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US Political doctrine (on both sides of politics, from 1970s onward) has pragmatically seen that allowing bidding high prices for oil, increases global oil supply. refer to Kissinger doctrine.
yes it is not perfect, yes it may be counter productive, but yes it has increased world oil supply and provides a hedge of stability that would otherwise not be there.
It may be anathema for Keystones XL opponents to consider themselves as promoting global increase in oil production, but that is exactly and precisely what they are doing. Keystone XL assists in removing North Americans from bidding up the price of the global oil market. Substitution by Canadian oil has precisely the same effect as substitution by renewable powered EVs on the global oil price. This directly leads to reduction in global oil production.
Counter-intuitively, these economics have been understood for 150years.
TheTalkingMule
Distributed Energy Enthusiast
Ok, what you're describing is not particularly counterintuitive. Rather it is the supply response to price. Higher prices induce expansion of supply.
Indeed, I was referring to this upstream. It's fine if the oil industry wants to deny that it has a demand problem. But they are clearly colluding to suppress supply because the price is too low. It's all the same whether they do this collectively or individually. Producers are on balance cutting back on production because the price is too low. So supply will shrink, until consumers are willing to bid up the price. But there is no guarantee that the price will get bid up enough to take production to new heights. And that's the essence of the peak: the cost of increasing supply comes to exceed the price consumers are willing to pay.
What do we sell when they don’t want our coal?
This is interesting. Countries that are net exporters of fuels need to rethink trade strategy. We may be at the precipice of peak global trade. As trade in fuels declines, its counter trade to pay for imported fuel will also decline. So energy exporters need to find way to reduce imports to counter balance declining exports.
This is interesting. Countries that are net exporters of fuels need to rethink trade strategy. We may be at the precipice of peak global trade. As trade in fuels declines, its counter trade to pay for imported fuel will also decline. So energy exporters need to find way to reduce imports to counter balance declining exports.
I forgot to deal with the political side of this. Governments often think that they can protect their constituents from high prices of essential goods by imposing price caps. While this may provide some short term relief, it can easily kill off supply in the long run. High prices provide the economic motive for producers to move quickly to bring more product to market. So it this way, it becomes sound policy for a government not to suppress high prices, but rather allow free market forces to resolve high prices through increased supply.
Governments may also try to protect their constituents from high prices by offering subsidies. This creates an opposite problem. It leads to excess consumption and excess supply. Particularly the excess consumption can become much less efficient than it would otherwise be. Moreover, taxes must be increased, which reduces consumption and investment in other corners of the economy. Countries like India have believed they could lift the masses out of poverty with such interventions. Worldwide fossil fuels are heavily subsidized, which while that may support expansion of supply, it also creates pollution problems and global warming. It also impedes the advance of renewable energy, unless sufficient subsidization is in place to counter balance the accretion of subsidies that fossil fuels have enjoyed.
One of the very basic threats to the oil industry is that countries will pull back fossil fuel subsidies out of concern for the environment or due to low oil prices. India for example has taken advantage of the oil glut by removing subsidies for gasoline and diesel. I think they may be pulling back on coal as well. This was easy to justify when prices were low. But what happens when prices go back up? Perhaps by that time they will see it as good environmental and economic policy not to bring subsidies back. In effect, building out a strategic petroleum reserve is a government subsidy to enhance stability of supply and prices. But even so it allows price sensitivity to work on demand more so than through a simple consumption subsidy.
Long story short, as developing countries stop subsidizing fossil fuel consumption, this will reduce global demand for these fuels. In my view, free market policies at this point in time would tend to accelerate the transition to renewables.
IEA Sees Much Tighter Oil Market As New Discoveries Crash | OilPrice.com
Here is a better write up on IEA report on oil discoveries.
The crux of the concern is that IEA thinks consumption could maybe might just grow by 7mb/d by 2022, and only sees non-OPEC producers adding 3.3mb/d. So perhaps there is a 3.7 mb/d short fall by 2022. Yeah, I'm not buying it.
Demand, even with oil below $55/b, IEA has had to revise their estimate for this year down to 1.2mb/d. So at $55, 7mb/d in fives years seems a stretch. But what happens if oil jumps up to $90? I think even 5mb/d is a stretch.
