demand is what forces domestic refiners to export and worry about competition that increases trade or decrease imports.

So we are already seeing signs of peak oil demand. It create surplus refining capacity andrives margins down. Eventually some of this surplus refining capacity will need to be shut down. So find buyers now while you can.

 

[TheTalkingMule]

Our exploded refinery(largest in the East) goes on the auction block next week. Hoping Elon is there with his $1 bid.