Energy Sector

[SharperDingaan]

Many years ago, friends in low places reminded me that one can always hire an expert, but ability to think 'around a problem' was rare. Sadly the man passed many years ago, 'cause he was a master oil smuggler in his time.

 

Oil is a manipulated product, little different to hard drugs. Everybody wins as long as the price remains high, families will have their dramas, but there is collective 'enforcement'. There are bills to pay, and minimum revenue requirements - interfere with that at your cost. Hence, focus on what is required, and who requires it.

 

The 'container ship' fire and explosion in the UAE's main oil loading port, very likely wasn't an accident. Were the container ship moored at DP Terminal 3, and a real attempt made, all tanker ingress/engress within this port could have been sttopped.

 

 https://www.aljazeera.com/news/2021/7/7/fire-erupts-on-ship-dubai-port-explosion-rocks-city

 

SD

 

  

Edited July 8, 2021 by SharperDingaan

[jfan]

https://oilprice-com.cdn.ampproject.org/v/s/oilprice.com/Energy/Crude-Oil/Worlds-Recoverable-Oil-Resources-Shrinks-By-9.amp.html?amp_gsa=1&amp_js_v=a6&usqp=mq331AQIKAGwASCAAgM%3D#amp_tf=From %1%24s&aoh=16262691500785&csi=0&referrer=https%3A%2F%2Fwww.google.com&ampshare=https%3A%2F%2Foilprice.com%2FEnergy%2FCrude-Oil%2FWorlds-Recoverable-Oil-Resources-Shrinks-By-9.html

 

For my confirmation bias

[james22]

Was a good year for Energy (XLE +46%).

[CafeB]

11 hours ago, james22 said:

XLE +46%

 

Reviewing Byron Wien's Ten Surprises of 2021:

 

"7. Even as energy company executives cut estimates for long-term growth, near-term opportunities are increasing. The return to “normal” increases both industrial activity and mobility, and the price of West Texas Intermediate oil rises to $65/bbl. Rig counts increase and energy high yield bonds rally soundly. Energy stocks are among the best performers in 2021."

 

www.blackstone.com/news/press/byron-wien-and-joe-zidle-announce-the-ten-surprises-of-2021/

[Viking]

No one is ready for $100 oil let alone $125. Everyone has been ‘conditioned’ the past 8 years that rising oil prices will ALWAYS result in spiking supply and then, in short order, much lower oil prices. So persistently high and rising oil prices simply cannot happen; only an idiot would suggest otherwise (that is how strongly held the belief is).

 

Of course, past trends go on. Until they don’t. And when the trend changes  people only slowly update their thinking. Re-wiring strongly held beliefs (even when they are wrong) takes time. But the facts can only be ignored for so long.

 

Has the oil market structurally changed? How has ESG changed oil on both the demand and supply side? Is the future of US shale different from its recent past? Is ‘shareholder return’ the new religion with oil company executives? 
—————

After all, we all know WITHOUT A DOUBT lumber prices can never hit $1,700. And steel prices can never hit $1,900. Impossible. 

—————

Bloomberg interview Dec 2 with Malek from JPM

- if you want to understand what the details of the bull market case is for oil then listen to the first 8 minutes of this podcast. 

- https://www.bloomberg.com/news/audio/2021-12-02/surveillance-150-oil-with-jpmorgan-s-malek-podcast

—————

JP Morgan sees oil prices surging to US$125 in 2022
- https://ca.proactiveinvestors.com/companies/news/967631/jp-morgan-sees-oil-prices-surging-to-us-125-in-2022-967631.html

 

“Oil prices will surge around 66% to US$125 per barrel in 2022, according to JP Morgan, which sees the crude market at the start of a new super-cycle’.

 

Crude could reach as high as US$150 per barrel by 2023, the US bank said.

 

“OPEC+ is back in the oil market driver’s seat,” JPM analyst Christyan Malek said in a note.

 

“The prisoner’s dilemma is over”, the analyst added (referring to the scenario in game theory where decision-makers in a group are incentivised to act against the broader interest of the group).“

—————

Longer article laying out Malek’s logic:

- https://www.cnn.com/2021/11/29/business/gas-prices-oil-jpmorgan/index.html

 

“Importantly, JPMorgan is not calling for oil to trade at $125 a barrel for all of 2022. Instead, the bank is predicting crude will average $88 next year and "overshoot" to $125 at some point. Likewise, JPMorgan sees Brent averaging $82 in 2023 but overshooting to $150.”

