Shorting Oil, Hedging Tesla

[jhm]

Big Oil’s Foray Into Renewables Has Completely Changed The Market | OilPrice.com

The major investments from big oil into renewable energies have significantly increased competitiveness and reduced profitability in the solar and wind market

oilprice.com

Apparently, enough Big Oil money is flowing into renewables that some traditional renewable companies are under margin compression from greater competition. I think this is a wonderful development.

 

[ammulder]

Big Oil’s Foray Into Renewables Has Completely Changed The Market | OilPrice.com

The major investments from big oil into renewable energies have significantly increased competitiveness and reduced profitability in the solar and wind market

oilprice.com

Apparently, enough Big Oil money is flowing into renewables that some traditional renewable companies are under margin compression from greater competition. I think this is a wonderful development.

Wait, the premise of those articles makes no sense at all. Oil companies are bidding more for the rights to offshore wind fields, therefore wind turbine makers get lower profits? I’d like to see the logic on that one.

I think both the article you quoted and the one it’s based on make a few more salient points that might account for lower profits. Average wind speed was down for the quarter. They lock in prices before building the turbines, so when materials and shipping costs go up in the mean time, they’re screwed. Stuff like that makes sense to me.

Oil majors throwing more money at building more offshore wind, that’s hard to buy as a drag on profits of wind turbine makers. Even if it means a turbine maker couldn’t themself buy the rights to a wind farm, it wouldn’t lower profits at existing ones. I guess I just need this one spelled out for me.

 

[Oil4AsphaultOnly]

Big Oil’s Foray Into Renewables Has Completely Changed The Market | OilPrice.com

The major investments from big oil into renewable energies have significantly increased competitiveness and reduced profitability in the solar and wind market

oilprice.com

Apparently, enough Big Oil money is flowing into renewables that some traditional renewable companies are under margin compression from greater competition. I think this is a wonderful development.

Hmmmm, why am I suddenly concerned about those oil companies buying these projects only to slow them down? Like the way Chevron bought the rights to NiMH batteries to hinder their use in EV's and hybrids?

 

[jhm]

Wait, the premise of those articles makes no sense at all. Oil companies are bidding more for the rights to offshore wind fields, therefore wind turbine makers get lower profits? I’d like to see the logic on that one.

I think both the article you quoted and the one it’s based on make a few more salient points that might account for lower profits. Average wind speed was down for the quarter. They lock in prices before building the turbines, so when materials and shipping costs go up in the mean time, they’re screwed. Stuff like that makes sense to me.

Oil majors throwing more money at building more offshore wind, that’s hard to buy as a drag on profits of wind turbine makers. Even if it means a turbine maker couldn’t themself buy the rights to a wind farm, it wouldn’t lower profits at existing ones. I guess I just need this one spelled out for me.

Yeah, I have similar concerns. Oilprice.com tends to write articles that pander to dreams an phantasies of the oil industry. I think they are trying to play up oil and gas companies as 'disruptors' of the renewable industry. They have this belief that RE can handle real competition. I find this rather silly. Renewable energy companies have been fiercely competing against each other and against fossil fuels will every advantage tilted against RE. Well known is the steep experience curves that ruitinely cut revenue per unit by double digits each year for decades. It is certainly possible that recent high fossil fuel prices have oil companies throwing more money at RE project than usual, but this does not mean that these companies actually know how to compete in this space. My hunch is that most of the RE industry welcome these investments from oil companies. At a minimum, I think we can agree that big oil sinking surplus cash into RE assets is better for the climate than plowing these dollars back into fossil assets.

 

[jhm]

Renewables are 92% of new US electrical generating capacity in H1

According to a review by the SUN DAY Campaign of data recently released by the Federal Energy Regulatory Commission (FERC) and the US Energy Information Ad

renewablesnow.com

This is awesome.

 

[TheTalkingMule]

Wonderful to see this gree washing investigated. Maybe this'll cut off BP and their like from the green finance world.

