Electricite de France SA said last week it will halt four reactors accounting for 10% of the nation’s nuclear capacity, straining power grids already faced with the prospect of a spell of cold weather. At the beginning of January, almost 30% of France’s nuclear capacity will be offline, increasing the country’s reliance on gas, coal and even oil.

“If we have a very, very cold day, it could be problematic, especially if we have to import and our neighbors have problems as well,” said Paris-based Anne-Sophie Corbeau, a research scholar at the Center on Global Energy Policy at Columbia University. “This is the domino effect we need to fear. But electricity will be expensive, there’s going to be a cost to pay.”

German power for next year jumped to a high of 335 euros a megawatt-hour, following a 25% rally on Tuesday, before slipping back. The French equivalent rose as much as 2.5% to record of 408 euros. Prices gained amid thin holiday trading even as gas declines. There was also speculation some traders may be closing short positions due to rising capital requirements from exchanges.

“The strength in the French market has been the main engine -- aside from gas prices -- of strength in neighboring markets, including Germany, in recent days,” said Glenn Rickson, head of European power analysis at S&P Global Platts.

“I also suspect that any big moves ahead of the run-up to Christmas have as much to do with the thinness of the market and traders needing to close short positions ahead of shutting down for the holidays as anything else.”

Soaring gas and power prices have already forced European utility giants from RWE AG to Uniper SE to boost liquidity requirements. Many smaller suppliers didn’t have the same option, with more than 20 going out of business in the U.K. alone.

Half of the UK’s energy traders/providers have gone out of business since the spike in natural gas prices began. The survivors will be the best capitalised companies that can ride out this volatility. They will also benefit in future from capturing market share during this tumultuous period. 

Equinor’s Johan Sverdrup oil field is already fully electrified. It started production two years ago and is expected to operate for more than 50 years. The process of extracting the crude emits 0.67 kilograms (1.5 pounds) of carbon dioxide per barrel, compared with the company average of 9 kilograms. The global average is 18 to 19 kilograms.

Yet Norway isn’t the only country with this idea. Saudi Arabia, leader of the Organization of Petroleum Exporting Countries, also says it wants to pump the world’s last barrel. The carbon intensity of the kingdom’s crude matches that of Equinor, at 9 kilograms a barrel, according to Oslo-based consultant Rystad Energy A/S.

There’s also the question of whether it will remain politically possiblefor Norway to remain as a major exporter of carbon-based fuels even as it implements its own emissions reductions, and strives for leadership in areas such as electric cars. Its neighbor the U.K. is already facing stiff opposition to new oil and gas developments on climate grounds, contributing to the shelving of the Cambo field earlier this month. 

Conventional oil wells tend to have lengthy production profiles but even these eventually peak and need to be replaced. For unconventional wells the requirement for fresh drilling is much more urgent because of the steep initial production profile and early peak. The major oil companies are attempting to evolve in an environment where they are going to be judged on their carbon emissions. That’s expensive but ultimately favours the lowest cost producers like Equinor and the GCC.

Additionally, while individuals do not have gas pumps installed at their home, they can have a level 2 ev charger installed that would seriously compromise the market share of a commercial charging station.

Thank you for this email which may be of interest to the Collective. The challenge for investors is in differentiating between the addressable market depicted in glossy pitchbooks and the real-world potential for a sector.

The first phase of the Teesside battery is due to be completed by 2023, a Sembcorp spokeswoman said by phone, adding that the investment required would be in the “hundreds of millions” of pounds.

“Flexible energy sources play an increasingly important role in maintaining secure and reliable energy supplies,” Andy Koss, Sembcorp’s chief executive officer for the U.K. and Middle East, said in the statement. With a growing reliance on renewables, the U.K. energy system must be “able to respond

quickly to changes.”

The new storage site is expected to top the largest current planned battery -- a 100-megawatt facility by Zenobe Energy Ltd. Sembcorp said its total U.K. battery pipeline is now almost half a gigawatt. It already operates 70 megawatts and has a further 50 megawatts due to come online in early 2022.

In just the same way that fossil fuels require storage facilities, renewable energy requires batteries and storage solutions for when demand spikes amid slower supply. The building of industrial utility-scale batteries reflects a doubling down of government policy on renewable energy. That trend has been underway for a decade; since the refusal to reinvest in the Rough storage facility in 2012. 

