Shorting Oil, Hedging Tesla

[jhm]

Utilities vote to close 2,250 MW Navajo plant, largest coal generator in western US



They need get these people solar jobs!

Hmm, 3000 jobs at stake. Assuming about a 60% capacity factor, which may be generous for an old plant, this plant generates about 12 million MWH per year. If these 3000 jobs are full time, that is about 6 million man-hours. Hence this plant produces about 2 MWh per hour of labor. At $38/MWh, that is $78 of revenue per hour of labor. Good gracious!

Some are pushing back on solar as particularly labor intensive. Let's say a 3 person crew installs 6kW system in under 8 hours. So over the life of the system that is about 270 MWh for maybe 24 hours of labor. So that is more than 11 MWh per hour of labor. Sure there will be some extra maintenance here and there, but this is still far higher productivity than 2 MWH per hour of labor at the coal plant, which does not even count all the labor needed to mine, pricess and ship coal to the plant.

 

[dc_h]

Hmm, 3000 jobs at stake. Assuming about a 60% capacity factor, which may be generous for an old plant, this plant generates about 12 million MWH per year. If these 3000 jobs are full time, that is about 6 million man-hours. Hence this plant produces about 2 MWh per hour of labor. At $38/MWh, that is $78 of revenue per hour of labor. Good gracious!

Some are pushing back on solar as particularly labor intensive. Let's say a 3 person crew installs 6kW system in under 8 hours. So over the life of the system that is about 270 MWh for maybe 24 hours of labor. So that is more than 11 MWh per hour of labor. Sure there will be some extra maintenance here and there, but this is still far higher productivity than 2 MWH per hour of labor at the coal plant, which does not even count all the labor needed to mine, pricess and ship coal to the plant.

I thought I read elsewhere there were about 300 jobs at plant and 225 at mine. Multiplier might be where 3000 comes from. A 2Gw solar farm would probably take 100-200 support jobs and accrue rent.

 

[jhm]

I thought I read elsewhere there were about 300 jobs at plant and 225 at mine. Multiplier might be where 3000 comes from. A 2Gw solar farm would probably take 100-200 support jobs and accrue rent.

That's good corroboration. It seems the solar industry would do well to to do a comparative analysis of labor productivity, MWh/man-hour. There is labor in manufacturing, installation/decomissioning and operations. All generation technologies have substantial installation labor. I suspect solar has the lowest operations labor. But the present push back on solar and wind jobs tries to make these out as labor intensive. That may be quite an unfair comparison.

 

[jhm]

Can Saudi Arabia Carry OPEC Through Spring? | OilPrice.com

Regarding the current oil price, I think the price could plunge soon. Most of the optimism is based on the OPEC production cut and high compliance rates. But I sounds like this mostly comes down to the Saudis. I rather suspect they are motivated to fetch a solid price for Aramco at IPO. Regardless, this situation feels thin.

The other thing is that the crude inventory has been growing again. US crude stocks are 140 million barrels over the five-year average for this time of year. It could hit an ATH very soon.

Meanwhile the price of oil has been stuck. It just can't get past $55. So I would not be surprised if oil began to fall substantially in the next few weeks to months.

Could a fall in oil price be a problem for Tesla? Yes, it will raise the general specter of weak economic demand, which could drag down the stock market. Moreover, shorts will deploy this against Tesla. It would be quite convenient at Tesla hits a new ATH.

 

[renim]

Meanwhile the price of oil has been stuck. It just can't get past $55. So I would not be surprised if oil began to fall substantially in the next few weeks to months.

I think the forces making oil range bound will continue to get stronger.

The floor is set by OPEC, they (Saudi/Russia) now have discipline and motivation
The ceiling is set by US shale, they now have funding and permission (funding is forward sale, to fully pay of costs, about 1 year)

this should help stabilize the cost of battery cell components, cathode, anode, electrolyte and separator. Nickel/Cobalt is often shipped as a very low grade laterite concentrate (1-1.5%) and oil price must be relevant to that.

 

[neroden]

The Saudi Aramco IPO is a bear trap. I wonder how many will fall for it? They have a very short time window to run this scam.

 

[dc_h]

Thoughts on buying SCO? Seems a little early. I would not bet a lot, but would be a good win if oil dropped under 40.