Deutsche fund arm faces U.S. probe over sustainable investments

The U.S. Securities and Exchange Commission is investigating Deutsche Bank's asset manager DWS over how it used sustainable investing criteria to manage its assets, two people with knowledge of the matter said on Thursday.

www.reuters.com

 

[jhm]

Asset Manager: ESG Trend Raises Borrowing Costs For Oil Firms | OilPrice.com

The environmental, social and governance trend, and investor concerns about company ESG performance have led to a spike in borrowing costs for oil companies as investors are increasingly pressured to cut exposure to fossil fuels

oilprice.com

Nice to see ESG working.

 

[AndreP]

As much as I hate to move on from my 6,969 post count, I think people need to realize we're being trolled.

IEA transition plan? The IEA is essentially the PR wing of Big Oil. Everyone knows this.

Coal investment? COAL! INVESTMENT! Lol!

Peabody (ticker BTU) is now closing in on $16, fully doubled since it first came up in this thread when I asked about coal companies and +1,800% if you bought in the depths of the pandemic

This is the closest I've come to regret over not buying into something

 

[TheTalkingMule]

Peabody (ticker BTU) is now closing in on $16, fully doubled since it first came up in this thread when I asked about coal companies and +1,800% if you bought in the depths of the pandemic

This is the closest I've come to regret over not buying into something

AMC is at $40. What's your point? Coal is done, I'm not trying to capture little random windows of SP appreciation.

Yes, the oil majors will double more than a couple of times in the chaos after the bottom falls out. Still not gonna try to guess when that will be. Not to mention....the bottom hasn't even fallen out yet.

I'm muchore interested in wagering the bottom will fall out. Because that is a relative certainty within a few years.

 

[AndreP]

AMC is at $40. What's your point? Coal is done, I'm not trying to capture little random windows of SP appreciation.

Yes, the oil majors will double more than a couple of times in the chaos after the bottom falls out. Still not gonna try to guess when that will be. Not to mention....the bottom hasn't even fallen out yet.

I'm muchore interested in wagering the bottom will fall out. Because that is a relative certainty within a few years.

AMC is a meme stock driven by speculation and is ultra high-risk with zero fundamentals. Peabody was an unloved value buy that’s being driven back up by a massive rally in coal prices at the back end of cyclical boom-and-bust pattern exacerbated by ESG concerns creating a disconnect with the global energy reality.

I still don’t know coal that well and definitely wouldn’t buy in now, but I’m chuckling at the idea that coal was uninvestable.

What will happen with the same forces acting on the much larger oil industry? I guess time will tell.

 

[ItsNotAboutTheMoney]

Renewables are 92% of new US electrical generating capacity in H1

According to a review by the SUN DAY Campaign of data recently released by the Federal Energy Regulatory Commission (FERC) and the US Energy Information Ad

renewablesnow.com

This is awesome.

Where do they get their numbers? Maybe it's just related to infrastructure.
EIA says that 5.3GW of natural gas capacity was added through June 2021, 6.9GW of wind, 4.7GW of solar.
The NG was a mixture, with of 2.8GW steam turbine and 1.9GW CCGT. So maybe there was a lot of conversion.
Plus 5.9GW of coal was derated or closed, as well as 2.8GW of petroleum liquid generation.

 

[TheTalkingMule]

Peabody was an unloved value buy that’s being driven back up by a massive rally in coal prices at the back end of cyclical boom-and-bust pattern exacerbated by ESG concerns creating a disconnect with the global energy reality.

I guess we'll just have to disagree that Peabody, or coal in general, remains a cyclical entity. If it is, what part of the cycle are we in now........pre-next-bankruptcy? You can make a killing trading coal stocks if you happen to be right at that moment in time, but there's very little fundamentals to the valuation swings.

I'm just saying these are now penny stocks. Peabody has negative earnings and there's little chance of that reversing in any sustainable fashion. So why invest in that? Especially when you know for a fact the entire industry is going to zero.

Oil & gas will have it's "coal moment" where the sector permanently loses most of it's valuation. I do tend to pull these events forward a couple years in my mental model once it becomes a near certainty, so maybe it's not now or 2022. But it's in the mail.

 

[adiggs]

AMC is a meme stock driven by speculation and is ultra high-risk with zero fundamentals. Peabody was an unloved value buy that’s being driven back up by a massive rally in coal prices at the back end of cyclical boom-and-bust pattern exacerbated by ESG concerns creating a disconnect with the global energy reality.