Montreal company Carbicrete has developed a method for sequestering carbon in concrete, claiming its product captures more carbon than it emits. The technology cuts out the need for calcium-based cement, a key ingredient in traditional concrete that is responsible for around eight per cent of all global CO2 emissions. I thought you might be interested in this.

Thank you for this informative email. There is a clear incentive for innovators to come up with ways to profit from the rising cost of carbon emissions. The COP26 agreement will create a global market for emissions and will broaden the number of companies subject to carbon restrictions. That is all aimed at creating a market for alternatives in much the same way that subsidies fostered the solar and wind sectors.

“The arable area still requires significant tonnage of synthetic fertilizer, but this is reduced by the use of manures,” Butler said. Since the animal waste from his farm is not enough, he has been buying biosolids from utility Thames Water, which produces over 750,000 meters squared of sludge each year for farmers across Britain’s southeast. 

However, Butler said that it’s increasingly difficult to source human excrement as “there is more demand than supply for biosolid materials.”

In the U.S., biosolids are regulated by the Environmental Protection Agency, and in Europe, biosolids have been in use since 1986 when it received regulatory approval from the European Union. 

While manure is an inexpensive alternative to pricey synthetic fertilizers, it is a “poor replacement for those accustomed to traditional fertilizer products,” said Alexis Maxwell, an analyst at Bloomberg’s Green Markets. For example, the fertilizer diammonium phosphate has six times the nitrogen and 15 times the phosphate as manure on a per ton basis.

The farmer a mile from my old home in Ireland had a contract with the sewage treatment plant to buy waste. It made for a very smelly couple of days when he was spreading it on his land. However, it also meant he was not spending on costlier imports. That kind of business model has a lot more competition today, because of the surge in European natural gas prices which continue to recover from the October correction.

Henkes, a former Toyota Motor quality division manager, was fired from Tesla in August 2020 and he sued Tesla claiming the dismissal was in retaliation for raising safety concerns. Tesla did not respond to Reuters' emailed questions, while the SEC declined to comment.

In the SEC complaint, Henkes said Tesla and SolarCity, which it acquired in 2016, did not disclose its "liability and exposure to property damage, risk of injury of users, fire etc to shareholders" prior and after the acquisition.

Tesla also failed to notify its customers that defective electrical connectors could lead to fires, according to the complaint.

Tesla told consumers that it needed to conduct maintenance on the solar panel system to avoid a failure that could shut down the system. It did not warn of fire risks, offer temporary shutdown to mitigate risk, or report the problems to regulators, Henkes said.

Tesla shares fell 5.5% at $960.25 on Monday after the Reuters report.

More than 60,000 residential customers in the U.S. and 500 government and commercial accounts were affected by the issue, according to his lawsuit filed in November last year against Tesla Energy over wrongful termination.

It is not clear how many of those remain after Tesla's remediation program.

Elon Musk’s Teflon-like ability to bait officialdom, and avoid censure, has been part of his appeal for years. He has actively cultivated the persona of a bad boy as a means of personifying the “move fast and break things” culture of Silicon Valley. So far, it has worked and by attracting legions of retail investors he has a solid backing on social media to support him if the strategy goes sideways.

a contact living in northern Portugal has informed me of the ecological disaster there being caused by Lithium mining. In the attached article we can read that thousands of protesters are marching in Serbia in opposition to Lithium mining there. https://www.theguardian.com/world/2021/dec/05/rio-tinto-lithium-mine-thousands-of-protesters-block-roads-across-serbia Regards A.

There is no getting around two important facts. Mining, all mining, is destructive. It is also absolutely necessary to further the goal of global economic development of every kind. There is a good reason that most mining takes place in sparsely populated areas and most particularly in emerging markets. No one wants a mine in their backyard.

A year ago, I began a series of reviews of longer-term themes which will be updated going forward on the first Monday every month. The last was on October 1st. These reviews can be found via the search bar using the term “Secular Themes Review”.

One of the most basic truisms in the financial markets is it is easier to make money in a bull market. The bull market that began in late 2008 and early 2009 has been liquidity fuelled. That was not obvious to everyone a decade ago but now everyone gets the message. Money printing inflates asset prices. As long as central banks are printing, we will have bull markets and the most speculative assets will perform best.

