Shorting Oil, Hedging Tesla

[renim]

Hmm, how much demand for lead do lead acid batteries represent? It seems that lithium ion and perhaps other batteries may undermine demand for lead acid.

at a guess, over 80%, probably over 90% now.
globally it would be about 500 gWh annual production rate

if each EV-scooter/motor bike in China uses 2 batteries, thats a larger demand than China's car industry.

wild guess, 98% of battery Pb is recycled, so the 'stockpile' of Pb is about 98% x 80% x twenty years of something big. Its an immense stockpile in use in batteries around the world, and its growing. If cost for China to process this into a battery is $20/kWh then when the price turns to zero, that is a massive amount of cheap battery that can be made. Not at current Pb prices though.

Permission to use Pb in EU cars has already been rescinded, there is an clause along the lines of there must be an alternative in existence. Since there is no alternative on the market yet in existence, EU continues with Pb batteries, but there is a cliff ahead, because the phase out is already in law. Tesla losing 12volt is very significant. But a starter Pb battery is still needed.

The other thing, there are very few Pb only mines, vast majority is co-production with Silver and/or Zinc. The galena must be extracted to get the Silver or Zinc, so its really a supply that is dependent on other demand, not Pb demand. Pb price could fall 90% and supply will still be robust, if Silver and Zinc improve sufficiently. If Silver goes up 50% and Pb goes to zero, there will be Pb mines increasing their profits. I can't think of a commodity more exposed to downside than Pb, yet their miners possibly more exposed to upside. Strange.

 

[jhm]

Livin' la Vida Local - U.S. Distillate Exports from Gulf Coast to Latin America on the Rise | RBN Energy

This article is helpful for understanding US export opportunities. Specifically, distillates (1.25 mb/d) are the most profitable petroleum exports for US refineries, and 68% of it goes to Latin America.

We’ve blogged extensively about distillate (and gasoline) exports. In our Baby You Can Drive My Exports series, we said that the boom in exports of U.S. refined products, spearheaded by Gulf Coast refineries, has been driven primarily by high diesel margins. Those diesel margins have incentivized Gulf Coast refiners to process more crude to produce diesel for export along with by-product gasoline—even if margins for gasoline have not been quite as attractive. Tepid domestic demand for diesel (and gasoline) also have freed up refinery capacity to produce exports. However, the distillates export boom could not be sustained without ready markets for diesel and other distillates in Latin America and Europe, and Gulf Coast refineries have been able to secure these markets in part because their feedstock and fuel costs are lower—including the cost of natural gas, which is not only used as fuel to provide refiners with a source of heat but also to produce hydrogen, an important feedstock in the production of low sulfur diesel (see Pump Up the Volume).

Why are distillates at a premium?

The drivers for all that distillate heading south from the U.S. include strong Latin American demand for diesel, lower utilization of the region’s existing refineries and continued challenges in adding refining capacity there.

So here is what I see. US demand for gasoline and distillates is declining. This leaves the US with excess refinery capacity. Plus, cheap natural gas lowers the cost of operating this capacity. Meanwhile it is expensive to add refinery capacity in Latin America and cheap natural gas may be lacking. So the US has a clear advantage to export distillates. Moreover, this creates by-product gasoline which helps keep the price of gasoline low for US consumers.

So how might the growth of heavy electric vehicles (semis, buses, trucks, etc.) impact this trade in distillates? Where the premium for diesel is highest HEVs will be most economical. Latin America is generally a great area for cheap solar, so keeping HEVs charged at a low cost should not be a problem. Thus, HEVs cut into the premium on diesel. One HEV can offset demand for 0.7 to 1.0 b/d of diesel. So adding just 15k HEV to fleets importing US distillates could knock off 1% of demand for these imports. Thus, the scale of HEV production does not have to be very large before it starts to mess with these export markets. So as the price for exported US distillates falls, this will impact the profits of US refiners. They may elect to maintain high production levels at lower margins. Or may be forced to pull back production and sell gasoline at a higher price. In either case, exports of both gasoline and distillates are likely to go up to offset declining domestic demand. But I suspect that domestic gasoline prices will go up because it is currently getting a cross-subsidization based on a premium for export distillates. HEVs will level out the structural differences that create that premium.

 

[neroden]

Oh my, diesel is the marginal product in the US now. For decades gasoline was the marginal product, though it swapped places with diesel several times in the European market.

That's interesting. I'm still waiting for jet fuel to become the marginal product... it will happen soon enough

 

[renim]

Off topic - for those who don't just want confirmation bias from TMC...

百度扔下原子弹 炸掉全球无人驾驶数百亿美金研发投入-第一电动网

Baidu announced that it will open to all partners free of charge unmanned ability.