I still don’t know coal that well and definitely wouldn’t buy in now, but I’m chuckling at the idea that coal was uninvestable.

What will happen with the same forces acting on the much larger oil industry? I guess time will tell.

It seems pretty clearly that our investment horizons are different at least to me. And I haven't seen you articulate the investment horizons that you think in terms of. Do you consider buy and hold Peabody over 2 years to be a good idea or not? Even better - do you buy and hold anything for 2+ years? Nothing magic in the 2 years, and its completely reasonable to be trading in and out of stuff such that 2 years is an impossibly long time to own something. Lots of people making lots of money with shorter holding periods. (I chose 2 years from the availability of 2 year puts and calls).

The rest of this conversation is around the idea of a 2+, and mostly (at least in my case), 5+ year holding periods. Definitely not (again in my case) anything to do with trading in and out on a weekly, monthly, or even quarterly basis.


I continue to agree with one of the points you've made several times - the world is going to be burning a lot of coal and oil for a long time to come. The unit demand will continue to be high. As Elon put it not so long back - if there was a big red button he could press that stop burning of fossil fuels completely in the whole world, he wouldn't press it. The effect would be disastrous. Like collapse back towards the stone age and stone age populations disastrous (well - somewhere far back in human civilization).

The split in thinking that some are starting to make though, is that unit demand and even unit price, don't lead to the same company market cap. Coal unit demand, and maybe even unit price, are still high. Not as high as 2007 but still high (at least in the US, more than 1/2 and less than 3/4 of demand today than then). But the company's are 1/2 to 3/4 as valuable. They're worthless today compared to what they were then (worthless is an approximation - the 2007 share holders have been wiped out, and bondholders hurt pretty badly as they were turned into shareholders).


Or when you say "chucking at the idea that coal is uninvestable", are you seeing an opportunity for a 5+ year investment with solid returns? Time frames - what time frames are you talking about? I sense that we're talking past each other, simply because we have different timeframes we think in terms of.

 

[Oil4AsphaultOnly]

Peabody (ticker BTU) is now closing in on $16, fully doubled since it first came up in this thread when I asked about coal companies and +1,800% if you bought in the depths of the pandemic

This is the closest I've come to regret over not buying into something

laws of large numbers and all that. If you had bought TSLA from the depths of the pandemic (~$450 pre-split), it is now up ~800%. Yes, gambling occasionally nets you winners, but much like the pandemic (which is a unique point of history) should not be extrapolated for historical trends.

 

[AndreP]

laws of large numbers and all that. If you had bought TSLA from the depths of the pandemic (~$450 pre-split), it is now up ~800%. Yes, gambling occasionally nets you winners, but much like the pandemic (which is a unique point of history) should not be extrapolated for historical trends.

Buying unloved and underpriced stocks is the opposite of gambling, that's value investing. People who know and were watching coal, and understood the reality of global energy demand, have surely made a ton of money off this. And I'm not saying demand is or will ever return to what it was, but clearly there was a major value disconnect here.

It seems pretty clearly that our investment horizons are different at least to me. And I haven't seen you articulate the investment horizons that you think in terms of. Do you consider buy and hold Peabody over 2 years to be a good idea or not? Even better - do you buy and hold anything for 2+ years? Nothing magic in the 2 years, and its completely reasonable to be trading in and out of stuff such that 2 years is an impossibly long time to own something. Lots of people making lots of money with shorter holding periods. (I chose 2 years from the availability of 2 year puts and calls).

The rest of this conversation is around the idea of a 2+, and mostly (at least in my case), 5+ year holding periods. Definitely not (again in my case) anything to do with trading in and out on a weekly, monthly, or even quarterly basis.


I continue to agree with one of the points you've made several times - the world is going to be burning a lot of coal and oil for a long time to come. The unit demand will continue to be high. As Elon put it not so long back - if there was a big red button he could press that stop burning of fossil fuels completely in the whole world, he wouldn't press it. The effect would be disastrous. Like collapse back towards the stone age and stone age populations disastrous (well - somewhere far back in human civilization).

