Shorting Oil, Hedging Tesla

[adiggs]

This one is a good resource:

"Costs of Storing and Transporting Hydrogen"
https://www.nrel.gov/docs/fy99osti/25106.pdf

That's very good stuff. Consider your post to be the gory details, weighing in at 50 pages. My post is the sound bite version, saying essentially "hydrogen storage hard"

 

[adiggs]

Interesting, I had not heard the 24 degree average before. It is helpful for trying to imagine how the industrial geography will change long-term in response to solar becoming the cheapest energy source in the world. Will we see high energy industries migrate closer to the equator? Will we see more economic activity move toward the equator? Political obstacles notwithstanding, it seems this could be possible.

This is why I come here, and keep coming back. New ideas, new education; I learn stuff constantly from y'all, and I do appreciate it.

 

[ggies07]

There have been some studies suggest that having RE at 150% to 200% plus 6-8h batteries and electrolyzers make for the lowest cost mix.

I think I remember reading an article from here about this....maybe had a graph in it comparing the costs?....Did you share it or someone else? I usually keep a list of all the important articles I read to share with others, but I can't find this one...

 

[BriansTesla]

IWe're still learning what to do with this abundance, and soon we'll be trying to figure out what to do with all of that abundance of energy (I can't wait to see what we do!)

First, take down all the dams!

 

[mspohr]

Yeah, there are a lot of questions here. Any transformation of hydrogen into something else adds cost and consumes energy. But as long as we are transforming methane into hydrogen, there is little need to convert hydrogen in to methane. So the bigger question is how long will we continue SMR of natural gas. Could be many decades.

Some people have proposed converting it to ammonia. Currently another wasteful process from methane. Fertilizer is a big market. Also easy to store.

 

[Erleichda]

Hmmm.

SCO back in my consideration...I expect a recovery in oil price as COVID recovers in the coming years...but the headwinds, consolidation and stranded assets are so clear now that most major institutions are divesting/excluding up to 30% of their portfolios based on fossil fuel exposure.

Anyone want to talk me out of picking some up around $17 to hold?

 

[Oil4AsphaultOnly]

First, take down all the dams!

Initially I agreed, but then I realized that the bigger dams provide seasonal flood control as well as electricity production. Plus we get recreational areas as a third function out of the same structure. So maybe remove some dams, but not all.

 

[jhm]

I think I remember reading an article from here about this....maybe had a graph in it comparing the costs?....Did you share it or someone else? I usually keep a list of all the important articles I read to share with others, but I can't find this one...

Ah, now you're asking me to find these articles again. I was alerted to it on Twitter, so I might need to look though my likes. Could take a while.

For now, here is one article that applies that sort of research to Aus.
Why 200 per cent renewables would be better for Australia than 100 per cent | RenewEconomy

 

[ggies07]

Ah, now you're asking me to find these articles again. I was alerted to it on Twitter, so I might need to look though my likes. Could take a while.

For now, here is one article that applies that sort of research to Aus.
Why 200 per cent renewables would be better for Australia than 100 per cent | RenewEconomy

ah, this is the one I remember! thanks

 

[mspohr]

Too cheap to keep: How throwing away power is the best way to balance the grid

Don’t build a battery that costs $1 billion, only works 2% of the time and only moves around 100 GWh of electricity. Instead, build an Energy Imbalance Market or an Extended Day Ahead Market for $100 million that moves around hundreds of GWh of electricity.

Fortunately it turns out the duck curve is largely a manifestation of conventional thinking. An appreciation for both supply and demand side technologies reveals there are far more affordable ways to deal with the duck curve. The demand side needs to learn how to dance to the rhythm of the supply side

The cheapest form of flexibility we have on the power system is price signals combined with demand response. The California Department of Water Resources pumps in California are a good example of this. Ten years ago these pumps operated in the middle of the night but today they operate in the middle of the day when solar is plentiful. This is around 1 GW of water-pumping load that behaves in a totally different way — thanks to new price signals.

 

[adiggs]

Hmmm.

SCO back in my consideration...I expect a recovery in oil price as COVID recovers in the coming years...but the headwinds, consolidation and stranded assets are so clear now that most major institutions are divesting/excluding up to 30% of their portfolios based on fossil fuel exposure.

Anyone want to talk me out of picking some up around $17 to hold?

I'll give it a shot.

Read the prospectus carefully, and make sure SCO is actually going to do what you want it to do. When the oil market crashed (back in the May contract expiration), SCO needed to change what it actually does. It no longer tracks the near month expiration - one theory being that it was too large a fraction of the oil market, with too many other traders front running the monthly roll over of the contracts. So now it's a mix of different month expirations with I believe the longest dated expirations out in the 1 year timeframe.

A whole bunch of people back in May learned that SCO wasn't what they thought it was. And then they saw their investment vehicle change it's definition, and become something further different from what they thought they had bought.


I have other ideas but they start sounding vaguely like recommendations and I know so little that I'm more likely to be wrong than not, so I'll pass on anything further.


Short version - read the prospectus!

 

[TheTalkingMule]

SCO isn't nearly as locked into short term WTI price drops as it once was. I'd say SP increase is less than 2x the drop in WTI spot pricing.

It's really only good for making intraday bets.

 

[engine ear]

For the sunny desert southwest, I previously said:

150% solar (50% over capacity) plus 16 hours of storage covers 95.2% of demand. I think this will be a cost competitive system in the next few years.

So what about the remaining 5%?

