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Erleichda
Member
And here we go: Pretty much the entire new admin is fossil fuel industry. Rick Perry for energy, Tillerson Sec of State, Pruitt at EPA, Corp of Engineers answers to DOD, Roberts for interior giving up public lands... Looking good for coal/fracking. Looking good for sanctions to go away for Russia. Looks like somebody is getting everything they wanted out of the election. Really, there are no other ways to slice it. Many others would have been more capable, nobody would have acquiesced to fossil fuel interests better than these picks. Writing on the wall for the Feds support of renewables I'm afraid.
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dc_h
Active Member
Hard for coal to make a comeback if you pull sanctions and reduce fracking restrictions. That will choke coal on price. Rick Parry also oversaw the fastest wind energy growth in the country and Texas solar is growing very rapidly. He may be a religious zealot, but he's not against wind and solar if there is a market for wind and solar. From a policy perspective, Trump wants to encourage fracking, which requires $50-60 oil. If there is 50-60 oil, there is profitable wind and solar. It's an interesting conundrum. Opec needs $50-80 oil to pay their gov't bills, Russia probably needs even more, and anything over 50 funds more wind and solar. 4% economic growth in the US, if it were to happen, would help. Elimination of CAFE standards will help (oil), but these also help wind\solar even more. Wind and solar are still declining in price, so any bump in fossil prices helps speed the transition.
Short term eliminating the solar tax credit would hurt residential and commercial. I don't think it will have a big impact on Tesla Motors, since they are running out of $7500 federal credits end of 2017 or early 2018.
I've been repeatedly rerunning the breakevens for gasoline vs. electric cars. The kwh/mile rating for electric cars is more important than I'd initially expected, though the price of electricity is critical. The price of electricity is capped by solar in the medium term, but not in the short term.
Non-hybrids max out at about 40 mpg (maybe 42 mpg)
Plug-in hybrids are primarily used in electrical mode, so I see them as reducing gas usage just as much as BEVs
Non-plug-in hybrids don't make sense (the cost of adding the plug is so close to nil) so I don't think they'll survive on the market; people will get a plug just as a hedge.
If you take 370 wh/mi and 14 cents/kwh electricity and a 40 mpg ICE car, you get $2.07 gasoline as the point when ICE cars can compete; above that BEVs are cheaper to fuel. These are highly pessimistic assumptions for BEVs. There are places where electricity is more expensive than this but in all these places it is cheaper to install your own solar panels than to keep buying the expensive electricity.
Now, there are variations in gas prices based on location, taxes, etc. However, jhm ran a regression on US average gas price vs. WTI a while back; in order for average gas prices to stay below $2.07, WTI has to stay below $44. But we already determined that nearly all of the producers of oil need WTI higher than $50 in order to profitably drill more wells.
In short, it is now impossible for new oil to be produced for gasoline cars more cheaply than the alternative (namely solar + electric car). I suppose Trump could literally mail $6/barrel checks to all the oil producers as big subsidies; nuclear is getting that kind of subsidy; but I kind of suspect that will be highly unpopular.
The Republican Party could somehow engineer a tax of, say, 20% on home-produced solar electricity, which would be *super* unpopular -- I doubt they could ever get a larger tax put through, after the reaction in Spain to their tax on the sun -- but that would only bring up the equivalency price to $52/bbl, and I'm still making pessimistic assumptions about EV efficiency. They could try Georgia's scheme of flat punitive registration fees for operating an electric car, but those are already super unpopular and I doubt they could get them through at the federal level, and they would probably only affect the decisions of low-mileage drivers, not of high-mileage drivers (where fuel costs vastly exceed the fee).
Now it's just a matter of replacing the installed base of vehicles. I just don't think the government can stop it.
Non-hybrids max out at about 40 mpg (maybe 42 mpg)
Plug-in hybrids are primarily used in electrical mode, so I see them as reducing gas usage just as much as BEVs
Non-plug-in hybrids don't make sense (the cost of adding the plug is so close to nil) so I don't think they'll survive on the market; people will get a plug just as a hedge.