Anticipating a spike in inflation this month, ECB officials have redoubled efforts in recent days to reassure citizens that they are facing a once-in-a-generation cost-of-living squeeze that won’t endure, driven by energy and a series of one-time factors.

While President Christine Lagarde is sticking to that script, some colleagues are warning that price pressures might take longer to subside, stoking speculation about the future course of monetary policy. 

At a Dec. 16 gathering, the Governing Council is set to announce the end of its pandemic bond-buying plan and outline how regular purchases and interest rates will develop as the economy continues its recovery.

“While energy costs and statistical effects can explain the bulk of this month’s jump, today’s reading also revealed some stronger than anticipated underlying pressure. That will add to concern over upside risks to the outlook, but the ECB is still likely to see inflation falling below 2% by the end of next year.” - Maeva Cousin, senior euro-area economist. 

The spike in Eurozone inflation was expected even if the headline number was higher than estimates. The ECB believes inflation will drop back towards 2% once the pandemic subsides. At least they are dearly hoping that will be the case.

South Africa announced the identification of a new variant on Nov. 25, saying a few cases had first been identified in neighboring Botswana and then others had followed in Tshwane, the municipal area in which Pretoria is located. The announcement caused a global panic, roiling markets and resulting in travel bans on southern African nations.

Scientists advising South Africa’s government told a media briefing on Monday that while omicron appeared to be more transmissible, cases appeared to be very mild.

Coetzee’s patients have been relatively young. A vaccinated 66-year-old patient did return a positive test on Monday but was only mildly ill, she said.

Everything we have been led to believe over the last couple of years is that cold and flu viruses mostly evolve to be more transmissible because that furthers the urge to replicate all organisms share. Becoming less deadly is often a part of that because it aids in replication. That part of the argument is complicated by the fact that COVID does not kill before it is has ample time to replicate and disperse.

6. How worrisome is this variant?
It’s too early to say. The World Health Organization said there are fewer than 100 whole genomic sequences of the new strain available, which could add to the time it takes to study how it compares to previous strains and its impact on Covid therapies and vaccines. Viruses mutate all the time, with the
changes sometimes making the virus weaker or sometimes making it more adept at evading antibodies and infecting humans. Covid vaccines have shown they are effective against previous variants and pills being developed by Merck & Co. and Pfizer Inc. may also provide new treatments. 

7. What should we look out for next?
In the U.S., which recently lifted a year-long ban on tourism from much of the world, top medical adviser Anthony Fauci said he wants to see more data. The European Centre for Disease Prevention and Control assigned the variant -- first detected in South Africa and Botswana -- the category “Variant of Concern.” BioNTech expects the first data from laboratory tests about how it interacts with its vaccine within two weeks.

This is the most important chart from the above article. It highlights how transmissible this variant it. From the available data, it is much more transmissible than the Delta or Beta variants and is already approaching dominance of South Africa cases. That implies it will spread around the world rapidly and within a month or at most two will be the dominant global strain.

Futures in New York rose as much as 2.6%, erasing earlier losses, after Tuesday’s statement from the White House. While the headline size of the U.S. release is large, a significant chunk of the crude will be borrowed -- to be returned later -- leaving traders expecting tighter balances down the line. The U.S. is making the move in concert with China, Japan, India, South Korea and the U.K.

Oil prices have hit multiyear highs in recent months amid a global energy crisis that’s added hundreds of thousands of barrels a day to consumption, while the world economy is grappling with surging inflation. The decision puts major consumers on a collision course with OPEC+, which views such a release as unjustified and may reconsider plans to add more supply at a meeting on Dec. 2.

“From OPEC’s perspective, a cautious ramp-up is still the way to go,” said Damien Courvalin, the head of energy research at Goldman Sachs Group Inc,, in a Bloomberg Television interview on Tuesday. “OPEC has no incentive to increase production aggressively and the SPR release probably comforts them.”

COVID-19 numbers are ramping higher in Europe again. That holds out the prospect of rising case numbers in other regions as well. Against that background OPEC would be foolish to commit to spending on additional supply when it may not be used.

OPEC+ officials warned they’re likely to respond to plans by the world’s largest oil consumers to release oil from their strategic stockpiles, setting up a fight for control of the global energy market.

