Shorting Oil, Hedging Tesla

[durkie]

This process has always seemed super interesting to me: Scale Model WWII Craft Takes Flight With Fuel From the Sea Concept - U.S. Naval Research Laboratory

Basically the navy is using dissolved CO2 and carbonate in seawater as a huge carbon source and synthesizing them in to a fuel source. Which, of course, makes total sense for a navy to do. This is possibly related to the syngas/h2 process you were alluding to jhm.

If we enter an era of unlimited clean energy (and I believe we will) then I wonder if fossil fuels could still stay alive as an energy-storage medium. I guess this would primarily come down to conversion efficiency of this process versus losses related to li-ion charging/discharging, but because fossil fuels are so much more energy dense than current lithium-ion batteries, it seems like this process could be pretty grossly inefficient and still beat out batteries. Eg: all other things being equal if you were able to produce gasoline via this process at 3% efficiency and you could charge/discharge a li-ion battery at 90% efficiency, this process seems like it would still win because gasoline is 12889 Wh/kg and li-ion batteries are 240 Wh/kg.

There are of course other costs in there to consider (like maintaining fossil infrastructure, relative costs of feedstock), but fossil fuels seem like they would be hard to ignore if we have just gobs of energy that we either use or lose.

 

[TheTalkingMule]

rooftop solar will be pressured, just as my double off peak rate has moved to midday, USA off peak will also slide to midday, can anyone say that 5 cents is a fair price for solar? because it is when utility solar co-ordinates the electricity system.

This is how bad our collective thought process has gotten, we don't even think we have the power to influence something over which we have total oversight. It's our grid, utilities must handle it in any fashion we see fit.

Once oil demand starts it's nosedive and the power shift in energy really starts to move toward "prosumers", this idea of a utility dictating less efficient supply will seem insane. If we're already seeing it in places like Nevada(where they deregulated in response to a monopoly suppressing residential solar), what do you think utility commissions will look like in 4 or 5 years?

There won't be any "pressure" on rooftop solar, we'll have an open market where aggregated residential production has some form of grid priority. All this utility scale solar will be the excess and state/local governments will need to work out ways to incentivize people for vehicle charging at peak. Germany already has negative wholesale electricity prices on certain sunny/windy days, think what it will be like when solar is at 30% of total supply in regions of the US.

Residential solar and it's relationship to utility solar is highly relevant to this thread since it creates additional incentive to move toward EVs. If Germany being at 5% solar creates excess supply at peak so significant that it turns wholesale rates negative, then there's huge institutional and popular incentive to accelerate EV adoption simply for the purpose of soaking up massive excess at peak. This is going to happen faster than we think, it's not even about consumer buying behavior.

 

[jhm]

Wall Street Pouring Money Back Into Oil And Gas | OilPrice.com

Alternative Headlines:

Street Dogs Return to Vomit
Pump-N-Dump in the Permian Basin
Wall Street sends cash down fracking hole

 

[jhm]

This process has always seemed super interesting to me: Scale Model WWII Craft Takes Flight With Fuel From the Sea Concept - U.S. Naval Research Laboratory

Basically the navy is using dissolved CO2 and carbonate in seawater as a huge carbon source and synthesizing them in to a fuel source. Which, of course, makes total sense for a navy to do. This is possibly related to the syngas/h2 process you were alluding to jhm.

If we enter an era of unlimited clean energy (and I believe we will) then I wonder if fossil fuels could still stay alive as an energy-storage medium. I guess this would primarily come down to conversion efficiency of this process versus losses related to li-ion charging/discharging, but because fossil fuels are so much more energy dense than current lithium-ion batteries, it seems like this process could be pretty grossly inefficient and still beat out batteries. Eg: all other things being equal if you were able to produce gasoline via this process at 3% efficiency and you could charge/discharge a li-ion battery at 90% efficiency, this process seems like it would still win because gasoline is 12889 Wh/kg and li-ion batteries are 240 Wh/kg.

There are of course other costs in there to consider (like maintaining fossil infrastructure, relative costs of feedstock), but fossil fuels seem like they would be hard to ignore if we have just gobs of energy that we either use or lose.