If you take 370 wh/mi and 14 cents/kwh electricity and a 40 mpg ICE car, you get $2.07 gasoline as the point when ICE cars can compete; above that BEVs are cheaper to fuel. These are highly pessimistic assumptions for BEVs. There are places where electricity is more expensive than this but in all these places it is cheaper to install your own solar panels than to keep buying the expensive electricity.
Now, there are variations in gas prices based on location, taxes, etc. However, jhm ran a regression on US average gas price vs. WTI a while back; in order for average gas prices to stay below $2.07, WTI has to stay below $44. But we already determined that nearly all of the producers of oil need WTI higher than $50 in order to profitably drill more wells.
In short, it is now impossible for new oil to be produced for gasoline cars more cheaply than the alternative (namely solar + electric car). I suppose Trump could literally mail $6/barrel checks to all the oil producers as big subsidies; nuclear is getting that kind of subsidy; but I kind of suspect that will be highly unpopular.
The Republican Party could somehow engineer a tax of, say, 20% on home-produced solar electricity, which would be *super* unpopular -- I doubt they could ever get a larger tax put through, after the reaction in Spain to their tax on the sun -- but that would only bring up the equivalency price to $52/bbl, and I'm still making pessimistic assumptions about EV efficiency. They could try Georgia's scheme of flat punitive registration fees for operating an electric car, but those are already super unpopular and I doubt they could get them through at the federal level, and they would probably only affect the decisions of low-mileage drivers, not of high-mileage drivers (where fuel costs vastly exceed the fee).
Now it's just a matter of replacing the installed base of vehicles. I just don't think the government can stop it.
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and this one: Trump taps climate skeptic McMorris Rodgers to head Interior
The more I think about it, the more this looks like that last hurrah for the dirty energy industry. One more chance in the next 10 years to make as much money as possible before the next era of creating and using energy is clean.
TheTalkingMule
Distributed Energy Enthusiast
Zero chance. EV is inherently cheaper with better performance, the cat is out of the bag.
I mentioned in an earlier Energy thread that Germany had it's best solar install years when their subsidies were being aggressively ratcheted downward. In December 2011 they installed 3GW of solar. That is an absurdly huge amount of installs for a country the size of Germany.
As you say, any move the fossil side makes is either opening up marketshare for renewables or is stimulative for renewables as a whole. We are in a win/win that just needs to run it's course. Over the next two years I believe we'll end up installing a good bit more residential solar than we would have under another POTUS.
Squeezing the ITC subsidy will simply add urgency and lead to insane install volume as everyone rushes to get in under the wire. After that markets are at scale nationwide and the game's over regardless of subsidy.
Erleichda
Member
I'm assuming, maybe incorrectly, that the "50-60 oil, there is more prfitable wind and solar" because of the switch away from LNG? Or you mean overall, electricity generation with oil is more expensive than wind/solar?
I agree with the metrics; I'm more worried by changes to regulations and governance and can't yet figure out how they are going to do it....
@jhm pretty much nailed it from this post #231, except they will sell half in 10 years instead of the whole thing. But it's a great summary of what looks like is coming true. Where did ya go jhm!?! 
Saudi Arabia Planning to Sell 49% of Aramco, Eqtisadiah Says
Saudi Arabia Planning to Sell 49% of Aramco, Eqtisadiah Says
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adiggs
Well-Known Member
@jhm pretty much nailed it from this post #231, except they will sell half in 10 years instead of the whole thing. But it's a great summary of what looks like is coming true. Where did ya go jhm!?!
Saudi Arabia Planning to Sell 49% of Aramco, Eqtisadiah Says
I'm watching this with interest. Not for myself, but to see how well Saudi Aramco does with public company transparency. Today, excess revenue (profit) goes to the government - in effect a dividend. But do they already have the infrastructure in place to declare dividends and keep government coffers separate from the oil company, or do they sort of blur together? As a public company with quarterly reporting and regular audits, that has to be a bright white line, with 5% of declared dividends going to the new shareholders and 95% going to the government.
Will they actually pull that off and make shareholders comfortable there isn't any funny business going on in the books behind the scenes? It's easy to take new shareholder's money on the front end of this deal - will they do a good job on the back end?
I hope they pull it off and do it well. I expect there will be a lot of demand for what I expect will be a very nice dividend stream for several decades to come. The article points to several very big / deep pockets that might be interested in a big chunk of the company.