 

[jhm]

China’s BYD to build 40 new electric buses in Australia

This is getting pretty exciting to me. BYD is now selling eBuses into Australia. Note the specifics of this model:

70 seats
2 90-kW motors
324 kWh battery
500 km (300 mile) range

This is pretty close to what you would need for motorcoach service. The range is really impressive. In shorter transit duty, the large range minimizes the need for extensive charging infrastructure. Overnight charging may suffice for a bus putting in 80k miles per year. Some bus makers may argue that such a large battery is overkill, but this could point to where the competition is going. If you get say 300 deep cycles of life on these batteries, then we are talking about a life range of 300,000 miles, which is right in line with 25,000 miles service per year over 12 years. Thus, the single battery could be sufficient over the life of a transit bus with moderate duty. Bus makers offering smaller batteries may put their customers in a position to need to replace batteries several times over the typical 12 year life. So there are likely maintenance savings in addition to infrastructure savings of going to big batteries. So it looks like BYD gets this.

This too is amazing:

BYD founder and chief executive Wang Chuan-fu told RenewEconomy in January 2016 that he expects the global market for EVs to double in each of the next three years, although the company did not see itself as a competitor to Tesla.

“This is not about competiton. The market is so huge, it needs more people’s participation in the market. Tesla is targeting high end, there is a bit of an overlap, but we are focusing on electric cars and buses in different markets.”

Emphasis mine, 8X larger in three years! I think that means 6 million EVs in 2019. No way the oil industry is expecting that.

 

[RobStark]

Japan leads way with Li-ion submarines - News - Shephard

 

[Oil4AsphaultOnly]

Japan leads way with Li-ion submarines - News - Shephard

Good find! And I think we finally have an answer as to what is driving H2 in Japan:

"For mobile operations, for example, NCA batteries and diesel is ideal, while an ambush submarine would operate better on fuel cells, LTO and diesel"

Indeed, a large H2 tank would be pretty good for sustained underwater cruising range. And high-pressure tanks wouldn't be out-of-water (pun intended) in a submarine.

 

[neroden]

Japan leads way with Li-ion submarines - News - Shephard

An advantage of battery subs is that they're much much quieter than nuclear subs. At this point, after decades of work, nuclear subs can be detected by their noise / heat signatures. Battery subs are much more silent and hard to detect.

The US military is way way behind on this stuff but the rest of the world's militaries are moving fast.

 

[TheTalkingMule]

Regarding the current oil price, I think the price could plunge soon. Most of the optimism is based on the OPEC production cut and high compliance rates. But I sounds like this mostly comes down to the Saudis. I rather suspect they are motivated to fetch a solid price for Aramco at IPO. Regardless, this situation feels thin.

Super, super, super thin. Apparently, Saudi Arabia is the only entity in the world who is adhering to any kind of production cut. How long can they possibly maintain this strategy while Russia pumps like mad and the US sees any momentary blip in prices to add all that production back and then some?

If they're not netting any price protection from their production cuts, what's the point? Mildly savvy investors will see right through them abandoning ship on Aramco. This is all absurdly desperate and delightful to watch.

Could a fall in oil price be a problem for Tesla? Yes, it will raise the general specter of weak economic demand, which could drag down the stock market.

For our entire lives low oil prices generally meant a slowing global economy. As you've discussed here in great detail, that's not entirely the case anymore. This drop in oil price is about more efficient alternatives taking over and the desperate rush to squeeze out final profits before the ship goes down. That's inherently stimulative.

At what point do we stop labeling a drop in oil price as being "a problem" for companies like Tesla? As you say....it's an opportunity for shorts to spread fear, but fundamentally nothing has changed. We want as much irrational shorting and legacy denial as possible, no? As long as they remain production constrained Tesla is immune to oil price drops. The demand up to 500k/yr is there through at least 2020 regardless of $32 oil.

 

[adiggs]

...


For our entire lives low oil prices generally meant a slowing global economy. As you've discussed here in great detail, that's not entirely the case anymore. This drop in oil price is about more efficient alternatives taking over and the desperate rush to squeeze out final profits before the ship goes down. That's inherently stimulative.

At what point do we stop labeling a drop in oil price as being "a problem" for companies like Tesla? As you say....it's an opportunity for shorts to spread fear, but fundamentally nothing has changed. We want as much irrational shorting and legacy denial as possible, no? As long as they remain production constrained Tesla is immune to oil price drops. The demand up to 500k/yr is there through at least 2020 regardless of $32 oil.

This is a big mental shift needed in the market - that low oil prices are coming from something other than weak demand, ergo weak energy consumption, ergo weak economic activity, ergo slowing economy. It's a model that has worked well for decades - long enough for some market traders to never know anything different. So I don't expect it to be a quick and easy change, but a shift to lower energy prices being good for energy consumers - that's an easy equation that will sink in sooner or later, and I think sooner than later.