President Joe Biden is set to announce a plan to release reserves from the Strategic Petroleum Reserve on Tuesday in tandem with China, India, Japan and South Korea, according to officials briefed on the matter. The move, weeks in the planning, is designed to ease this year rise in fuel prices for drivers and businesses.

OPEC+ delegates said the release of millions of barrels from the inventories of their biggest customers is unjustified by current market conditions and the group may have to reconsider plans to add more oil production when they meet next week.

The tussle threatens the biggest ructions in the geopolitics of oil since the price war between Saudi Arabia and Russia in early 2020. At stake is the price of the world’s most important commodity as politicians and central bankers contend with the strongest inflationary surge in more than a decade. It also shows the strained relationship between Washington and Riyadh, traditionally a cornerstone of U.S. relations in the Middle East.

Releasing supply from strategic reserves is supposed to be limited to times of emergency, not to serve political purposes. The whole purpose of having a strategic reserve is so it can be a short-term fix until a crisis passes. It is not designed as a weapon to go head-to-head with the world’s largest producers. Even a coordinated release will only inject volatility into the market and leave consumers even more exposed to supply shocks in the future.

While some factories have already resumed operation after the mandatory power rationing expired, for instance GCL-Poly revealed that their 36,000 tonnes polysilicon factory has already restarted production after making use of the 2-week suspension period to undergo repair and maintenance, most solar materials have also witnessed significant price increase under the adverse effect of supply reduction. One of the clear examples is the sharp price rally of silicon raw material, which is the major material for making polysilicon and on average account for 40% of polysilicon’s production cost. The silicon raw material price rose sharply from USD 2.4/kg in Aug-21 to the peak of USD 10.4/kg in late Sep-21, before gradually normalizing to USD 6/kg in Nov (See Exhibit 3), especially after the Yunnan government decided to restrict the utilization of most energy-intensive production, including silicon raw material, by 90% starting from Sep in 2021. It is noteworthy that Yunnan accounts for 20% of total silicon raw material production in China, while Xinjiang and Sichuan’s market shares are 40% and 15% respectively. In our view, the cost pressure originated from silicon raw material price rally would gradually pass down the supply chain, implying subsequent solar material price hike would continue to emerge in other segments.

China has historically been willing to do whatever it takes to capture market share in emerging industries. That helped it dominate the entire supply chain for solar panels in the last decade. Deploying excess energy from coal fired power stations into polysilicon production was a big part of that strategy.

MacLennan said in September that soaring food costs would prove transitory and should dissipate in time. Since then, the rally in energy prices and continued supply-chain snarls have made markets “a lot tighter,” he said.

“When you have limited supply, that can lead to higher prices,” MacLennan said. However, he noted that China hasn’t been buying crops as aggressively as it did last year, while North American harvests are robust. “That takes some pressure off the system.”

A search for greener airplane fuel and biodiesel is also pitting food against energy production, leading to tighter edible oil supplies. Prices for palm oil, the world’s most consumed vegetable oil, have soared about 50% in the past year, while soybean oil is up 60%. Canola, also used to make oil, is near a record.

The food-versus-fuel tension will become more intense than it’s ever been in the last 15 years, MacLennan said. The day will come when more agricultural products will be used for energy than food, so it will be incumbent upon the farmers of the world to innovate and become more productive, he added.

Using food for fuel should be a much more controversial practice. We are literally substituting political idealism for the wellbeing of millions of people. The fact that palm oil demand is soaring because of its use as both a food ingredient and a fuel is a useful example of how the environmental lobby often does more harm than good.

The German regulator said Tuesday it suspended the certification procedure for the Nord Stream 2 project because the operator of the pipeline decided to set up a German subsidiary, which will be the owner of the section of the pipeline in the country. The permitting process has been halted until assets and people are transferred to the new unit.

Benchmark European gas prices surged as much as 12% after the announcement as it adds to the uncertainty over how much gas the energy-hungry market will have this winter. Many in Europe expect Russia to significantly increase supplies only when the pipeline is approved.

“This is potentially a good thing for the project for the long term, as the changes could mean it would be eventually approved,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “But it’s not helping the short-term outlook for the market where a bad, cold winter could leave us short.”

There is no doubt the Nordstream 2 pipeline will eventually be permissioned. However, that is not going to happen until German regulators have had the opportunity to feign independence in making the decision. No one likes to admit they are beholden to a foreign power but unfortunately, Europe is completely dependent on Russian gas. They need that pipeline as much as Russia wants it and therefore it will be permissioned eventually.