The article also points to the other big challenge - the proceeds from this needs to do more than sustain current lifestyles for a few decades - this is the financial resource that builds new infrastructure and non-oil economic activity that transforms the Saudi economy for decades and centuries to come. Is this the inheritance that gets wisely invested and provides centuries of a good economy for the country, or does it get squandered and frittered away during our lifetime?
I wish them well with this.
Happy New Year! Thanks for remembering me.@jhm pretty much nailed it from this post #231, except they will sell half in 10 years instead of the whole thing. But it's a great summary of what looks like is coming true. Where did ya go jhm!?!
Saudi Arabia Planning to Sell 49% of Aramco, Eqtisadiah Says
The election just burnt me out on following Tesla for a while. Still in recovery.
My wish for 2017 is to see EVs, solar and batteries advance in spite of whatever crap the Trump Admin can throw at it.
Cheers!
Hmm, what's really going on behind this retraction?
Saudi Paper Retracts Aramco 49% Stake Sale Plan Story
Saudi Paper Retracts Aramco 49% Stake Sale Plan Story
TheTalkingMule
Distributed Energy Enthusiast
.....and WTI tanks $2.50 in an hour. LOL
This is going to be an interesting and tumultuous year.
This is going to be an interesting and tumultuous year.
Here's what I'm puzzling with today. US production of natural gas declined last year for the first time in 10 years. Meanwhile consumption has continued to increase. A few years ago, the US became a net exporter of gas. Meanwhile the annual price of gas has been low, around $2.5/mmbtu, and lots of gas producers have gone bankrupt.
So that's the scene. What I find curious is that production would peak and the price fall BEFORE consumption peaks. This gives us a scenario that could play out with oil too. Is it possible that oil production could peak and the price tumble years before peak oil demand occurs? I had not really thought through that scenario before. Rather my focus was on peak demand being the driver collapse of the oil market. In a way this is conservative in that it allows collapse to take longer than what may actually play out.
But oversupply and price collapse prior to peak demand may be natural part of the economic process. In the case of gas, it is easier to estimate the price cap implied by renewables. Tightening price competition happens before critical volumes of supply are displaced. Meanwhile, the industry can continue to rightly anticipate increasing demand for several years. So producers shrug off low prices and continue to invest in growing supply until a glut is so severe that capital is driven away from the fossil market. In the case of gas, storage capacity is quite constrained and is mostly used to storage up for winter consumption. So the US gas market has balanced already, inventory is at 5-year average. This is why the price has surged to $3.75/mmbtu. (Down 10% today on warm weather forecast.) However, most forecasters are expecting an average price of $3/mmbtu for 2017. Now both solar and wind are pushing PPA prices below $30/ MWh. So gas is likely at parity around $3/ mmbtu. The gas industry does not believe this price cap, so they are inclined to believe that increasing demand must eventually lead to higher prices and continue to overestimate demand for gas. If this is so, we may see prices near $4 lead to expansion of supply in 2017, leading in turn to price collapse in 2018. And this gets us to supply decline again in 2019. I envision a 3 year cycle like this replicating through peak demand and maybe beyond.
Could that sort of cycle play out with oil. I suspect that the cycle would be longer than for gas because of elasticity in storage capacity and a global market. So the oil cycle may be 5 to 7 years in length. The glut phase is about 2 years from mid 2015 to mid 2017. Next, Producers are largely agreeing to a supply reduction. This will tighten up the market and stabilize prices for about two years. Then in 2019 prices could be higher. Producer confidence will lead to a few years of supply expansion. Til finally, oil is back in a glut starting around 2021. Peak demand is still perceived to be about 10 year way, though in reality it come around 2025. In this scenario, the glut that begins in 2021 never resolves even as oil consumption continues to grow for about four years.
So all this is quite conjectural, and I do not have any sort of model to base it on. So let's rip this apart and see if there is any thing of merit to it. It does have implications for investing, but the bigger picture is that the oil industry could enter serious economic decline four years or so before demand peaks. And this disaster would be a combination of softening demand stemming from EVs coupled with bad cyclical expectations within the oil industry.
So what do you all think?