Edited January 3, 2022 by Viking

[Viking]

More good news for oil and gas… 13% of Germany’s power needs will be vaporized by the end of 2022. Poof. Gone. Gas is now the new green energy. And Russia is our new most trusted best friend. Got it!

—————

Clearly i am an idiot. Given the importance of climate change and reducing greenhouse gasses ASAP i missed the memo that said coal was a far better option than nuclear. Coal represents 51% of all electricity generation? Germans are so rational. 

—————

Germany shuts down half of its 6 remaining nuclear plants

- https://abcnews.go.com/International/wireStory/germany-shuts-half-remaining-nuclear-plants-82016348

 

“But the German government said this week that decommissioning all nuclear plants next year and then phasing out the use of coal by 2030 won’t affect the country’s energy security or its goal of making Europe's biggest economy “climate neutral” by 2045.

 

“By massively increasing renewable energy and accelerating the expansion of the electricity grid we can show that this is possible in Germany,” Economy and Climate Minister Robert Habeck said.

 

Renewable energy sources delivered almost 46% of the electricity generated in Germany in 2021. Coal accounted for more than 51%, while nuclear power provided over 13%, according to the Fraunhofer Institute.

 

Several of Germany's neighbors have already ended nuclear power or announced plans to do so, but others are sticking with the technology. This has prompted concerns of a nuclear rift in Europe, with France planning to build new reactors and Germany opting for natural gas as a “bridge” until enough renewable power is available, and both sides arguing their preferred source of energy be classed as sustainable.”

Edited January 3, 2022 by Viking

[JRM]

5 hours ago, Viking said:

Clearly i am an idiot. Given the importance of climate change and reducing greenhouse gasses ASAP i missed the memo that said coal was a far better option than nuclear. Coal represents 51% of all electricity generation? Germans are so rational. 

 

 

People in energy insecure location are hoarding firewood for the winter.  Even better than coal!

[Spekulatius]

6 hours ago, Viking said:

More good news for oil and gas… 13% of Germany’s power needs will be vaporized by the end of 2022. Poof. Gone. Gas is now the new green energy. And Russia is our new most trusted best friend. Got it!

—————

Clearly i am an idiot. Given the importance of climate change and reducing greenhouse gasses ASAP i missed the memo that said coal was a far better option than nuclear. Coal represents 51% of all electricity generation? Germans are so rational. 

—————

Germany shuts down half of its 6 remaining nuclear plants

- https://abcnews.go.com/International/wireStory/germany-shuts-half-remaining-nuclear-plants-82016348

 

“But the German government said this week that decommissioning all nuclear plants next year and then phasing out the use of coal by 2030 won’t affect the country’s energy security or its goal of making Europe's biggest economy “climate neutral” by 2045.

 

It’s probably more positive for coal than for oil and gas. I agree this plan is nuts, Merkel did a knee jerk reaction to phase out nuclear power after Fukushima. I guess not all scientist are rational, at least not after they become politicians.

 

I think nuclear power is going into a Renaissance. There is some risk of widespread power outages in Europe if Putin decides to throttle NG deliveries. It’s not like this hasn’t happened before. That may change the mindset in Europe regarding nuclear power.

[JRM]

37 minutes ago, Spekulatius said:

I think nuclear power is going into a Renaissance. There is some risk of widespread power outages in Europe if Putin decides to throttle NG deliveries. It’s not like this hasn’t happened before. That may change the mindset in Europe regarding nuclear power.

What nuclear plants are in the pipeline for Europe and the US?  China is building a lot, but it takes a LONG time to bring a new nuclear plant online.  It also takes longer than most people realize to bring a shuttered plant back online.  Most of the uranium\nuclear bulls are operating on the wrong time frame in the US and Europe.  China is another story.

 

Don't get me started on SMRs.

[Spekulatius]

No concrete plans in Europe, but it seems that the France may announce something. France is 3/4 nuclear power right now and it looks like they want to keep it that way.

https://www.world-nuclear-news.org/Articles/Macron-says-France-will-construct-new-reactors

[Castanza]

56 minutes ago, Spekulatius said:

No concrete plans in Europe, but it seems that the France may announce something. France is 3/4 nuclear power right now and it looks like they want to keep it that way.

https://www.world-nuclear-news.org/Articles/Macron-says-France-will-construct-new-reactors

Meanwhile Germany still shutting down remaining nuclear plants. This makes now sense to me. 