Yeah, this is the sort of thing that I am thinking about. Also this:

DOE: Technology converts wastewater sludge to RNG | Biomassmagazine.com

Syngas is a pretty good intermediate to focus on. It can be made from any sort of biomass, which could include waste stream, agricultural residue, energy crops, and of course coal. In fact an Integrated Gasification Combined Cycle (IGCC) plant basically produces syngas from coal then runs it through a combined cycle plant as for natural gas. So generally speaking if you've got an efficient combined cycle plant you can feed it syngas from any source.

If you have a CO2 source like a brewery, you can use surplus electricity to by hydrolysis of water and combining H2 with CO2 to make syngas.

Syngas can also be stripped of excess CO2 to produce Renewable Natural Gas (RNG) which is 95% methane. So RNG can be distributed along with the NG supply.

So how does this transition to a renewable world. Natural gas infrastructure (plants, pipelines, storage, CHP, heaters, appliances, etc.) may well have a useful life long past the time we stop drilling for natural gas. Progressively, we build out enough wind and solar to minimize need for natural gas. This gets us to a place where biomass and surplus power produce enough syngas to cover seasonal energy needs. Renewable syngas and RNG progressively displace NG and coal. Eventually the drilling stops, as the gas supply becomes 100% renewable.

I think this is the sort of road map that truly makes natural gas a bridge to a renewable world. Also it is easy to see how a carbon tax would assist this transition. NG would be taxed and RNG would not. The two gases can compete to supply a common market for gas. Stripping CO2 from syngas to make RNG also allows the carbon to be captured and reused to make syngas from surplus power or sequestered.

Batteries help alot in this process too. When you have sufficient battery storage to smooth out supply and demand over a week or more, you no longer have random periods where the electricity price hits zero. If you are thoroughly over supplied for the weekids, then most of the week prices will be quite close to zero. This opens up an opportunity for the power-to-gas operator to buy say a weekly supply of energy needed to run the plant 24/7. Suppose the operator needs 1MW to run process optimally. It can then buy a contract for 168 MWh at say $10/MWh. This effectively removes 1MW from supply over the coming week enabling the market to better avoid curtailment. So the economic question is whether the power-to-gas operator can compete with drilling natural gas wells at such a price and whether solar producers would find it profitable to increase an over supply of solar with say a $10/MWh floor on the price of power. If such a price is feasible then solar can progressively replace gas wells. So the technology needs to get the economics just right so that marginal solar plus power-to-gas is cheaper than drilling for gas.

Batteries are critical component of this because it allows massive surplus power to be provided at a stable rate needed for optimizing an industrial process. Maybe 24/7 is not need if there is not much inefficiency with ramping process up and down. Perhaps 24/3 over the weekend would do. In any case, batteries smooth this out and create a price floor that supports massive oversupply of wind and solar. Imagine whole weeks at a stretch where wind and solar provide 150% of consumption. This would kill any prospect adding yet more wind and solar unless there is sufficient storage to mop this up and guarantee a certain price floor.

Anybody want to take a crack at quantifying the economics here?

 

[adiggs]

Yeah - big consumers like storing solar / wind power as NG/RNG

I like this idea of thinking of it as a storage medium with a slow charge and single discharge / infrequent discharge cycle (seasonal shifting).

 

[jhm]

Ok, I'm going to try to make up some numbers wherein power-to-gas longterm storages might make economic sense.

Solar and Wind generation: $25/MWh
Battery Storage: $45/MWh + 80% round-trip efficiency
Natrural Gas: $6/MMBtu
Gas to power generation: $30/MWh + 8 MMBtu
Power to RNG: 1 MWh --> 2 MMBtu plus $1/MMBtu

So when RE (wind, solar) is matched with daily to weekly consumption the price of power varies from $20 (charging) to $70 (discharging) per MWh. Gas generation sourcing NG is $78/MWh, so it is priced out of a balanced RE market.

Now supposed market is over supplied with RE so that P2G can buy power at $10/MWh (or lower). The cost of RNG is $6/MMBtu, thus at parity with NG.

