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

    OPEC+ Keeps Tight Squeeze on Output, Sending Prices Soaring

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

    restraints. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation, just as widespread vaccination allows economies to start emerging from the downturn caused by the pandemic.

    “OPEC+ definitely risks over-tightening the oil market,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.

    Brent has already rallied almost 30% this year to above $67 a barrel as OPEC+ kept production below demand in order to drain the glut that built up during the worst of the Covid-19 lockdowns. Without additional supply, that deficit will widen significantly in April, according to the cartel’s internal estimates.

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    Ignoring Energy Transition Realities

    Thanks to a subscriber for this report from the team at Goehring & Rozencwajg which was released a couple of months ago. Here is a section:

    Electric vehicles also involve energy intensive lithium-ion batteries. Few realize how much energy is embedded in an electric vehicle before it is ever plugged in. Over the life of a typical EV, nearly 40% of the total energy goes into manufacturing the battery. The IEA expects electric vehicles will represent nearly 15% of total transportation energy by 2040. We calculate this equates to approximately 850 mm EVs and nearly 65 terawatt hours of batteries. This is a staggering amount considering global lithium-ion manufacturing capacity is currently less than 0.4 terawatt hours per year. These batteries will require an incredible 2 billion tonnes of oil equivalent to build. We will shortly release a detailed podcast that goes into these figures in great depth.

    Unfortunately, few people realize how energy intensive the “green transition” will be. As a result, much (if not all) of the carbon savings will be undone by generating the power in the first place. The IEA’s proposal assumes wind and solar make up nearly 50% of all electricity by 2040 and that some 850 mm electric vehicles will be on the road. These initiatives are expected to reduce CO2 by 55% or 18 bn tonnes per year. While this may sound impressive, simply moving away from coal towards much-cleaner natural gas would itself save nearly 14 bn tonnes of CO2 per year. When analyzed through this perspective, renewables would save an incremental 4 bn tonnes compared with the next cleanest option.

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    Email of the day on paying up for commodities

    Thanks again for your very calm analysis of these volatile times. I appreciate it a lot. I enjoyed very much your comments about the tendency of remembering the end of the events/experiences. There is a very good experiment on this done by Daniel Kahnemann. On a different note; you seem to be very bullish on copper, but it seems not enough to invest on that theme yet. Are you planning to invest? Otherwise, what would be a good instrument to invest for the medium/long term on that theme. Thanks in advance

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    Email of the day on silver's relative strength

    Silver price appears to be holding up much better vs. gold price. Any idea why?

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    Blackouts Cascade Beyond Texas in Deepening Power Crisis

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

    Blackouts triggered by frigid weather have spread to more than four million homes and businesses across the central U.S. and extended into Mexico in a deepening energy crisis that’s already crippled the Texas power grid.

    After millions in Texas lost electricity, the operator of the grid spanning 14 states from North Dakota to Oklahoma ordered utilities to start rotating outages to protect the system from failing amid surging demand for electricity.

    “In our history as a grid operator, this is an unprecedented event,” the Southwest Power Pool said in a statement Monday.

    The brutal cold striking Texas -- the capital of the U.S. energy industry and home of some of the world’s largest oil and gas companies -- is emblematic of a world facing more unpredictable weather due to the rising impact of climate change. The outages also underscore the growing vulnerability of the grid as the globe moves away from fossil fuels to an all-electrified system increasingly reliant on renewable energy.

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    Vestas reveals offshore turbine with world's largest sweep

    This article by Paul Ridden for NewAtlas.com may be of interest to subscribers. Here is a section: 

    Each turbine is expected to deliver around 80 GWh of energy per year, depending on site-specific conditions, which is said to work out as being enough to power 20,000 European homes.

    The V236-15.0 MW also offers the potential to reduce the number of turbines deployed at offshore windfarm level – with Vestas calculating that the "offshore turbine offers 65 percent higher annual energy production than the V173-9.5 MW, and for a 900-MW wind park it boosts production by five percent with 34 fewer turbines."

    The company expects the first V236-15.0 MW prototype to be built in 2022, with serial production following two years later. It has a design lifetime of 25 years.

    “With the V236-15.0 MW, we raise the bar in terms of technological innovation and industrialization in the wind energy industry, in favor of building scale," says Anders Nielsen, Vestas CTO. "By leveraging Vestas’ extensive proven technology, the new platform combines innovation with certainty to offer industry-leading performance while reaping the benefits of building on the supply chain of our entire product portfolio. The new offshore platform forms a solid foundation for future products and upgrades.”

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    Lithium | 2021 supercharge?

    Thanks to a subscriber for this report from Canaccord Genuity. Here is a section:

    We estimate 2020 supply lifted 11% YoY to 340kt, noting lower capacity utilisation as largely a function of bottom-of-the-cycle pricing through 2020. We anticipate that a majority of the ~460kt of cumulative potential capacity that was delayed/deferred over the last ~18 months could remain suspended pending a recovery in pricing to higher levels. Recent consolidation among concentrate operations (i.e. Altura>Pilbara, Wodgina>Albemarle) now sees control of large scale, marginal cost production lies with a small number of established producers who, in our view, lack incentive to switch on large volumes of new supply.

    We further note that long lead times to delivering new capacity means that the +US $4.4bn in new equity raised by lithium companies since the start of 2020 is unlikely to lead to a meaningful supply response until the mid-2020s, by which point we expect the market to move into deficit. Our revised market balance forecasts now call for more modest market surpluses (5-7% over 2021-23), with our higher rates of demand growth now expected to outpace supply growth out to 2025. Beyond 2025, we continue to forecast significant market deficits, noting a ~7x increase in supply (i.e. ~240ktpa average increase in capacity) is required to meet our 2030 demand forecast.

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