So that's the scene. What I find curious is that production would peak and the price fall BEFORE consumption peaks. This gives us a scenario that could play out with oil too. Is it possible that oil production could peak and the price tumble years before peak oil demand occurs? I had not really thought through that scenario before. Rather my focus was on peak demand being the driver collapse of the oil market. In a way this is conservative in that it allows collapse to take longer than what may actually play out.
But oversupply and price collapse prior to peak demand may be natural part of the economic process. In the case of gas, it is easier to estimate the price cap implied by renewables. Tightening price competition happens before critical volumes of supply are displaced. Meanwhile, the industry can continue to rightly anticipate increasing demand for several years. So producers shrug off low prices and continue to invest in growing supply until a glut is so severe that capital is driven away from the fossil market. In the case of gas, storage capacity is quite constrained and is mostly used to storage up for winter consumption. So the US gas market has balanced already, inventory is at 5-year average. This is why the price has surged to $3.75/mmbtu. (Down 10% today on warm weather forecast.) However, most forecasters are expecting an average price of $3/mmbtu for 2017. Now both solar and wind are pushing PPA prices below $30/ MWh. So gas is likely at parity around $3/ mmbtu. The gas industry does not believe this price cap, so they are inclined to believe that increasing demand must eventually lead to higher prices and continue to overestimate demand for gas. If this is so, we may see prices near $4 lead to expansion of supply in 2017, leading in turn to price collapse in 2018. And this gets us to supply decline again in 2019. I envision a 3 year cycle like this replicating through peak demand and maybe beyond.
Could that sort of cycle play out with oil. I suspect that the cycle would be longer than for gas because of elasticity in storage capacity and a global market. So the oil cycle may be 5 to 7 years in length. The glut phase is about 2 years from mid 2015 to mid 2017. Next, Producers are largely agreeing to a supply reduction. This will tighten up the market and stabilize prices for about two years. Then in 2019 prices could be higher. Producer confidence will lead to a few years of supply expansion. Til finally, oil is back in a glut starting around 2021. Peak demand is still perceived to be about 10 year way, though in reality it come around 2025. In this scenario, the glut that begins in 2021 never resolves even as oil consumption continues to grow for about four years.
So all this is quite conjectural, and I do not have any sort of model to base it on. So let's rip this apart and see if there is any thing of merit to it. It does have implications for investing, but the bigger picture is that the oil industry could enter serious economic decline four years or so before demand peaks. And this disaster would be a combination of softening demand stemming from EVs coupled with bad cyclical expectations within the oil industry.
So what do you all think?
I kinda think that supply = demand since global storage is probably about 2week supply (wild guess).
but yes price destruction occurs prior to a production peak, an increase in production disguises the decrease in prices. see iron ore prices over the past 5 years.
If Trump is able to 'thread the needle' in regards to North American oil production and demand, then it is possible for USA to become a non-entity in the oil import business. That has profound geo-politic implications.
It would also probably boost Tesla sales, if the relationship between oil wealth/poverty that Norway/Denmark has in regards to EV sales.
dc_h
Active Member
We've had conjecture about oil prices over $50 allowing producers to sell futures 2-3 years out and pump the drilled but uncompleted wells and drive up capacity again. I haven't seen any math on combined oil and gas prices. If gas is over 3.50 and oil is around $50, are those well more competitive than oil at 55 and gas at 2.50? This is really a best case scenario for the US, making our oil more competitive, but also leaving a gap for solar and wind to continue to eat market share. Weaker producers can't export LNG, so they are still in a hole vs US and middle east oil. What percent of revenue is gas for average shale wells? I thought the value add for gas would be higher for Permean basin than other shale regions, due to pipeline access.
dc_h
Active Member
NG is a byproduct of most oil wells. They burn it off on many wells, where there are no pipelines.I'm assuming wells where gas pipelines are in place, would have a cost advantage. I would expect the NG to crude ratio to vary regionally and countries without local industries to use NG or LNG terminals to export would lose any value add the NG could contribute above the crude production.
PS: Welcome back Jim. This is my favorite long term thread. I think it will be interesting to see how markets respond to CCP proposals and the impact oil and banking industry leaders now running most key agencies might over the next 4-8 years.
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