When the market is under supplied with RE, gas kicks in at $78/MWh so that market prices remain below $90/MWh. But here batteries will charge at $40 or higher to discharge at $77 or higher.

Throughout the year prices remain within $10 and $90, but mostly between $20 and $70. Wind and Solar can be confident of fetching an average price over $25, perhaps around $30. It makes most of its revenue when some storage is used in $60 to $90, but usually has a price floor between $10 and $20. So because there is a solid return for RE, it will continue to attract investment until the market is over supplied on an annual basis. Here gas inventories will swell with RNG y/y, and this will serve as a signal to cut drilling for NG first and cut adding RE second. Additionally, if gas is being sold into the heating and other markets, RNG will flow into these as well until NG is pressed out of the market and gas inventories rise to surplus levels.

So I think this sort of market is mathematically plausible but if efficiencies and cost structures are modestly different, it may lead to a different equilibrium. For example, if NG is sustainable at $5/MMBtu, then P2G needs to buy power at $8/MMBtu or below for RNG to reach parity with NG. That lowers the price floor and makes RE a riskier investment. If too risky then RE investment might not push supply to a level that RNG pushes non-renewable NG out of the market. Now if battery and RE costs continue to fall, that could overwhelm a lower NG cost. It would just take longer.

One other point, this analysis ignored a carbon tax or other climate regulation. A $40/t carbon tax would add $2.12/MWh to NG, but leave RNG alone. That sort of differential makes RNG much more attractive earlier. This could in fact help assure that RNG will come along and continue to utilize gas infrastructure and avoid stranding these assets. This other alternative is that NG infrastructure dies a long, slow death with NG production.

 

[jhm]

Proterra CEO: Every New Transit Bus Will Be Electric by 2030

This is worth listening to.

Proterra is already beating diesel and CNG buses on cost. Heavy use of fuel makes energy cost first or second issue.

Diesel uses about 10k gallons per year at 4 mpg. So $0.50 to $0.70 per mile.

Proterra buses use just under 2kWh/mile. Municipal buses often have access to low cost power, as low as 5c/kWh. So eBuses run at $0.10 to $0.20 per mile.

Diesel and CNG buses break down 3X as frequently.

Predicted new vehicle markets penetration: 30% 2020, 50% 2025, 100% 2030.

Some cities have already committed to converting their fleets to 100% electric.


Infrastructure is key advantage of electrics. Many electrical workers and utilities counterbalance other diesel interests.

Proterra now developing a bus with 600 mile range.

Buses have long procurement cycles. Proterra is supply constrained.

 

[jhm]

https://www.trucks.com/2016/12/01/nikola-one-hydrogen-fuel-cell-electric-semi-truck-debuts/

Nikola Motors

This is pretty impressive business plan. The electric semi has 300kW hydrogen fuel cell plus 320 kWh lithium ion battery. It can haul load 800 to 1200 mile on single fueling of hydrogen. Company has plan to operate hundreds of hydrogen fueling stations including solar farms to supply hydrogen. It is impressive that the company is thinking through the full infrastructural and life cycle issues.

I can't tell if there is an option to charge the battery from the grid. It seems the battery should be able to offer a 300 mile range, so it could be advantageous to charge at a lower cost than hydrogen.

The company has $4B in pre-orders and wants to build a $1B factory to begin production in 2019.

I do hope that Nikola and Tesla can work together on common issues and infrastructure for electric semis.

 

[GoTslaGo]

https://www.trucks.com/2016/12/01/nikola-one-hydrogen-fuel-cell-electric-semi-truck-debuts/

Nikola Motors

This is pretty impressive business plan. The electric semi has 300kW hydrogen fuel cell plus 320 kWh lithium ion battery. It can haul load 800 to 1200 mile on single fueling of hydrogen. Company has plan to operate hundreds of hydrogen fueling stations including solar farms to supply hydrogen. It is impressive that the company is thinking through the full infrastructural and life cycle issues.

I can't tell if there is an option to charge the battery from the grid. It seems the battery should be able to offer a 300 mile range, so it could be advantageous to charge at a lower cost than hydrogen.