 

https://www.nbcnews.com/news/world/germany-pull-plug-3-its-last-6-nuclear-power-plants-n1286771

[rkbabang]

There's TerraPower in the US building a demonstration molten sodium plant in Wyoming. 

 

https://www.terrapower.com/natrium-demo-wyoming-coal-plant/

 

https://www.cnbc.com/2021/04/08/bill-gates-terrapower-is-building-next-generation-nuclear-power.html

 

[lnofeisone]

1 hour ago, Castanza said:

Meanwhile Germany still shutting down remaining nuclear plants. This makes now sense to me. 

 

https://www.nbcnews.com/news/world/germany-pull-plug-3-its-last-6-nuclear-power-plants-n1286771

I am generally neutral on nuclear. I realize it will need to be in the energy portfolio but a lot more work needs to be done to make it safer than it already is. To understand nuclear and nuclear hesitation you have to look at every phase. If you look at lifetime nuclear  (which is how a country should look at it) though investor's lens, it's not great. 

 

1) Construction - just about every nuclear plant requires years (decades) of paperwork to break ground, always runs behind schedule, and always above budget. Vogtle is just the most recent example in a line of many. 

 

2) Operations - probably the sweet spot. Raw material-wise it costs something like $0.1 for MWh to generate nuclear. Obviously not the $0 for wind or solar but close and you get the reliability bonus.  The remaining cost for MWh comes from all the necessary things to operate plants safely and add $40 or so per MWh. This assumes that no mistake will happen and I think that's the wrong assumption. Mistakes happen everywhere and nuclear is not immune from it and mistakes with nuclear can cost close to $200B (that was the cost for Fukushima clean up).

 

3) Waste disposal - this is very costly and near perpetual. 1/3 of DOE budget is subsumed on a clean up in the state of Washington (Hanford site - great history here). Hanford site is expected to cost between $300-600B. Yuca mountain's cost is around $100B. 

 

So if focusing on 2, yeah, Germany's decision is a strange one but if focusing on 1-3, Germany is removing a lot of future risks and liabilities with cost being energy independences and elevated energy prices. 

[rkbabang]

25 minutes ago, lnofeisone said:

I am generally neutral on nuclear. I realize it will need to be in the energy portfolio but a lot more work needs to be done to make it safer than it already is. To understand nuclear and nuclear hesitation you have to look at every phase. If you look at lifetime nuclear  (which is how a country should look at it) though investor's lens, it's not great. 

 

1) Construction - just about every nuclear plant requires years (decades) of paperwork to break ground, always runs behind schedule, and always above budget. Vogtle is just the most recent example in a line of many. 

 

2) Operations - probably the sweet spot. Raw material-wise it costs something like $0.1 for MWh to generate nuclear. Obviously not the $0 for wind or solar but close and you get the reliability bonus.  The remaining cost for MWh comes from all the necessary things to operate plants safely and add $40 or so per MWh. This assumes that no mistake will happen and I think that's the wrong assumption. Mistakes happen everywhere and nuclear is not immune from it and mistakes with nuclear can cost close to $200B (that was the cost for Fukushima clean up).

 

3) Waste disposal - this is very costly and near perpetual. 1/3 of DOE budget is subsumed on a clean up in the state of Washington (Hanford site - great history here). Hanford site is expected to cost between $300-600B. Yuca mountain's cost is around $100B. 

 

So if focusing on 2, yeah, Germany's decision is a strange one but if focusing on 1-3, Germany is removing a lot of future risks and liabilities with cost being energy independences and elevated energy prices. 

 

 

Nuclear's main problem is politics and fear.  1) "every nuclear plant requires years (decades) of paperwork to break ground" is purely and entirely a political issue.  2) Is mostly a political issue building/maintaining dangerous light water reactors when there are better designs which can't get by the 1) politics/fear issue.  3) Again being limited by 1). There are reactor designs to close the cycle and use spent fuel from conventional reactors, but those are not being built because of 1) politics/fear.   Humanity could get rid of fossil fuels entirely in electricity generation if people weren't so damn afraid of even the word "nuclear".  It isn't a technological problem at this point, it is a stupidity problem.