Here is an estimate of capital costs for 2 different options. Costs are normalized for 100MW average demand. This is designed to supply 100MW during 5% of time.

Option 1) Long duration storage using hydrogen.

$0 curtailed power to supply electrolyzer (due to 150% solar)
$15M ($300/kW) 45 MW Electrolyzer, 33% duty cycle, 33% round trip efficiency
$45M ($1/kWh useable) 45000 MWh (usable) underground hydrogen storage
+ $30M ($300/kW) 100 MW fuel cell generator.
----------
$90M long duration storage

Option 2) backup generation using natural gas peaker plant

$90M ($900/kW) 100 MW open cycle gas turbine


Perhaps 100% renewable electricity is cost competitive in the desert southwest in the next few years. Real world costs for large scale electrolyzers and fuel cell generators hasn't been demonstrated yet. Companies building fuel cell cars claim their fuel cell stacks will cost less than $50/kW with volume production. With some system overhead, hopefully $300/kW is possible for grid scale storage. Things like grid connections and inverters can probably be shared between short term storage and long term storage for additional savings.

 

[mspohr]

Demand management is a good way to cut peaks. Lots of potential there if organized and incentivized property.

 

[engine ear]

Just to follow up, I focus on desert southwest because that will be the first region in the US, with large cities, where a 100% renewable electrical grid will cost less than fossil fuel. When that happens, it will be a tipping point and it will happen soon after in other regions as well.

So what are actual costs? In 2019 Los Angeles District Water and Power (LADWP) and 8minute Solar Energy signed a solar plus storage contract that at that time was the cheapest in the nation. PPA allows 2c/kWh for just solar or 4c/kWh with "4 hours" of battery storage for 75% of nameplate capacity. Note that "4 hours" of name plate capacity is 50% of daily output if the solar has 33% capacity factor or 12 hours of average solar output. Yes a "4 hour" battery provides 12 hours of storage (of average daily output). In this case 75% of a "4 hour" battery provides 9 hours of storage (of average daily output). Extrapolating that cost to a 150% solar + 16 hours of battery (of average daily demand), the cost is 3c solar + 3.6c battery = 6.6c / kWh. In the next few years, I would estimate it would be 3c solar + 1.3c battery = 4.3c / kWh . That covers 95% of demand.

For the remaining 5%, using $900/kW capital cost * 10% depreciation+interest / 8196 hours per year = 1.1c / kWh plus operations and maintenance maybe 50% more = 1.6c / kWh. These are ballpark numbers.

Total system cost for power generation is then 5.9c per kWh wholesale. I think that is less than a fossil fuel system in California, but hard to find solid numbers to compare to. I have read so many articles that talk about why it is impossible to hit 100% renewable energy at a reasonable cost. This isn't impossible. In the desert southwest is is almost here and not long after it will start happening elsewhere as costs continue to drop.

 

[TheTalkingMule]

Chevron pulling back from up 17(SEVENTEEN!)% this morning. Where and where should be buy long puts? This is going to be some of the easiest money in history.

Sitting at $81($156B market cap) right now and maybe heads toward $85-90 before Thanksgiving? $50 puts should be quite reasonable for Jan 2022 and even Jan 2023. That leaves CVX at a market cap of ~$100B which is still waaaaaaay too much. Think how that would feel in 2023.

Wild times!

 

[Oil4AsphaultOnly]

Chevron pulling back from up 17(SEVENTEEN!)% this morning. Where and where should be buy long puts? This is going to be some of the easiest money in history.

Sitting at $81($156B market cap) right now and maybe heads toward $85-90 before Thanksgiving? $50 puts should be quite reasonable for Jan 2022 and even Jan 2023. That leaves CVX at a market cap of ~$100B which is still waaaaaaay too much. Think how that would feel in 2023.

Wild times!

That doesn't make for a profitable put. With a $30 ask for the Jan 2022 50p, CVX would need to drop down to $20/share at option expiration for that trade to profit.

 

[TheTalkingMule]

That doesn't make for a profitable put. With a $30 ask for the Jan 2022 50p, CVX would need to drop down to $20/share at option expiration for that trade to profit.

I'm seeing ~$2.45 for $50 CVX puts expiring Jan 2022. You may be looking at the calls side?

While I have it open, a few more quotes:
Jan 2022 $60 strikes @ ~$5
Jun 2022 $60 strikes @ $5.25/$8.75
Jan 2023 $50 strikes @ $3.85/$7.35
Jan 2023 $40 strikes @ $1.44/$4.65

Gonna keep an eye on these and make a plan for slowly accumulating a fat pile, doubling down each time there's a price spike.

 

[Oil4AsphaultOnly]

I'm seeing ~$2.45 for $50 CVX puts expiring Jan 2022. You may be looking at the calls side?

While I have it open, a few more quotes:
Jan 2022 $60 strikes @ ~$5
Jun 2022 $60 strikes @ $5.25/$8.75
Jan 2023 $50 strikes @ $3.85/$7.35
Jan 2023 $40 strikes @ $1.44/$4.65

Gonna keep an eye on these and make a plan for slowly accumulating a fat pile, doubling down each time there's a price spike.

damn! You're right! My bad.

 

[Erleichda]

SCO isn't nearly as locked into short term WTI price drops as it once was. I'd say SP increase is less than 2x the drop in WTI spot pricing.

It's really only good for making intraday bets.

Great advice, thanks! So other than puts, are there really no other short funds out there?? Seems crazy.