The company has $4B in pre-orders and wants to build a $1B factory to begin production in 2019.

I do hope that Nikola and Tesla can work together on common issues and infrastructure for electric semis.

IIRC Jerome has been working on a Tesla Semi (skunk works?) so there will be conflict. Nikola Motors will be hamstrung by their need to develop a H2 infrastructure, which will likely be Much more expensive (IMHO) than building upon the electic grid.

Best of luck to them, but if Tesla can build out a much faster charging DC network (350+ kW) and add them into agreements with Truck-stop stations (Sheetz) they would build an impressive EV trucking infrastructure that would support a Tesla EV semi-truck. Give them super cheap supercharging will really bring the buyers!

IMHO the vehicles are "easy", the infrastructure is hard. I still remember the days when you couldn't get gas/petrol on sundays, holidays and often late at night. And you Really had to pay attention to the signs on the highways saying "No gas for the next 100 miles". There has been a lot of capital invested in Gas, and relatively speaking gasoline is easier to transport and store and dispense than H2. Hindenburg anyone?

 

[jhm]

This unveiling video covers Nikola's vision for an electric fleet. Clearly Milton is walking in Musk's footsteps.

One surprise is they claim to have a battery pack with higher density than Tesla's. It would be nice to confirm this.

They even have an app for independent truckers to help them find hauling jobs along the way to a particular destination. Finds most profitable route. They want to be the Uber of trucking. Not mentioned, but I suspect, that this app lays a foundation for autonomous trucking. In the meantime, they've got a lease for independent operators that include 1 million miles of hydrogen. So it sounds like a complete turnkey. Truckers can sign on and pick up loads from the app.

Anybody know who the venture capitalists are behind this? After they ramp up production, say around 2020, I could envision this being a very hot IPO. Right now, of course, it is way too speculative for the stock market.
http://twitter.com/intent/tweet?url...Tube&related=YouTube,YouTubeTrends,YTCreators
https://plus.google.com/share?url=h...ed&source=yt&hl=en&soc-platform=1&soc-app=130

 

[jhm]

IIRC Jerome has been working on a Tesla Semi (skunk works?) so there will be conflict. Nikola Motors will be hamstrung by their need to develop a H2 infrastructure, which will likely be Much more expensive (IMHO) than building upon the electic grid.

Best of luck to them, but if Tesla can build out a much faster charging DC network (350+ kW) and add them into agreements with Truck-stop stations (Sheetz) they would build an impressive EV trucking infrastructure that would support a Tesla EV semi-truck. Give them super cheap supercharging will really bring the buyers!

IMHO the vehicles are "easy", the infrastructure is hard. I still remember the days when you couldn't get gas/petrol on sundays, holidays and often late at night. And you Really had to pay attention to the signs on the highways saying "No gas for the next 100 miles". There has been a lot of capital invested in Gas, and relatively speaking gasoline is easier to transport and store and dispense than H2. Hindenburg anyone?

I agree. I think the hydrogen infrastructure is the biggest barrier. It certainly is for personal auto. But Nikola wants to build out there own solar hydrogen supply chain. With a range of 800 to 1200, they'll be able to cover high volume routes with just a few fueling points. Consider I-5 from San Diego to Vancouver, BC, covered with 4 or 5 fueling points.

Another thing they are doing is embedding 1 million miles of fueling in the purchase or lease of the tractor. This is similar to free, unlimited Supercharging. Essentially, the supply chain is mostly upfront capital investments: solar farm, hydrogen processing facility, storage, and fueling points. So they need to lock this capital in upfront in the purchase of the vehicle. The key opex will be shipping the hydrogen and staffing fueling points. A key issue is that they are not subject to price volatility in the natural gas market. If they can make this work, they could have a huge mote. Their customers are locked into their hydrogen network and will not be buying much from other vendors. This makes it hard for other hydrogen providers to step in.

So if you really wanted to build up a hydrogen network with private investment, this would be perhaps the smartest way to start. You lock in high volume client base, build out the network, and start to serve wider customer base.

I have no idea if this will work, but this approach seems infinitely smarter than what we've seen with Toyota.