Meanwhile, mines across China and India have been ramping up production in recent weeks to ease a supply crunch that’s caused widespread power shortages and curbs on industrial activity. China’s miners have beaten a government target to raise output to 12 million tons a day, while India’s daily production is close to 2 million tons.

“The power cuts since mid-to-late September show that we are still not prepared enough,” Yang Weimin, a member of the economic committee of the Chinese People’s Political Consultative Conference and a government advisor, told a conference in Beijing on Saturday. Additional funding is needed to ensure coal plants can be used to complement a rising share of renewables, he said.

Coal’s share in global electricity generation fell in 2020 to 34%, the smallest in more than two decades, though it remains the single largest power source, according to BloombergNEF.

In China, it accounted for about 62% of electricity generation last year. President Xi Jinping has set a target for the nation to peak its consumption of the fuel in 2025, and aims to have non-fossil fuel energy sources exceed 80% of its total mix by 2060.

For India, coal is even more important, representing 72% of electricity generation. The fuel will still make up 21% of India’s electricity mix by 2050, BNEF analysts including Atin Jain said in a note last month.

The focus on attention right now is on the willingness and potential of both India and China to eventually limit their use of coal. Much less attention is focused on Africa where the bulk of population growth is occurring. The next couple of billion people will mostly be born in Africa. That means increasing demand for power and higher standards of living as the continent urbanises. 

“We haven’t seen, I’ll say, any more resistance to our price increases than we’ve seen historically.” -- McDonald’s Corp. CFO Kevin Ozan, Oct. 27 earnings call

“Looking at Q4, we expect our selling price actions to continue to gain traction, as we work to mitigate the raw material and logistics inflationary pressures we have experienced throughout the year.” -- 3M Co. CFO Monish Patolawala, Oct. 26 earnings call

“We feel very comfortable that any inflation that is affecting our margin today, we have the ability to offset it.” - Chipotle Mexican Grill Inc. CFO John Hartung, Oct. 21 earnings
call

“We have now announced pricing in nine out of ten categories, so very broad based.” -- Procter & Gamble Co. CFO Andre Schulten, Oct. 19 earnings call

While most CPI categories rose, the cost of airfares declined for a fourth month and apparel prices were unchanged. Wages have strengthened markedly in recent months -- with some measures rising by the most on record -- but higher consumer prices are eroding Americans’ buying power. 

Inflation-adjusted average hourly earnings fell 1.2% in October from a year earlier, separate data showed Wednesday.
 

The ability of companies to pass on inflation is a good reason why the stock market generally does well in the early portion of an inflationary cycle. The big question therefore is not whether they can successfully pass on one price increase but whether they can continue to pass on price increases should inflationary pressures trend higher.

Gains in Treasuries may be partly driven by short-covering, which appears to have contributed to Thursday’s U.K.-led rally. CME Group Inc.’s preliminary open-interest data for Treasury futures show steep declines, in particular for the two-year note contract. Open interest in two-year note futures fell 2.3%, its biggest drop in three weeks.

Fed officials continue to emphasize that inflation is too high even as they hope to foster labor-market recovery by keeping interest rates low.

Federal Reserve Bank of Kansas City President Esther George Friday said “the risk of a prolonged period of elevated inflation has increased,” and “the argument for patience in the face of these inflation pressures has diminished.”

The declines in 10- and 30-year yields -- which fell as much as 6.5 basis points to 1.899%, the lowest since Sept. 23 -- come despite next week’s auctions of those tenors. The auctions, whose sizes were announced on Nov. 3, are smaller than the previous new-issue auctions in August, however. The reductions were the first since 2016.

The longer-term inflationary trend is being driven by wage demand growth and the upward pressure on the cost of housing and rents. However, it does not all happen at once, and some of the supply inelasticity factors that contributed to inflation over the last year are easing.