 

[Spekulatius]

7 minutes ago, rkbabang said:

 

 

Nuclear's main problem is politics and fear.  1) "every nuclear plant requires years (decades) of paperwork to break ground" is purely and entirely a political issue.  2) Is mostly a political issue building/maintaining dangerous light water reactors when there are better designs which can't get by the 1) politics/fear issue.  3) Again being limited by 1). There are reactor designs to close the cycle and use spent fuel from conventional reactors, but those are not being built because of 1) politics/fear.   Humanity could get rid of fossil fuels entirely in electricity generation if people weren't so damn afraid of even the word "nuclear".  It isn't a technological problem at this point, it is a stupidity problem.

 

Nuclear only works, if the society decides that they support it. Trying to push this through as a company without general support is suicide and I think we have seen this with the reactor in South Carolina. The technical problems all have been solved more than 40 years ago.

 

Germany has a path for nuclear waste storage in old Saltmines (which are very geologically inert).

Edited January 3, 2022 by Spekulatius

[JRM]

The largest energy store in the United States isn't oil, coal, or natural gas still in the ground.  It's actually spent fuel sitting in spent fuel pools decaying away for the next 200 years (required to be cooled and covered for the entire time).  

 

Again, the fear has kept spent fuel reprocessing from becoming established in the U.S.  

 

Nuclear power is the clear answer, but too many hurdles exist currently.

[Castanza]

3 hours ago, lnofeisone said:

I am generally neutral on nuclear. I realize it will need to be in the energy portfolio but a lot more work needs to be done to make it safer than it already is. To understand nuclear and nuclear hesitation you have to look at every phase. If you look at lifetime nuclear  (which is how a country should look at it) though investor's lens, it's not great. 

 

1) Construction - just about every nuclear plant requires years (decades) of paperwork to break ground, always runs behind schedule, and always above budget. Vogtle is just the most recent example in a line of many. 

 

2) Operations - probably the sweet spot. Raw material-wise it costs something like $0.1 for MWh to generate nuclear. Obviously not the $0 for wind or solar but close and you get the reliability bonus.  The remaining cost for MWh comes from all the necessary things to operate plants safely and add $40 or so per MWh. This assumes that no mistake will happen and I think that's the wrong assumption. Mistakes happen everywhere and nuclear is not immune from it and mistakes with nuclear can cost close to $200B (that was the cost for Fukushima clean up).

 

3) Waste disposal - this is very costly and near perpetual. 1/3 of DOE budget is subsumed on a clean up in the state of Washington (Hanford site - great history here). Hanford site is expected to cost between $300-600B. Yuca mountain's cost is around $100B. 

 

So if focusing on 2, yeah, Germany's decision is a strange one but if focusing on 1-3, Germany is removing a lot of future risks and liabilities with cost being energy independences and elevated energy prices. 

Nuclear is by far the safest energy historically. Anyone saying otherwise really hasn't looked at the numbers. 

 

https://en.wikipedia.org/wiki/List_of_nuclear_and_radiation_accidents_by_death_toll

 

Chernobyl was a poor design and poor management. Modern designs are ridiculously safe with more redundancy, fail over, better disposal etc. Not going to rehash what RK said or derail the thread anymore so I'll leave with that. 

 

https://www.engineering.com/story/whats-the-death-toll-of-nuclear-vs-other-energy-sources

 

Nuclear 90 death per 1000TWh

Rooftop Solar 440 death per 1000TWh

Wind 150 death per 1000TWh

Hydro 1500 death per 1000TWh

 

O&G/Coal Who knows but it's probably high if you factor pollution into it. 

[lnofeisone]

I can definitely buy the argument that ecological costs of O&G are just as high or higher than nuclear accidents and the nuclear is a cheaper and cleaner form of energy. But you are dealing with people who are looking at things and nuclear disasters are a terrible PR. 

[Castanza]

29 minutes ago, lnofeisone said:

I can definitely buy the argument that ecological costs of O&G are just as high or higher than nuclear accidents and the nuclear is a cheaper and cleaner form of energy. But you are dealing with people who are looking at things and nuclear disasters are a terrible PR. 

Yeah I get that for sure, I mean optics play a larger role than logic for many governmental decisions. But if humanity ever wants to solve the energy crisis/climate change thing; nuclear or some type of nuclear is really the only way forward. 

[CafeB]

On 1/2/2022 at 2:11 PM, CafeB said:

Reviewing Byron Wien's Ten Surprises of 2021:

 

"7. Even as energy company executives cut estimates for long-term growth, near-term opportunities are increasing. The return to “normal” increases both industrial activity and mobility, and the price of West Texas Intermediate oil rises to $65/bbl. Rig counts increase and energy high yield bonds rally soundly. Energy stocks are among the best performers in 2021."

