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

    BHP, world's largest miner, says 2017 is 'tipping point' for electric cars

    This article by Clara Ferreira-Marques and Gavin Maguire for Reuters may be of interest to subscribers. Here is a section: 

    Balhuizen said he expected the electric vehicle boom would be felt - for producers - first in copper, where supply will struggle to match increased demand. The world’s top mines are aging and there have been no major discoveries in two decades.

    The market, he said, may have underestimated the impact on the red metal: fully electric vehicles require four times as much copper as cars that run on combustion engines.

    BHP, Balhuizen said, is well-placed, with assets like Escondida and Spence in Chile, and Olympic Dam in Australia. BHP said last month it was spending $2.5 billion to extend the life of the Spence mine in northern Chile by more than 50 years.

     

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    Oil Traders Empty Key Crude Storage Hub as Demand Booms

    This article by Rupert Rowling and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

    Oil traders are emptying one of the world’s largest crude storage facilities, located near the southernmost tip of Africa, as the physical market tightens amid booming demand and OPEC production cuts.

    Total SA, Vitol Group and Mercuria Energy Group Ltd. are selling crude they hoarded in Saldanha Bay, South Africa, during the 2015-2016 glut when the market effectively paid traders to store oil, according to people familiar with the matter, who asked not to be named discussing private operations. 

    Crude demand is now seasonally outstripping supply, tightening the physical market for some crude varieties to levels not seen in the last two years and encouraging traders to sell their stored oil.

    “The market is selling inventories from everywhere,” Mercuria Chief Executive Officer Marco Dunand said in an interview in Geneva.

    Although largely unknown outside the oil trading industry, Saldanha Bay is one of the world’s largest crude storage facilities, with the capacity to hold 45 million barrels in just six gigantic, partially-buried concrete tanks. By comparison, Cushing, the better-known U.S. oil storage center in Oklahoma that serves as the pricing point for the West Texas Intermediate oil benchmark, can hold about 75 million barrels in more than 125 tanks.

     

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    Oil Breaches $50 as Worldwide Energy Demand Outlook Brightens

    This article by Jessica Summers for Bloomberg may be of interest to subscribers. Here is a section:

    Oil topped $50 a barrel for the first time in more than a month amid heightened optimism that a demand resurgence is in the offing.

    Futures rose as much as 2.4 percent in New York, extending the longest upswing since July. Two of the most influential organizations in world oil markets -- the International Energy Agency and OPEC -- nudged their demand forecasts higher, signaling continued erosion of a global glut that has weighed on prices.

    Oil demand for 2017 will expand by the most in two years, the Paris-based IEA said on Wednesday. That followed OPEC’s increase of its estimate for how much crude buyers will seek from the cartel next year, driven by rising consumption in Europe and China. In the U.S., hurricane-driven refinery outages spurred fuel distributors to pull a record amount of gasoline from storage tanks to cope with shortages last week, government data showed.

    “The market is continuing to digest that information and realizing that the rebalancing process is working,” Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management, which oversees $142 billion in assets, said by telephone.

     

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    Musings from the Oil Patch September 12th 2017

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section: 

    If a homeowner installs a charging station in his garage, there may not be much impact on the grid.  However, if all his neighbors do the same thing, there could be a problem.  Transformers are necessary to regulate the power flowing into a home, and they usually service multiple homes, generally four at a time.  A problem is that utility companies do not know exactly how much power is being used by a particular home relative to its neighbors until a transformer fails.  Upgrading transformers can be expensive and limited by weight limits for units mounted on power poles.  One estimate suggests moving from a 50KVA pad-mounted transformer serving four homes to a 75KVA unit costs about $3,000.   

    For underground power installations, upgrading the transformer units may be easier, but not necessarily less costly.  One study by the Institute of Electrical and Electronics Engineers says that the problem is at the local level.  If multiple Level 2 chargers that fully recharge a car in 2-3 hours, are plugged in at the same time at night, they may prevent transformers from cooling as they are designed.  Sustained excess current will eventually ‘cook’ a transformer’s copper windings, causing a short and blacking out of the homes attached to the device.  This problem was observed from a study of the habits of EV owners in an Austin, Texas suburb.  Over a two-month period, the residents tended to recharge their EVs at the same time – when returning from work – that coincided with air conditioning loads increasing along with the use of other appliances. 

    A similar study was conducted in the UK, which conducted an 18month study of resident habits when 100% were using EVs.  The study’s result show that at least a third of the UK’s power grid will need to be upgraded to support an EV sales rate of 40% of new car sales by 2023.  That doesn’t address the load issue if 40% of the entire UK vehicle fleet were plug-in EVs. 