In our broader discussion about longterm energy storage, I've discussed syngas and RNG as an outlet for surplus wind and solar. Hydrogen would also work. Hydrogen fuel cells are 70% efficient which is better than CCNG plants, which in practice are only 42% efficient, though in theory some approach much higher efficiency. Clearly, Nikola is going to be super focused on round trip efficiency from solar power to hydrogen back to electric power. If they can drive up that efficiency, it would also be very useful for long-term energy storage for the grid. It does not need to be as efficient as round-trip lithium ion batteries, but if it can work in a few niche markets like long haul trucking, then it serves a wider RE ecosystem as well.

 

[GoTslaGo]

I agree. I think the hydrogen infrastructure is the biggest barrier. It certainly is for personal auto. But Nikola wants to build out there own solar hydrogen supply chain. With a range of 800 to 1200, they'll be able to cover high volume routes with just a few fueling points. Consider I-5 from San Diego to Vancouver, BC, covered with 4 or 5 fueling points.

Another thing they are doing is embedding 1 million miles of fueling in the purchase or lease of the tractor. This is similar to free, unlimited Supercharging. Essentially, the supply chain is mostly upfront capital investments: solar farm, hydrogen processing facility, storage, and fueling points. So they need to lock this capital in upfront in the purchase of the vehicle. The key opex will be shipping the hydrogen and staffing fueling points. A key issue is that they are not subject to price volatility in the natural gas market. If they can make this work, they could have a huge mote. Their customers are locked into their hydrogen network and will not be buying much from other vendors. This makes it hard for other hydrogen providers to step in.

So if you really wanted to build up a hydrogen network with private investment, this would be perhaps the smartest way to start. You lock in high volume client base, build out the network, and start to serve wider customer base.

I have no idea if this will work, but this approach seems infinitely smarter than what we've seen with Toyota.

In our broader discussion about longterm energy storage, I've discussed syngas and RNG as an outlet for surplus wind and solar. Hydrogen would also work. Hydrogen fuel cells are 70% efficient which is better than CCNG plants, which in practice are only 42% efficient, though in theory some approach much higher efficiency. Clearly, Nikola is going to be super focused on round trip efficiency from solar power to hydrogen back to electric power. If they can drive up that efficiency, it would also be very useful for long-term energy storage for the grid. It does not need to be as efficient as round-trip lithium ion batteries, but if it can work in a few niche markets like long haul trucking, then it serves a wider RE ecosystem as well.

I am wondering where do they plan to source their H2 supply. They say electrolysis which I assume is H2O, although I hope to be wrong. I am not a fan of using resources that People need to live for driving cars (e.g., corn-->ethanol based gasolines), especially water. Yes I know about the natural water cycle, and that it will/supposed to *eventually* come back.

Sun-->electricity-->batteries make the most sense to me. And yes, even petroleum products, because we can't directly eat them and the infrastructure is already there, especially in North America. So while it may sound like heresy here (at TMC) I am hoping they source their H2 from petroleum/Nat gas supplies, NOT water.

This is where I have to agree with Fidel Castro (and I usually don't):

"The tragedy does not lie in reducing those energy costs but in the idea of converting food into fuel."

Fidel Castro on Biofuel and World Hunger

 

[jhm]

Ok, I've been trying to chase down the costs of generating hydrogen from solar.

There are attempts to directly split water in a PV cell, but so far it's not much better than sourcing DC current with PEM electrolysis. So a plausible, but optimistic efficiency is about 2/3. Thus it takes 50 kWh to produce 1 kg H2 = 33.33 kWh. The PEM electrolyzer will add about $0.75/kg. Moreover, their is a cost to compress, store and distribute (CSD). Nikola wants put this on tube trailers and ship by truck. This is a good choice; the cost could be as little as $1/kg. A hydrogen pipeline would be $2 to $2.8 per kg. So let's assume Nikola locates cheap solar at $30/MWh. That's $1.5/kg. Altogether, the cost per delivered hydrogen is $3.25/kg. This seems like a decent cost for hydrogen.

