David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Hubert's Peak Is Here

    Thanks to a subscriber for this report from Goehring & Rozencwajg. Here is a section on shale oil production growth: 

    Conventional wisdom believed the industry had improved its drilling and completion of shale wells. The ability to stay in the zone, the choice, and the volume of proppant and fluid were all said to have resulted in sharply higher drilling productivity. Wall Street and the energy industry both promoted a consistent narrative. We felt there were several unanswered questions and undertook a study to consider what was driving surging well productivity. If the industry had radically improved drilling techniques, it would ultimately be bearish for the sector. A previous low-quality Tier 2 location could now be transformed, through enhanced drilling and completion techniques, into a top-quality Tier 1 well. As a result, the inventory of best wells would explode, and the shale basins would continue to thrive for years to come. Modeling well performance is hugely complex. Shale basins are highly nonlinear with high degrees of variable inter-dependence. As a result, traditional statistical techniques, such as the linear regressions used by most analysts, fall short. We turned to advanced methods, including machine learning and neural networks, and achieved surprising results. Instead of improved drilling techniques, we concluded that two-thirds of the improved productivity between 2013-2018 came from favoring the best drilling locations. In 2013, 22% of Midland wells were Tier 1. By 2018, Tier 1 represented 50% of all wells. Since a Tier 1 well is nearly twice as productive as a Tier 2 well, the migration from lower to higher quality areas drove a massive amount of the improved well productivity.

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    EPW Committee Advances Risch, Crapo Nuclear Energy Bill

    Here are some of the key details of the nuclear bill passed today. 

    Develop and Deploy New Nuclear Technologies

    The bill reduces regulatory costs for companies seeking to license advanced nuclear reactor technologies.
    The bill creates a prize to incentivize the successful deployment of next-generation nuclear reactor technologies.
    The bill requires the NRC to develop a pathway to enable the timely licensing of nuclear facilities at brownfield sites.

    Preserve Existing Nuclear Energy

    The bill modernizes outdated rules that restrict international investment.
    The bill extends a long-established, indemnification policy necessary to enable the continued operation of today’s reactors and give certainty for capital investments in building new reactors.

    Strengthen America’s Nuclear Fuel Cycle and Supply Chain Infrastructure

    The bill directs the NRC to establish an initiative to enhance preparedness to qualify and license advanced nuclear fuels.
    The bill identifies modern manufacturing techniques to build nuclear reactors better, faster, cheaper and smarter.

    Authorize funds for Environmental Cleanup Programs

    The bill authorizes funding to assist in cleaning up legacy abandoned mining sites on Tribal lands.

    Improve Commission Efficiency

    The bill provides flexibility for the NRC to budget and manage organizational support activities to ensure the NRC is prepared to address NRC staff issues associated with an aging workforce.
    The bill provides the NRC Chair the tools to hire and retain highly-specialized staff and exceptionally well-qualified individuals to successfully and safely review and approve advanced nuclear reactor licenses.
    The bill requires the NRC to periodically review and assess performance metrics and milestone schedules to ensure licensing can be completed on an efficient schedule.

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    Treasuries Gain as Investors Assess Debt-Ceiling Accord Impact

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    Mounting rate-hike expectations have pushed short-term yields up relative to longer-term ones, flattening the Treasury curve. The flattening continued Tuesday as yields declined, briefly pushing 30-year yields below the five-year for the first time since March.

    The trend has temporary support from Wednesday’s month-end bond index rebalancing, which may create demand for the long-maturity Treasuries created during the month in quarterly auctions. 

    Later this week, Friday’s release of US labor market data for May has the potential to alter expectations for Fed policy. Job creation exceeded economists’ median estimate in April and each of the previous 12 months. However Fed officials in their public comments have been divided on how to balance an anti-inflationary stance with the possibility that the central bank’s 10 rate increases totaling 5 percentage points in the past 14 months warrant a pause in June.

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    World's Largest Solar Manufacturer Is Fueling a Price War

    This article from Bloomberg may be of interest. Here is a section: 

    Chinese company Longi Green Energy Technology Co. cut wafer prices by as much as 31% on Monday. Wafers are silicon squares that are wired up and pieced together to form solar panels. 

    The reduction comes after solar silicon prices have plunged by almost half since early February. A slew of new factories have ramped up production, ending a shortage of the material that disrupted the industry’s supply chain last year. 

    Longi President Li Zhenguo warned last week that aggressive expansion in the solar supply chain could lead to excess capacity that forces more than half the companies in the industry out of business in the next few years. 

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    Why So Many Electric Car Chargers in America Don't Work

    This article from Bloomberg may be of interest. Here is a section: 

    There isn’t a single reason for EV charger failures. Some of the problems, particularly with older machines, can be chalked up to a new technology going through the usual learning curve of improvements, all while sitting outside, exposed to the weather. There have been cycles of needed upgrades, such as replacing modems to deal with 5G wireless internet service. The myriad networks, retail outlets and garage owners who own the machines don’t always stay on top of maintenance. And chargers must communicate with a rapidly expanding variety of cars. 