     

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    Email of the day on the ground experience from the Texas panhandle

    I had the pleasure of spending several days with a friend who is an executive in a drilling company. He indicated that the recovery had brought a boom in drilling, but that customers were demanding the latest high-tech drilling rigs (faster, more efficient, much bigger pumps, able to drill longer laterals). This requires very large capital investments with uncertain payback times. Older, lower tech rigs are left unused, which creates dramatically lower rig utilization rates for drillers. Unfortunately, the past month has seen a bit of a slowdown, with some new tech rigs coming off of pads with no new contract (meaning the rig goes to the yard and sits, and the crew have no jobs). While this may be a short-term issue, it could alternatively be a sickly-looking canary.

    Unlike last year, when vast numbers of pump jacks were idle (indicating the well is not producing at that moment), this year more than 75% of the pump jacks I saw were pumping, and most looked well-maintained. Pump jacks do not normally pump full-time, as they shut down for maintenance, and when their storage tanks are full, etc. A lot of the oil in the area is pumped into tanks and then picked up by trucks. 

    The beef, pork, chicken, and nuclear weapon businesses all appeared to be thriving.

    Probably needless to say, but the Texas Panhandle is about 700 miles from the flooding.

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    How a Bird Charity's Battle Against a Wind Farm Backfired

    This article by Jess Shankleman for Bloomberg may be of interest to subscribers. Here is a section: 

    When plans for Neart na Gaoithe started being developed in 2008, Siemens AG’s 3.6 megawatt turbine was the most popular among developers. Now manufacturers are working on machines that could be four times bigger, helping companies like Dong Energy A/S build projects cheaply enough to make money at market prices. The collapse in oil prices has also helped lower offshore wind costs, by making the sea vessels needed to install projects cheaper to hire.

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    Hurricane Irma Strengthens to a Category 5 Storm

    This article by Abigail Morris and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

     

    Beyond the threat to people and property in the Caribbean, the focus so far is on agriculture with the storm, "being a case of being long orange Juice futures rather than gasoline futures," Jakob said.

    Irma will probably cross the northern Leeward Islands Tuesday into Wednesday, according to the NHC, which said it’s still too early to determine what impact it might have on the U.S. Hurricane warnings have been issued for the U.S. and British Virgin Islands, Puerto Rico, Vieques, and Culebra. Tropical-storm-force winds could arrive in the British and U.S. Virgin Islands and Puerto Rico by early Wednesday.

    About two-thirds of Florida’s citrus crop is located in the lower two-thirds of the peninsula. Frozen concentrated orange juice futures in New York already rose last week on speculation the storm could strike, though prices are down almost 30 percent since January.

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    Email of the day on cobalt

    Nickel is an important metal in itself for battery technology, but 2/3 of nickel goes into stainless steel, so from this perspective nickel isn't a very highly leveraged play on battery advances. Whilst Cobalt is a by-product of nickel mining, it is my understanding that this is mainly the case from lateritic nickel deposits, and there is a much lower % of cobalt by-product from deep mines. 

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    Musings from the Oil Patch August 29th 2017

    Thanks to a subscriber for this edition of Allen Brook’s ever interesting report for PPHB. Here is a section on lithium and cobalt:

    We don’t know the details behind the Morgan Stanley electric vehicle forecast, but we know there are both more and less aggressive forecasts.  We wonder if those forecasters have considered the potential constraints from lithium carbonate supply.  There is a greater issue with cobalt, which accounts for 58% of a battery by weight, more than the lithium in a battery, and consumes 42% of all cobalt output.  The problem is that cobalt supplies are smaller and about 60% comes from the Democratic Republic of Congo, which is controlled by war lords and relies on child labor for mining the ore.  The governments we will have to deal with to meet the demand for rare minerals to meet electric vehicle forecasts present many moral and financial question marks.  In fact, when we were in Tibet earlier this summer, we followed Chinese trucks hauling bags of lithium carbonate from mines to shipping depots.  That supply is likely committed to the Chinese electric vehicle industry, which needs it to meet its anticipated growth outlook.   

    As a result of the growing demand for lithium and other rare minerals, their prices are climbing, and in some cases at alarming rates.  Since 2015, lithium prices have quadrupled, while cobalt prices have doubled.  What will rising prices and limited availability mean for the forecasts of ever cheaper batteries?   

     

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