The split in thinking that some are starting to make though, is that unit demand and even unit price, don't lead to the same company market cap. Coal unit demand, and maybe even unit price, are still high. Not as high as 2007 but still high (at least in the US, more than 1/2 and less than 3/4 of demand today than then). But the company's are 1/2 to 3/4 as valuable. They're worthless today compared to what they were then (worthless is an approximation - the 2007 share holders have been wiped out, and bondholders hurt pretty badly as they were turned into shareholders).


Or when you say "chucking at the idea that coal is uninvestable", are you seeing an opportunity for a 5+ year investment with solid returns? Time frames - what time frames are you talking about? I sense that we're talking past each other, simply because we have different timeframes we think in terms of.

Despite not knowing coal, I'm thinking it's not disappearing in 2-5 years. A spike in prices right now should theoretically boost production to meet the increased demand, but I don't know how much of that will be held up by the ESG angle in combination with the amount of time required to bring new coal production online. It seems that demand is remaining stubborn at current levels, which is likely unfortunate for the climate but seems to be the reality for densely-populated parts of Asia.

The average dollar-weighted holding time on my oil stocks right now is about 14 months, but I have buys from March 2020. Prior to that I held single ETFs for ~5 years, and I have no intention of selling these oil holdings as I expect these companies to continue generating great free cash flow and returning $$$ to investors. My perspective is that the energy transition will be long and drawn out and that my oil companies will still be generating big cash flow 10+ years from now.

 

[Oil4AsphaultOnly]

Buying unloved and underpriced stocks is the opposite of gambling, that's value investing. People who know and were watching coal, and understood the reality of global energy demand, have surely made a ton of money off this. And I'm not saying demand is or will ever return to what it was, but clearly there was a major value disconnect here.


Despite not knowing coal, I'm thinking it's not disappearing in 2-5 years. A spike in prices right now should theoretically boost production to meet the increased demand, but I don't know how much of that will be held up by the ESG angle in combination with the amount of time required to bring new coal production online. It seems that demand is remaining stubborn at current levels, which is likely unfortunate for the climate but seems to be the reality for densely-populated parts of Asia.

The average dollar-weighted holding time on my oil stocks right now is about 14 months, but I have buys from March 2020. Prior to that I held single ETFs for ~5 years, and I have no intention of selling these oil holdings as I expect these companies to continue generating great free cash flow and returning $$$ to investors. My perspective is that the energy transition will be long and drawn out and that my oil companies will still be generating big cash flow 10+ years from now.

Keep in mind that a stock's "value" isn't simply tied to a company's cash flow. If people see it as a company without a future, then its dividend value might prop it up. But if its dividends are seen as drying up, then why would any investor buy the stock? So as adiggs pointed out, what's your investment time-frame? If it's just within these next couple years, then sure you might make out handsomely. But are you sure coal (specifically domestic ones, since India and China are huge variables internationally) will still be around 10 years from now?

 

[jhm]

Where do they get their numbers? Maybe it's just related to infrastructure.
EIA says that 5.3GW of natural gas capacity was added through June 2021, 6.9GW of wind, 4.7GW of solar.
The NG was a mixture, with of 2.8GW steam turbine and 1.9GW CCGT. So maybe there was a lot of conversion.
Plus 5.9GW of coal was derated or closed, as well as 2.8GW of petroleum liquid generation.

The article lists their sources at the end.

FERC's 7-page "Energy Infrastructure Update for June 2021" was released on August 4, 2021 and can be found at: Energy Infrastructure Update for June 2021. For the information cited in this update, see the tables entitled "New Generation In-Service (New Build and Expansion)," "Total Available Installed Generating Capacity," and "Generation Capacity Additions and Retirements."

The US Energy Information Administration issued its "Electric Power Monthly" report for the first half of calendar year 2021 on August 24, 2021. The data cited in that update can be found at, or extrapolated from:

Electric Power Monthly - U.S. Energy Information Administration (EIA)

www.eia.gov

Specifically, take a look at the FERC table "New Generstion In-Service." The total of new capacity and extensions is 11,949MW of which coal was 0MW, gas 993MW and oil 16MW. Wind was 5617MW, solar 5279MW, and a little hydro, biomass, and geothermal.