 

www.blackstone.com/news/press/byron-wien-and-joe-zidle-announce-the-ten-surprises-of-2021/

 

2022:

 

"7. While the major oil-producing countries conclude that high oil prices are speeding up the implementation of alternative energy programs and allowing US shale producers to become profitable again, these countries can’t increase production enough to meet demand. The price of West Texas crude confounds forward curves and analyst forecasts when it rises above $100 per barrel."

 

www.blackstone.com/news/press/byron-wien-and-joe-zidle-announce-the-ten-surprises-of-2022/

[ICUMD]

With the rising popularity of EVs,  it will be interesting to see how additional electricity will be generated.   That's a lot of windmills and solar farms in Germany.... 

 

Good thing they will have a couple of mothballed nuclear reactors on standby!

[SharperDingaan]

There are a great many cheaper and cleaner options than nuclear and coal.

Windmill and solar backed up with battery, gas, hydrogen, methane/hydrates, is a far more practical choice. The clean tech is cheap/unit and can be put up most anywhere, fuel burn doesn't happen until you really need it and it is typically for weeks only - not months. Reprocessing methane from local garbage dumps is also a job generator, materially cheaper than nukes, much more benign, and far easier to staff. The Europeans aren't stupid, they just have a different approach.

 

Europe/Russia are currently 'negotiating' Nord Stream 2. The Russians need the export money, and turn the screws to hear 'how much you love me'. Europe (Germany) refuses to take, and turns the screw on 'how much do you want to stay in power'. Lot of drama, but eventually there's a deal. Until then higher prices for gas (US/ME benefit).

 

Clean tech crossed the tipping point (Gladwell) when ESG reporting came into widespread effect. Adoption is accelerating throughout the world whether we like it or not. The angry shouting is from the industries being gored.

 

It is just industry disruption.

Different process, but not that dissimilar to the disruption of fintech.

 

SD  

 

 

[Castanza]

45 minutes ago, SharperDingaan said:

Windmill and solar backed up with battery, gas, hydrogen, methane/hydrates, is a far more practical choice. 

 

 

Can you even get to that point and what does it look like? Currently wind and solar are the backup for O&G. If you disregard peak efficiency and go with the typical 20% Solar 30% wind, the costs are more than fossil fuels in many cases. You also have the massive scale and land area needed for wind and solar farms. I'd much rather have 25 modern fission plants scattered across the country, then see every mountain from NY to Washington scalped and topped with wind mills.  Cost can only come down so much and efficiency can only go so high. Viable solar and wind land locations are limited. Batteries require a lot of resources and are difficult to recycle (so are solar panels). How do you scale Solar and Wind when energy demands grow 100% or 150% from here? 

 

I can't help but think red tape and bureaucracy is the key factor keeping nuclear out of the conversation.  Perhaps you are right that NOW it is the most practical. But at some point it seems obvious that humanity will need to find another way. 

[SharperDingaan]

European solar is typically urban rooftop application; the European 'solar farm' just has people living under the solar panels. Power generated/used at source, offsetting line-loss from a central farm (US approach). Windmills in the rural areas are an increasingly common sight, and they often double as cell phone towers. Unit costs are dramatically falling as manufacturing scales up, & it is still early stages.

 

In the ESG world, nukes are right up there with dirty oil. Oil harms when you process and burn it. Nukes harm when you dispose of the waste. In both cases if something goes wrong people die - but with nukes the pollution lives on for multiple lifetimes. Obviously, the more alternative clean energy you can generate (and the less oil/nuke) the better.

 

SD

 

[Spekulatius]

25 minutes ago, SharperDingaan said:

European solar is typically urban rooftop application; the European 'solar farm' just has people living under the solar panels. Power generated/used at source, offsetting line-loss from a central farm (US approach). Windmills in the rural areas are an increasingly common sight, and they often double as cell phone towers. Unit costs are dramatically falling as manufacturing scales up, & it is still early stages.

 

In the ESG world, nukes are right up there with dirty oil. Oil harms when you process and burn it. Nukes harm when you dispose of the waste. In both cases if something goes wrong people die - but with nukes the pollution lives on for multiple lifetimes. Obviously, the more alternative clean energy you can generate (and the less oil/nuke) the better.

 

SD

 

There are a lot of solar farms in Europe as well - it isn't just rooftop.