(With the additional proviso that I'm not shorting energy prices - the market can be irrational longer than I can stay solvent! But I'm thinking through how I lower or remove my long exposure to energy prices in the form of companies with fossil fuel reserves)


As a result of the conversations here in this thread, I know of a few market participants that don't view lower oil prices as a sign of economic weakness.

It's crazy to me that the oil market participants have a shared expectation of ~$55/bbl oil a year or 2 out. If I were an oil producer, I'd be selling every barrel of future delivery oil I could find a buyer for at that price (further exacerbating oil supply) - assuming I make money at that price of course.

 

[dalalsid]

An advantage of battery subs is that they're much much quieter than nuclear subs. At this point, after decades of work, nuclear subs can be detected by their noise / heat signatures. Battery subs are much more silent and hard to detect.

The US military is way way behind on this stuff but the rest of the world's militaries are moving fast.

Don't worry, the Donald will fix this. Not only will we have a great submarine, we'll also get a yuge deal on it /s

 

[renim]

[QUOTE="adiggs, post: 1974894, member: 10582]
It's crazy to me that the oil market participants have a shared expectation of ~$55/bbl oil a year or 2 out. If I were an oil producer, I'd be selling every barrel of future delivery oil I could find a buyer for at that price (further exacerbating oil supply) - assuming I make money at that price of course.[/QUOTE]

That is pretty much the shale oil modus of operation, but this all takes time. Acceptance of funding and decision to expand then requires recruitment and training etc, expect USA oil to significantly increase about 12-18 months after Trump's election. Just in time for Aramco's IPO.

interesting times, price stability

FWIW, its thought that the Saudi are trying to get the spot price to be higher than the 1-2 year price. The price signal that OPEC needs to continue cuts is that the 1-2 year price is higher than the spot price, OPEC want to the spot price at parity or higher, than the 1-2 year price.

 

[jhm]

SA blackouts: dud forecasts, lousy software, failing gas plants

Here's a little example of why Australia needs batteries.

 

[jhm]

Hanna Yanchuk: “In developing countries, the growth of the EV market is coming from the people, from the civil society.”

This is a glimpse of the passionate interest people in developing countries have toward EVS. There is a sense of struggle and embrace of hope. This voice comes from the Ukraine, a striking context. Russia has shadowed Ukraine and used oil and gas as an economic weapon against it. I suspect that renewable energy and EVs hold promise of greater independence and security.

 

[GoTslaGo]

This is a big mental shift needed in the market - that low oil prices are coming from something other than weak demand, ergo weak energy consumption, ergo weak economic activity, ergo slowing economy. It's a model that has worked well for decades - long enough for some market traders to never know anything different. So I don't expect it to be a quick and easy change, but a shift to lower energy prices being good for energy consumers - that's an easy equation that will sink in sooner or later, and I think sooner than later.

(With the additional proviso that I'm not shorting energy prices - the market can be irrational longer than I can stay solvent! But I'm thinking through how I lower or remove my long exposure to energy prices in the form of companies with fossil fuel reserves)


As a result of the conversations here in this thread, I know of a few market participants that don't view lower oil prices as a sign of economic weakness.

It's crazy to me that the oil market participants have a shared expectation of ~$55/bbl oil a year or 2 out. If I were an oil producer, I'd be selling every barrel of future delivery oil I could find a buyer for at that price (further exacerbating oil supply) - assuming I make money at that price of course.

Ditto here.

Also FYI (posted in Market thread), but seems relevant to what you had mentioned in the first paragraph:

Econoday Economic Report: Philadelphia Fed Business Outlook Survey February 16, 2017

 

[jhm]

Ditto here.

Also FYI (posted in Market thread), but seems relevant to what you had mentioned in the first paragraph:

Econoday Economic Report: Philadelphia Fed Business Outlook Survey February 16, 2017

I like to imagine a day when industrial producers are not subject to market risk in the fuel markets. Volatility dampens business outlook.

 

[Paracelsus]

For our entire lives low oil prices generally meant a slowing global economy. As you've discussed here in great detail, that's not entirely the case anymore. This drop in oil price is about more efficient alternatives taking over and the desperate rush to squeeze out final profits before the ship goes down. That's inherently stimulative.

I agree with adiggs................that is a VERY insightful comment! Thanks.