    To that end, the precise scope of the problem isn’t known. EV drivers face a complex landscape of competing charging companies, each with its own stations and app, and there is no central repository of data on station performance. One widely cited 2022 study of fast-charging stations in the San Francisco Bay Area (excluding Tesla Inc.’s Superchargers), found that about 25% of the 657 plugs weren’t working. While J.D. Power doesn’t disclose reliability rankings, Gruber said the worst-performing charging company leaves drivers unable to plug in about 39% of the time. 

    “With public charging, it’s a bit of the wild, wild West,” he said.

    Tesla proved that reliable charging is possible. The all-electric automaker runs a global network of 45,000 Superchargers, which can add up to 200 miles of range in just 15 minutes. Tesla consistently gets the highest customer-satisfaction marks of any charging company in J.D. Power’s surveys, Gruber said. Its drivers report charger downtime of just 3%.

    But Tesla has the advantage of keeping everything in-house. Until recently, Superchargers could only be used by Tesla cars, and didn’t need to work with the growing array of other EVs and batteries. Tesla also owns its Supercharger network, whereas many of the public chargers installed over the past decade are owned by whoever owns the parking lot where they’re located. Such property owners, Gruber said, don’t have as strong an incentive to maintain their machines.

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    Fire on 'Shadow' Tanker off Malaysia is Extinguished, Search Continues

    This article from Maritime-Executive.com may be of interest. Here is a section: 

    During a press briefing in Malaysia, the Russian captain of the vessel described the situation saying that he had discovered a fire amidship early afternoon on Monday. The initial discovery of smoke was followed by one or more loud explosions which he said shook the vessel, broke the windows, and rendered most of the communications systems inoperable.

    “The fire on the upper deck destroyed our aerial, none of the communication equipment was functioning,” the captain told NST TV in Malaysia. “I had to use the walkie talkie …I finally got in touch with our engineer via the walkie talkie but by then all our safety boats were destroyed.” 

    The captain said the desperate crew had gone into the water in their life jackets and luckily two ships were in the immediate area to assist with the rescue. He said in the confusion with the crew going in all directions it had been impossible for him to get a head count. He said the fire was also being spread by windy conditions.

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    Copper Mine Flashes Warning of 'Huge Crisis' for World Supply

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    Take not just Chile, with its revisions to fiscal policies for miners, but Peru, a country long considered crucial to the next wave of copper production, where the mining sector has been battered during lengthy social unrest. Rio in late March agreed to sell a controlling stake in its Peruvian mine La Granja to First Quantum.

    “What the market never predicted was how difficult South America would become,” said Radclyffe. “The uncertainty out of both Chile and now ongoing in Peru, that’s just added an extra level of complexity that the market never expected, and that hasn’t really been resolved.”

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    Oil Tumbles as Low Trading Volumes Make for an "Investor Desert"

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “The market is an investor desert,” said Scott Shelton, an energy specialist at ICAP. “The fundamental information that generates predictable price action doesn’t exist.”

    Adding to the bearish sentiment, vacancies at US employers fell to an almost two-year low in March, a fresh sign of a softening labor market. Activity in China’s export-tilted manufacturing sector missed estimates in April, a possible sign of a recession among customers in the US and Europe. And Iranian Oil Minister Javad Owji said the country has increased output to more than 3 million barrels a day, providing additional supplies to the market.

    “It’s going to take some evidence in the physical market on the tightening we see in our balances before we see any more positive or committed trading activity,” Emily Ashford, an energy analyst at Standard Chartered Bank, said by phone. 

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    Email of the day on why uranium is not doing better.

    Dear Eoin, Why do you think the Uranium Miners ETF you have been holding has been disappointing of late? Is it all about "risk-off" and withdrawal of liquidity from the market? What makes you continue to hold? What would make you sell? Thanks! Kind regards, 

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    CATL Says New Super Strong Battery May Power Electric Flight

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    China’s Contemporary Amperex Technology Co. Ltd., known as CATL, unveiled its strongest battery to date Wednesday, saying that it could one day be used to power electric aircraft.  

    The battery, which loads more power into a smaller package, has an energy density of 500 watt-hours per kilogram, CATL’s Chief Scientist Wu Kai said during a presentation at the Shanghai auto show. CATL’s most recent battery, called Qilin, has an energy density of 255 Wh/kg and can power an electric vehicle for 1,000 kilometers (620 miles) on one charge. 

    The technology, which CATL calls a condensed state battery, is potentially a breakthrough that will help electrify sectors wed to fossil fuels because existing batteries are either too heavy or unsafe. Still, questions remain about the materials it will use, its cost and ultimate market impact.

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