The key inefficiency is intermittency. When winds don’t blow and the sun doesn’t shine, electricity has to be found elsewhere. In July there was so little wind driving the turbines on which Britain depends for a quarter of its power supplies that they operated at less than 5 per cent of their capacity for 314 hours. We’re told that we’ll eventually have battery farms on such a scale storing back-up energy to overcome the intermittency problem with the renewables that will replace fossil fuels. But the figures don’t add up. A friend who has analyzed them tells me that, using reasonable assumptions, to replace the 1,400 Terawatthours of electricity used in the European Union each year and currently coming mainly from natural gas and coal will require battery storage back-up of some 273 million tonnes of batteries. Assuming battery prices continue to fall, that will nevertheless cost say $8.2 trillion – double that taking into account necessary peripherals -- and need about 25 years’ mining of lithium carbonate. And you’d need to replace the entire stack of batteries every few years as their charge holding capacity erodes. As my friend says: These are “insanely prohibitive costs.” Activists argue that the current energy crisis must be used to intensify the transition to renewables. That is, more of one of the root causes of the crisis. More inefficiency, more malinvestment and more demand for relatively scarce materials such as copper.

 

The willingness of the environmental lobby to drive investment towards renewables remains unabashed particularly as we look at the verbal commitments being made as part of the COP26 discussions. The viability of these commitments rests squarely on developing new battery chemistries that are more efficient, cheaper and less resource intense. It’s a tall order and, even then, will only form part of the wider energy mix.

Underlying our structurally bullish view on EEMEA is an assumption of higher for longer oil prices due to supply constraints on the path to net zero. Marina speaks to Martijn Rats about his bullish near-term and long-term outlook for oil and the questions EM investors have been asking on this theme.

The shock of negative prices during the pandemic killed off speculative appetite among exploration and production companies in the oil sector. Few new wells were dug and the sector has been relying on the stock of drilled but incomplete wells over the last intervening year. That has curtailed the sector’s ability to respond quickly to higher prices.

The world is a mess when it comes to carbon regimes — there are currently 64 carbon pricing systems globally, with another 30+ in development. Thirty of the existing systems are carbon markets, with the remaining 34 carbon tax regimes. Not only is there no agreement on a mechanism, but the prices within these regimes vary from the meaningless $0.10/tonne to an eye-watering $142.40/tonne — against a price widely seen as necessary now for Paris-alignment of $40-$80/tonne. This fragmented approach is clearly inefficient, and evidence tells us that so far, it is proving ineffective at a global level. Accordingly, to achieve real progress, we must find some way of integrating these individual regimes into one globally-fungible system. There are essentially four ways we could achieve this, using one, or a combination, of the methods mentioned below:

The first option is essentially via command and control directives, where governments/regulators simply mandate the amount of emissions that are allowed when and from which industries, with non-compliance penalized severely. While potentially effective, this is unlikely to be efficient, and almost certainly would not provide the lowest cost solution. This leads us to the three other, market-based solutions (which, it should be pointed out, are not mutually exclusive):

The first of these is a carbon tax on emissions, which could either be applied as a flat rate globally, or with differing rates for emerging and developed markets, potentially with differing ratcheting up speeds, to eventually bring the world into alignment.

The second option involves cap and trade systems, whereby allowances for emissions are granted and/or auctioned up to a (reducing) limit, with parties showing faster than prescribed progress allowed to sell their excess allowances to other slower moving parties — while still reaching the same cap.

The third option involves baseline and credit systems, whereby parties earn credits for reducing emissions, which could be sold to others in deficit, potentially within one of the two preceding mechanisms.

Each of these is fraught with complexities, both technical, and perhaps more importantly, political. Discussion of the pros and cons of each of these methods, the pitfalls and stumbling blocks, as well as how they might be implemented, forms the basis of this report.
 

A link to the full report is posted in the Subscriber's Area.

With the latest big climate conference scheduled for this month there is a great deal of speculation about the possibility of world changing regulations being implemented. If the past conferences are any guide, the possibility of the world’s governments agreeing on an achievable zero- carbon goal by 2030 has to be treated as a low probability outcome.

HALEU is in between, with 5% to 19.75% of the uranium mass that power-source isotope. As an added bonus, HALEU can be made from down-blending the used, military-grade uranium. The U.S. Department of Energy (DOE) is so excited by HALEU that it’s close to approving a new generation of reactor designs it says “will completely change the way we think about the nuclear industry.” Power plants will be smaller, more efficient, produce less waste uranium and they won’t need their cores replaced for 20 years, unlike every 18 to 24 months for current reactors. At the moment, the DOE is in the process of deciding on the next generation reactor from 10 finalists; nine of them are designed to use HALEU.