Supply, most producers are waiting for higher prices to commit to projects. OPEC is even cutting production. If oil goes to $65, all this sidelined capacity starts to ramp up. IEA thinks it could be to little too late. But there is a lot of pent up supply just waiting for things to pencil out.
Finance, the futures market and banks think oil will be about $55 in 2022. Why build up or financr supply if you cannot hedge it? If in fact oil is under $60 in early 2020s then much of the investment that IEA is calling for will have awful returns, and it will all be on the producers because they can't hedge it at a profitable price.
Competition, EVs reach about 14% penetration in 2022 (my latest analysis of market share trends). This trend is slightly depressed from recent low oil prices. If oil goes from $50 to $90, this adds an extra $5000 to the ten-year cost of ownership for a ICEV which EVs do not bear. This $5000 differential could be enough to double the demand for EV relative to ICEVs. So if oil goes back up, the trend may get stronger, not weaker. So 30% penetration could come as early as 2024. It's hard to see any more demand growth for oil past that point. Early 2020s will see heavy EV growth compromise oil demand growth.
So put altogether I think IEA's worry way overblown. Part of this is that I do not see oil in range of $100 as having much of an adverse impact on the global economy. It may actually stimulate the economy through oil producing countries increasing spending. Now if oil were to get over $135, I'd start to worry about the economy. But I honestly do not believe that there is enough demand to actually drive oil to such a price point. We'd have to have a monstrous boost to the global economy that was simultaneously unable to arouse investment in oil and EVs. That would be very narrow path.
The sort of thing IEA seems most to be worrying about are the big investments like offshore oil drilling. These project take many years to come to fruition, but they also produce for decades too. So to motivate that sort of investment a price spike in early 2020s is not going to cut it. You would need solid demand all the way through to 2030. But at this timescale, we run into that thorny question of when will oil peak? If oil majors had a solid view that the peak would come well after 2030, then maybe offshore projects would pencil out. So the lack of these projects suggest that they do not internally pencil out. This is not simply about the oil price today and when this little glut will clear up. This is about the oil price expectations from 2021 out through 2030. Hmm, a lot could change in the timeframe.
Here is a better write up on IEA report on oil discoveries.
The crux of the concern is that IEA thinks consumption could maybe might just grow by 7mb/d by 2022, and only sees non-OPEC producers adding 3.3mb/d. So perhaps there is a 3.7 mb/d short fall by 2022. Yeah, I'm not buying it.
Demand, even with oil below $55/b, IEA has had to revise their estimate for this year down to 1.2mb/d. So at $55, 7mb/d in fives years seems a stretch. But what happens if oil jumps up to $90? I think even 5mb/d is a stretch.
Supply, most producers are waiting for higher prices to commit to projects. OPEC is even cutting production. If oil goes to $65, all this sidelined capacity starts to ramp up. IEA thinks it could be to little too late. But there is a lot of pent up supply just waiting for things to pencil out.
Finance, the futures market and banks think oil will be about $55 in 2022. Why build up or financr supply if you cannot hedge it? If in fact oil is under $60 in early 2020s then much of the investment that IEA is calling for will have awful returns, and it will all be on the producers because they can't hedge it at a profitable price.
Competition, EVs reach about 14% penetration in 2022 (my latest analysis of market share trends). This trend is slightly depressed from recent low oil prices. If oil goes from $50 to $90, this adds an extra $5000 to the ten-year cost of ownership for a ICEV which EVs do not bear. This $5000 differential could be enough to double the demand for EV relative to ICEVs. So if oil goes back up, the trend may get stronger, not weaker. So 30% penetration could come as early as 2024. It's hard to see any more demand growth for oil past that point. Early 2020s will see heavy EV growth compromise oil demand growth.
So put altogether I think IEA's worry way overblown. Part of this is that I do not see oil in range of $100 as having much of an adverse impact on the global economy. It may actually stimulate the economy through oil producing countries increasing spending. Now if oil were to get over $135, I'd start to worry about the economy. But I honestly do not believe that there is enough demand to actually drive oil to such a price point. We'd have to have a monstrous boost to the global economy that was simultaneously unable to arouse investment in oil and EVs. That would be very narrow path.