Open content includes: vehicle platform, hardware platform, software platform and cloud platform. Baidu will open the environment for sensing, path planning, vehicle control, car operating system and other functions of the code or ability, and provide a complete development of test tools.

With the help of Baidu, manufacturers and application service providers can quickly build a complete set of their own automatic driving system.

 

[jhm]

Fun infographic.

Note the efficiencies for gas vehicles and semi trucks, 17 mpg and 5 mpg, respectively. This also works out to 16.5 gal of gasoline and 8 gal of diesel per barrel.

 

[kenliles]

Russian Energy Minister Alexander Novak says Russia agrees with Saudis on extending crude output cuts to March 2018

 

[MitchJi]

This Billionaire Believes Tesla Inc Is Still a Seven-Bagger Opportunity -- The Motley Fool
Motley Fool Staff
(the_motley_fool)
May 15, 2017 at 11:30AM
Motley Fool analyst Matt Argersinger recently returned from the 2017 Sohn Investment Conference in New York City, where he heard some of Wall Street's top investors and fund managers take the stage to share their views on various companies.

A full transcript follows the video.

Matt (the reporter) also talked about David Einhorn's recommendation,for shorting Core Labs, an oil field services company. The reasons he gave that Matt mentioned made sense to me. If you are planning to short oil, I'd at least either listen to this audio presentation or google for David Einhorn's presentation on Core Labs.[

 

[ggies07]

Matt (the reporter) also talked about David Einhorn's recommendation,for shorting Core Labs, an oil field services company. The reasons he gave that Matt mentioned made sense to me. If you are planning to short oil, I'd at least either listen to this audio presentation or google for David Einhorn's presentation on Core Labs.[

I found his presentation, amazing stuff. Like this here, it's not only oil companies paying dividends they can't afford:

David Einhorn's Sohn Presentation: Short Core Labs ~ market folly

Core also likes to pay a dividend. For the last 5 quarters, rather than cut the dividend, the company has paid out more than it has earned

 

[adiggs]

I found his presentation, amazing stuff. Like this here, it's not only oil companies paying dividends they can't afford:

David Einhorn's Sohn Presentation: Short Core Labs ~ market folly

Gee - I wonder if a company persistently paying out more in dividends than it's earning is a bullish or bearish signal in Einhorn's view. I'm guessing he'd say that's a bearish / short candidate signal.

(I'm thinking about you Exxon, BP, Shell, Chevron, ...)

 

[renim]

China 8% quota is similar to California, Its a ZEV style scheme so 8% ZEV might equal 2% of cars. China's scheme seems significantly better thought out.

PHEVs less than 50km range earn zero credit don't count (earn zero credit), PHEV 50km+ range gives 2 credits (ie nil 1 credit PHEV)
EVs/ HFCs max out at 5 credits (350km range)
hybrids obviously don't count
can't see any traveling provision for hydrogen (not that I could understand it anyway, but that was a major loophole for Toyota in USA)
credits don't carry between years (no banking)
credits are traded between companies
there may or may not be a price penalty (the alternative is simple cessation of license to produce/import/sell, until quota is reached, ie the nuclear alternative was the default, thats probably changed now)

so 8% quota equals 2% PHEVs (Outlander PHEV sytle) so should be easy for Germans to achieve.
Tesla status is too hard to determine, as a non combustion car they are not subject to this law. my expectation is that the same rules for Chinese Tesla like companies will apply to Tesla. but China want its small EV companies to come under the fold of larger players, so perhaps no money for ZEVs for Tesla until they partner with a Chinese automaker.

Toyota is stuffed, unless they do something.

Currently Chinese car companies sell about 95% of the new energy vehicle
Tesla perhaps 4%
non Chinese non Tesla about 1% (ie the giants in China like VW and GM are missing in action on EVs)
this will have some impact, 8% to 10% to 12% is slow, but for entities like Maserati, its a big issue

Many Chinese car companies pass this 8% threshold with ease today. The intent is to make all companies supply PH/EVs without any federal grant. Effectively this is to replace the central government grants.

 

[jhm]

U.S. Shale Is Immune To An Oil Price Crash In 2017 | OilPrice.com

In a price war, US shale has reloaded. They have taken the occasion of the OPEC production cut to drill DUCs and lock in hedges at $50/b. So shale producers are prepared to keep rolling out supply should the oil price drop to $40 or even $30.

I am starting to come to expect that there will be a second oil cut agreement. If US shale is immune to a price drop, then OPEC and friends have already lost market share. Allowing prices to fall will not bring that share back. So if share loss is inevitable, then at least holding on to price is a small consolation.