But let's look at the cost of electricity in the truck. The truck has a PEM fuel cell that converts hydrogen into electricity. This step has 70% efficiency. Thus, we net 23.33 kWh from 1 kg h2. The round-trip efficiency from solar panel to electric drive train is a mere 46.6%. Let's ignore the cost of the fuel cell, which is embedded in the price of the vehicle. The delivered cost of electricity is thus $0.14/kWh. I suspect this would be comparable to high power charging (net) from the grid.

Proterra buses use a little less than 2kWh/mile as comparable to 4 to 5 mpg for a diesel buss. Semis get 5 to 7 mpg. So 2 kWh/mile would be on the high side for an electric semi. Thus, Nikola could be delivering a cost under $0.30/mile. Compare this to 6 mpg at $2.40 to $3.60 per gal, which is $0.40 to $0.60 per mile. So it looks like this could pencil out. Note that the present value of $0.30/mile for 1 million miles is baked into the price. A 25% mark up would be gross profit of $0.10/mile, or $100,000 per 1M mile contract. Nikola is making money not only off the vehicle but the sale of a million miles of fueling.

So I think this could work. I hope they've done their math really well because if they are budgeting $3.25/kg and it works out to $4.5, then they are really hosed.

For Tesla Semi, I wonder if they can deliver commercial speed supercharging at a cost of $0.14/kWh. Would they too be in a position to gross about $0.05/kWh from it while locking in sale of 2 million kWh per semi? That would be a really nice income stream.

 

[neroden]

Wall Street Pouring Money Back Into Oil And Gas | OilPrice.com

Amazing money-burning.

 

[SebastianR]

Amazing money-burning.

So with all this money pouring into oil, we may see an even bigger oil glut coming even quicker... I think it is really high time to get out of oil and I will need to look at these ETFs mentioned up there to get out of my ordinary index ETFs.

 

[jhm]

Energy Storage Set To Boom In 2017 | OilPrice.com

Wow, Michael McDonald at Oilprice.com comes very close to endorsing Tesla. He sees the opportunity for grid batteries to change the role of fossil fuels in power generation. I think that as the Gigafactory scales up it will increasingly impress people in the oil industry. Just the scale of it speaks volumes.

 

[kenliles]

Energy Storage Set To Boom In 2017 | OilPrice.com

Wow, Michael McDonald at Oilprice.com comes very close to endorsing Tesla. He sees the opportunity for grid batteries to change the role of fossil fuels in power generation. I think that as the Gigafactory scales up it will increasingly impress people in the oil industry. Just the scale of it speaks volumes.

Unfortunately for Life on Earth,
Dreadnaught won't be able to handle it's human parking requirements...

[I sometimes wonder if we even deserve to be here.... sorry for the spilling of thought there-]

 

[SebastianR]

Another interesting post showing that we may not be alone in thinking the way we think:

Renewables are no longer ‘alternative.’ Fossil fuels are ‘legacy.’

I think if we have big pension funds pulling out of the carbon industry we will see a panic rush to the exit with lots of casualties along the way. I wonder if a lot of institutional investors are trying to pull out silently...

 

[neroden]

And to think I have less than 20% of my assets under management in TSLA. Sigh. I really am conservative.

 

[jhm]

Another interesting post showing that we may not be alone in thinking the way we think:

Renewables are no longer ‘alternative.’ Fossil fuels are ‘legacy.’

I think if we have big pension funds pulling out of the carbon industry we will see a panic rush to the exit with lots of casualties along the way. I wonder if a lot of institutional investors are trying to pull out silently...

Nice article. I like the idea of fossil energy as legacy. It pretty much admits that it is big, reliable and we largely depend on it, but it also makes clear that it is not the future, not optimal, and we will progressively replace it.

I do think the idea of a universal investor is worth considering. I like the perspective that nothing is really external. Carbon induced climate change may be an externality for someone who trades in fossil fuels, but the damage done impacts the wealth of someone who is invested in all things. The full cost of carbon emissions will be paid in the future. So it may seem like an externality right now, but in fact it will impact the future wealth of all. The illusion is that somehow you or you heirs can be immune from negative externalities.