The sort of thing IEA seems most to be worrying about are the big investments like offshore oil drilling. These project take many years to come to fruition, but they also produce for decades too. So to motivate that sort of investment a price spike in early 2020s is not going to cut it. You would need solid demand all the way through to 2030. But at this timescale, we run into that thorny question of when will oil peak? If oil majors had a solid view that the peak would come well after 2030, then maybe offshore projects would pencil out. So the lack of these projects suggest that they do not internally pencil out. This is not simply about the oil price today and when this little glut will clear up. This is about the oil price expectations from 2021 out through 2030. Hmm, a lot could change in the timeframe.
adiggs
Well-Known Member
I found that article interesting. I think that author, and people thinking similarly, are too wrapped up in the current paradigm and figuring out how to apply it to the new world order. It's like they see half of what's going on, but not the other half
I figure shipping hydrogen anywhere is a bad business plan. Now maybe if they make methane or some more stable complex hydrogen molecule, that is more easily maintained as a liquid, that could be the basis of a good export business. Especially if the process can be stopped and started pretty easily.
I figure their best plan is still be thinking about having so much energy that marginal energy is free, and what local business do they build. Can they desalinate enough sea water to green up a desert?
Yeah, even UAE and Saudi Arabia are thinking they can build up a bunch of solar and wind and export power to Europe. They're stuck on seeing energy as primarily an export good, thinking this will carry into the new energy economy. It's a bit like gas station operators thinking they'll just sell EV charging when no body wants gas. The problem is the substitute market is primarily served at home domestically and what is left to export is a really small market.I found that article interesting. I think that author, and people thinking similarly, are too wrapped up in the current paradigm and figuring out how to apply it to the new world order. It's like they see half of what's going on, but not the other half
I figure shipping hydrogen anywhere is a bad business plan. Now maybe if they make methane or some more stable complex hydrogen molecule, that is more easily maintained as a liquid, that could be the basis of a good export business. Especially if the process can be stopped and started pretty easily.
I figure their best plan is still be thinking about having so much energy that marginal energy is free, and what local business do they build. Can they desalinate enough sea water to green up a desert?
I would not be surprised if the only country that must import hydrogen or other green fuels is Japan. Essentially, Japan is an over populated island with a huge economy. They may well lack sufficient space to supply their whole economy with domestic renewables. They will try to optimize as much renewables as they can, but will still need to import energy. But the deeper problem is that this will be expensive to do, at least expensive relative to the rest of the world. Any sort of green fuel scheme is fraught with so many inefficiencies and costs that it becomes prohibitive for Japan to continue to be an exporter.
Suppose for example that Japan wants to make batteries for export. They must import all the raw minerals from places like Australia. Then they have to import massive quantities of green fuels to process materials and stamp out batteries, all so they can ship them back to Australia. Meanwhile Australlia finds that its green fuel exports have a hard time paying for those batteries it needs. So these deeply entangled trade relations may lead to very poor economics. What Japan needs to do is export goods or services that have higher intellectual content and lower energy and material content. So for example, what Japan needs to do is export the battery factory to Australia where is it can directly source cheap domestic renewable energy and other resources needed to operate the factory. With batteries made in Australia, they can import batteries back to Japan or export to other parts of the world. So by exporting the factory, what they are doing is tapping into their intellectual expertise in engineering manufacturing and perhaps building out the robots and tools that such a factory would require. Engineering, robots, and tooling are high on intellectual content, but relatively low on things that must be imported to Japan to produce. Simply put ideal exports would have very high value per kWh of input, because Japan will have the highest cost per kWh anywhere in the world.