The first market for HALEU will be micro-reactors for the military. The Pentagon is seeking to remove domestic bases from the wider electrical grid as part of its climate change-related plans to keep bases operational under increased extreme weather events. A Defense Department prototype reactor, Pele, should be available by 2024. Perhaps 130 reactors will be deployed. By mid-decade, utility owned micro-reactors will start rolling out for remote locations like interior Alaska and far-flung islands. They’ll generate perhaps 10 megawatts (MW) of energy with a one-time upfront fueling to last 20 years. More powerful, advanced utility reactors could come to market by 2030. Even current reactors will be able to use HALEU in place of the low-enriched stuff.

Militaries pioneered small modular reactors for use in aircraft carriers and submarines so they are also likely to be the first to deploy small reactors for use in other applications as well. The US military’s answer to climate change is to double down on nuclear reactor technology by taking bases off the grid and creating options for power in remote locations like Alaska and forward operating bases. 

It’s the latest intervention in the market from Putin to talk down gas prices, even as some European officials suspect he’s been holding back supply to pressure Europe into approving Nord Stream 2, the controversial new pipeline linking Russia to Germany. Russia is also concerned that excessively high prices could destroy demand, and would like to see them fall by about 60%, according to people familiar with the situation.

Higher Norwegian gas flows and a drop in Chinese coal prices are also putting downward pressure on prices, Engie EnergyScan said in a note. Norway’s Equinor ASA promised Wednesday to boost exports. Maintenance at its giant Troll field in December will be shorter than previously planned, system operator Gassco said Thursday, also a bearish factor.

Tom Marzec-Manser, an analyst at pricing agency ICIS, said the timing of Putin’s comments on adding fuel to Gazprom’s storage sites in Germany and Austria could be connected to Germany’s Economy Ministry saying on Tuesday that certification of Nord Stream 2 wouldn’t pose any risks to security of supply.

UK natural gas futures extended their pullback on the above news. That further supports the view that a peak of medium-term significance has been reached. The bigger question is how much prices will fall as the bottlenecks ease? Generally speaking, it is unusual for commodity prices to trade back down into their base formations once breakouts occur. Significant sources of new supply would be required for that to happen.

Russia's central bank aggressively raised its interest rate for the sixth time in a row Friday in an
effort to slow soaring food prices, and did not rule out further hikes.

Rising prices, falling incomes and a lack of tangible government support during the pandemic have been eroding popular support for President Vladimir Putin's two-decade rule, and authorities are under pressure to ease inflation.

At a meeting on Friday, the Bank of Russia increased its key rate by 0.75 percentage points to 7.50 percent, surprising many analysts who had expected a smaller hike.

The bank said that more hikes could follow and revised up inflation predictions.

"Inflation is developing substantially above the Bank of Russia's forecast and is expected to be within the range of 7.4-7.9 percent at the end of 2021," the bank said.

The Bank of Russia said that as of October 18, inflation stood at 7.8 percent but was expected to return to 4.0-4.5 percent next year.

"The central bank continues to act decisively and proactively," Dmitry Polevoy, head of investment at Locko Invest, said in a note to clients.

After months of historically low inflation, consumer prices began to climb in March 2020, driven by a drop in the ruble's value in the middle of the coronavirus pandemic.

The central bank started raising its historically low rate the same month. Its next rate review meeting is scheduled for December 17. In September, the bank raised its interest rate by 0.25 percentage points to 6.75 percent.

Russia is a major grain producer but is also reliant on imports for many additional food stuffs. That offers a graphic representation of how everyone is susceptible to the fragility of the global supply chain. Shutting the whole world down eighteen months ago had a dire effect on the ability of producers to manage their operations. The ensuing volatility has taken much longer than anyone thought to iron out and it is not over yet.

It seems difficult to buy many of the ETFs you mention in the UK. For instance, FAN and TAN. Is there a copper mines ETF that a UK investor can buy?

Thank you for this email which may be of interest to the Collective. The UK equivalent of the Invesco Solar ETF (TAN) is the Invesco Solar UCITS ETF (ISUN). Unfortunately, it is illiquid with only $2.25 million under management.