I'm not sure how to reconcile FERC numbers to the ones that you got from EIA. Perhaps you could provide a link to where you got this.

 

[jhm]

Buying unloved and underpriced stocks is the opposite of gambling, that's value investing. People who know and were watching coal, and understood the reality of global energy demand, have surely made a ton of money off this. And I'm not saying demand is or will ever return to what it was, but clearly there was a major value disconnect here.


Despite not knowing coal, I'm thinking it's not disappearing in 2-5 years. A spike in prices right now should theoretically boost production to meet the increased demand, but I don't know how much of that will be held up by the ESG angle in combination with the amount of time required to bring new coal production online. It seems that demand is remaining stubborn at current levels, which is likely unfortunate for the climate but seems to be the reality for densely-populated parts of Asia.

The average dollar-weighted holding time on my oil stocks right now is about 14 months, but I have buys from March 2020. Prior to that I held single ETFs for ~5 years, and I have no intention of selling these oil holdings as I expect these companies to continue generating great free cash flow and returning $$$ to investors. My perspective is that the energy transition will be long and drawn out and that my oil companies will still be generating big cash flow 10+ years from now.

You might want to consider that the reason coal stocks have seen a bump is that the price of natural gas has soared to $4/mmBtu at Henry Hub and upwards of $15/mmBtu for LNG in Asia. At these prices coal becomes relevant again and coal price have more than doubled. Clearly there has been a post-Covid rebound globally that has caught gas producers flat-footed. Moreover, the northern hemisphere is headed into winter. The question coal investors should be asking is how long will the gas market remain tight. Coal has the unfortunate challenge of competing not only with renewables, but also natural gas producers. Renewables are the long-term threat all fossil fuels, while gas is the near-term threat to coal. I would not dismiss the ability of gas producers to step up production and drive coal prices back down long before renewables scale up. Where will Peabody stock be when Henry Hub is circling $2/mmBtu again?

 

[jhm]

Texas May Soon Get A New Electricity Supplier: Tesla | OilPrice.com

Texas may soon get one more electricity supplier after Tesla filed an application with the state’s Public Utility Commission to sell power directly to consumers

oilprice.com

It will be interesting to see what Tesla can do with this 100MW battery in Texas. I'm hoping it can produce some grid saves this winter as the 100MW battery in Australia has demonstrated. And apparently Tesla wants to add another 250MW as the GF is built out. Of course, Tesla wants to safeguard its own operations in the state, but it could also play a pivotal role in improving the reliability of ERCOT.

Curiously, some Tesla investors have begun to wonder what Tesla might do with all its accumulating cash. I'm not sure what Musk has in mind, but building out and owning grid storage around the world could easily soak up any free cash flow Tesla could produce. The only real question is whether these asset can produce high enough return to satisfy Tesla shareholders. But Tesla can pick and choose what to do with it's battery supply. Tesla could build and own a 100MW battery or sell it to a third party. If Tesla has sufficient cash on hand, then it can price the batter high enough that is it is indifferent to selling or owning the battery itself. It is a bit like a real estate investor who owns some rental property. They'd be happy to sell the property at a price that is worth more than the present value of the rental income. When Tesla has $18B cash in the bank, it is under practucally no pressure to sell a 100MW battery for less than value of the discounted income stream the battery can generate. However, if Tesla ever need to raise some cash, it could choose to sell off some energy assets. So as a Tesla investor, I would be happy to see Tesla own major battery and solar assets. Certainly the value of these income pricing assets would be more stable than holding bitcoin and should generate higher income than most cash equivalent investments. We'll see how far Tesla heads this way.

 

[Oil4AsphaultOnly]

Wyoming is the No. 1 US coal producer, but its largest utility is ditching the fossil fuel

Wyoming is the US's top coal producer. But while the state stubbornly clings to the fossil fuel, its largest utility is scrapping it.

electrek.co

14 out of 22 coal power plants shuttered by 2030. 53% CO2 reduction by 2025 (mainly from those power plant shut downs) means 11 of those 22 power plants will be shut down by 2025. Their 2018 company report already determined that coal power production was uneconomic.

Not sure who's bidding up Peabody's stock, but they're in for some serious surprise.