So destabilizing the global economy has profound implications for where things are produced and what is worth trading. I think Musk is actually one of the best thinkers on this. He thinks about minimizing the travel of every molecule in a supply chain. The best logistics is to minimize logistics. I think this is behind his view of a Gigafactory as a product. As a product it is designs to be placed wherever it is locally optimal to do so. The first mistake most people make is that they thinking manufacturing as a means to create local jobs to sell goods into export markets. Musk is reversing this whole concept. Governments are willing to pay for job creation. So a Gigafactory is a product sold to an economy that needs to create local jobs and will produce goods sourced from and sold into that regional market. So Musk is selling the product with the highest intellectual content while creating local opportunities for resource intensive work. In a way, this is sorta like the franchise model that originally propelled McDonald's. Franchisees would own and operate local businesses while buying into the intellectual property and higher order logistics of the franchisor. Krock was creating a high value product for local entrepreneurs. Musk has not made this explicit yet, but I think it may well be implicit. Perhaps he would never go so far as to sell franchises, but in negotiating with politicians that is effectively what is being traded, even if Tesla retains control as owner and operator.
But an explicit franchise model would blow people's minds. About 100 Gigafactories are needed and local ownership would raise massive capital super fast.
Whelp, bit the bullet and divested my Energy Fund... for a loss. That being said, now have extra cash to get more TSLA before earnings... Come on shorts! Bring that price down for me to buy more, more cheaply...!
(realistically I do not see low prices happening, considering TSLA mojo right now, but still gonna add more...)
. That being said, now have extra cash to get more TSLA before earnings... Come on shorts! Bring that price down for me to buy more, more cheaply...! (realistically I do not see low prices happening, considering TSLA mojo right now, but still gonna add more...)
dc_h
Active Member
India EV by 2030?
India aiming for all-electric car fleet by 2030, petrol and diesel to be tanked - Times of India
That should shake up some models.
India aiming for all-electric car fleet by 2030, petrol and diesel to be tanked - Times of India
That should shake up some models.
Paracelsus
Active Member
dc_h
Active Member
I'm sure they are lobbying for a GF and this is the sort of on-board attitude Elon likes. A GF focused 75% on TE and 25% on cars could probably get a Model 3 down to $30,000 in India. If they plan on production lines that can build a Model 3 and Y and maybe a small pickup or El Camino style vehicle. Splitting production between car types on a single platform, would allow a GF to scale up properly in markets where selling 500,000 of a single car is not possible. India needs TE for their distribution system much more than Australia. This seems like a market they could really help, while maxing production for decades.
TheTalkingMule
Distributed Energy Enthusiast
As linked by another poster in another thread, China is removing cash subsidies for electric cars, switching to a ZEV mandate (with tradeable credits, like California's): China Shocks Car Companies With Bold Rules to Force E-Car Production
While most companies will make "compliance cars", I'm gonna bet that for the first couple of years Tesla will be selling Chinese ZEV credits to the laggards at high prices.
While most companies will make "compliance cars", I'm gonna bet that for the first couple of years Tesla will be selling Chinese ZEV credits to the laggards at high prices.
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So at last good old Saab will come to its fruition. The plans for the classic model 9-5 were sold to a Chinese company (BAIC?) which quite recently unveiled its fully-electric car built on that platform. A few years earlier and I might have stuck with my old trusty brand instead of this newfangled Tesla startup ...
Best of luck.
The rules aren't final, but Tesla will be lucky to not have to pay Chinese ZEVS as well (let alone sell them)
Currently it seems Samsung and LG factories in China won't qualify a vehicle for ZEVs, there is no chance a Panasonic factory in Japan or Tesla factory in Nevada will.
If Tesla buys its cells from CALB or BYD then its all golden.
It's times like this I wish I could read Chinese. I can't get Google translate to work on PDFs.
Anyone who can work out the details of the rules, I would love to see them.
I know this is OT but it was mentioned earlier. I still see a possibility that Trump will find "enemies" to enhance his position. Of the ones previously mentioned, Syria, N Korea, Iran I think he is stalemated. However Venezuela has oil, is in our hemisphere, has taken a GM factory, is in total suppression of the people mode AND has no real danger of serious resistance to our military. This reminds me of Reagan after the barracks bombing in Lebanon. Military action in Grenada to rescue Americans was next. I think a war may be considered the solution to raise the oil price and the ratings of the Adminstration and Venezuela has all the positives for military action. Am I being completely paranoid?
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