 

[renim]

U.S. Shale Is Immune To An Oil Price Crash In 2017 | OilPrice.com

In a price war, US shale has reloaded. They have taken the occasion of the OPEC production cut to drill DUCs and lock in hedges at $50/b. So shale producers are prepared to keep rolling out supply should the oil price drop to $40 or even $30.

I am starting to come to expect that there will be a second oil cut agreement. If US shale is immune to a price drop, then OPEC and friends have already lost market share. Allowing prices to fall will not bring that share back. So if share loss is inevitable, then at least holding on to price is a small consolation.

I don't think the media quite understands DUCs including oilprice.com

DUCs is one reason why US Shale is more like a mining company than an oil company, its not natural for oil industry to understand DUCs unless its explained in their terms. however, unless global 'reserves' accounts for DUCs, they are being misunderstood.

 

[jhm]

I don't think the media quite understands DUCs including oilprice.com

DUCs is one reason why US Shale is more like a mining company than an oil company, its not natural for oil industry to understand DUCs unless its explained in their terms. however, unless global 'reserves' accounts for DUCs, they are being misunderstood.

What is your understanding of what a DUC is? I'm not clear what distinction you are making. Thanks.

 

[renim]

a DUC is a normal part of maximising NPV, its is not a strategic insurance expense.

I'm not questioning the common idea of what a DUC physically describes, but the why they exist.

I'm also not questioning the effect that DUCs have in being a large and growing overhang ceiling to the oil price, competitor profitability.

 

[neroden]

Fun infographic.Note the efficiencies for gas vehicles and semi trucks, 17 mpg and 5 mpg, respectively. This also works out to 16.5 gal of gasoline and 8 gal of diesel per barrel.

Note also the substitutability of diesel and jet fuel. This is partial substitution but it's a real thing.

After gasoline demand drops relative to diesel so that diesel is the marginal product (which has apparently already happened?!?) the demand for diesel + jet fuel controls the size of the market. Maybe Musk is right to come out with the semi next, to hit diesel demand, rather than the pickup, which would keep hitting gasoline demand.

 

[adiggs]

Why didn't I think of this usage for excess, approximately zero marginal cost electricity?

How cheap is solar? Cheap enough to cool the air outside

A/C for the patio!

 

[kenliles]

How cheap is solar? Cheap enough to cool the air outside

"Indeed, noted Frischknecht, solar was becoming so cheap, and will become so abundant, that we will reach the situation where the kilowatt hours of use (i.e. the production) are effectively free. The cost will come in managing the variability, and integrating it into the grid"

what grid?
earth ground?

 

[TheTalkingMule]

Why didn't I think of this usage for excess, approximately zero marginal cost electricity?

How cheap is solar? Cheap enough to cool the air outside

A/C for the patio!

This is why I've always thought there would be a place for hydrogen production and fuel cells within the energy ecosystem. There's going to be so much excess solar at peak that it'll be logical to have more than just battery storage. Some sort of renewable cycle, but with a environment-neutral "fuel".

Hydrogen production is wasteful, but cheap. Fuel cells can in theory be dirt cheap. All we need is a cheap, compact hydrogen storage process and homes/micro-grids could be even more resilient. And your byproduct is pure drinking water.

***********************************

In other oil news, a fresh RuSOP(Russians & Saudis for Oil Profits) commitment to push production cuts out nearly one year has moved the needle nary an inch. The bottom falls out around Labor Day, and everyone pumps like mad from there on out.

 

[Oil4AsphaultOnly]

This is why I've always thought there would be a place for hydrogen production and fuel cells within the energy ecosystem. There's going to be so much excess solar at peak that it'll be logical to have more than just battery storage. Some sort of renewable cycle, but with a environment-neutral "fuel".

Hydrogen production is wasteful, but cheap. Fuel cells can in theory be dirt cheap. All we need is a cheap, compact hydrogen storage process and homes/micro-grids could be even more resilient. And your byproduct is pure drinking water.

***********************************

In other oil news, a fresh RuSOP(Russians & Saudis for Oil Profits) commitment to push production cuts out nearly one year has moved the needle nary an inch. The bottom falls out around Labor Day, and everyone pumps like mad from there on out.

When electricity becomes so cheap that it's practically free, methane should be produced instead of hydrogen. It takes less energy to store and is less likely to leak through the containment vessel. Store it for the winter for heating purposes when solar is less abundant.

 

[Lessmog]

When electricity becomes so cheap that it's practically free, methane should be produced instead of hydrogen. It takes less energy to store and is less likely to leak through the containment vessel. Store it for the winter for heating purposes when solar is less abundant.

Yeah, but don't let it leak!