Radiant says its fuel "does not melt down, and withstands higher temperatures when compared to traditional nuclear fuels." Using helium as the coolant "greatly reduces corrosion, boiling and contamination risks," and the company says it's received provisional patents for ideas it's developed around refueling the reactors and efficiently transporting heat out of the reactor core.

Radiant joins a number of companies now working on compact nuclear reactors, and a smaller number focusing specifically on portable units, which would include the floating barges proposed for mass-manufacture by Seaborg. It'll be a while before we see one up and running, but a clean, convenient, low-cost, long-life alternative to diesel generators would be very welcome.

The evolution of small modular reactors and the increasing volume of space traffic point towards secular growth trends for helium. The terminal decline of helium supply from North America’s major source of production in Amarillo Texas was highlighted in 2018 as a major supply bottleneck. It had the potential to be a major supply inelasticity trend, as new sources of demand emerged. With so much enthusiasm about nuclear reactors in the market today, I thought it might be worth revisiting.  

Fertilizer plant shutdowns in the U.K. highlighted how critical the situation is, because it cut off supplies of carbon dioxide, a byproduct that’s needed for everything from slaughtering animals to packaging food. A deal was struck this week to maintain output in the coming months, averting more chaos for the sector.

The risk is that it’s just a quick fix. The owner of the British plants, CF Industries, said that CO2 users need to look for new sources of supply. An industry group also warned that temporary fertilizer-plant closures in Europe could become permanent.

It’s a worrying sign for future harvests a time when global food prices are at a 10-year high. There are concerns that farmers in France, the European Union’s top wheat grower, may find it hard to source fertilizers next spring, regardless of the price.

In Brazil, where a lot of farmers haven’t secured their fertilizer needs or locked in prices yet, worries of non-delivery are increasing. President Jair Bolsonaro has said the nation faces the risk of fertilizer shortfalls next year due to falling Chinese output in the wake of high energy costs.

Substituting coal for natural gas is the most common-sense solution to reduces carbon emissions. Unfortunately, that is not nearly ambitious enough to satisfy the demands of carbon fanatics. The result is there is resistance to increases supply from any and all sources. That’s putting pressure on fertiliser, carbon dioxide, heating and transportation costs.

That view has been buttressed by some recent announcements. On Tuesday, the French government said it will help a state-controlled utility company develop so-called small modular nuclear reactors by 2030, a move President Emmanuel Macron signaled as key to reducing global carbon emissions. Japan’s new prime minister said that the nation should replace aging nuclear power plants with such module reactors. 

This graphic, from the 1960s, depicting German expectations for how nuclear would become the dominant supplier of electricity is particularly noteworthy. It helps to highlights how wrong expectations for the future can be, particularly when linear extrapolations are relied on. It also highlights uranium has had plenty of false dawns over the decades.

A reason for the price increase in lumber is a modest increase in renovation demand after price-sensitive buyers proceeded with home improvement projects now that wood prices have seen a substantial correction, Dustin Jalbert, senior economist at Fastmarkets, told Insider.

Though Jalbert does not expect the kind of runup in lumber prices seen earlier this year - a period when there was a backlog of homes waiting to be built and a shortage of key construction supplies - as pandemic-related supply constraints continued to ease.

"The market has finally transitioned to a more balanced state compared with being severely oversupplied in the summer months, which ultimately drove the massive correction in prices from record-high levels set in May," Jalbert told Insider.

And even if Americans wanted to build and renovate homes, the field consumption of lumber is being bogged down by shortages of other complementary materials such as windows, siding, cabinet appliances, and garage doors, he added.

The supply side, meanwhile, continues to face challenges, Jalbert said. Log costs in British Columbia, which accounts for about 16% of North American lumber capacity, remain elevated.

Commodities tend to remain in well-defined ranges for years before breaking out and rallying in a profound manner that creates an uncomfortable feeling for consumers and sets new price expectations for sellers. Lumber spiked higher between 1991 and 1993. It subsequently gave up most of the advance but never dropped back into the preceding range.

How low are inventories? Germany is already under water
German inventories of natural gas are scarily low ahead of the winter. We have taken a deep look at Gazproms major storage sites in Germany (Katharina, Jemgum, Redhen and Etzel), and were almost shocked by the severity of the issue. Current inventories will run frighteningly close to zero by Mid-March 2022, if usual seasonal patterns unfold over winter.

The current 16900 MCM/D inventory in Gazproms German facilities is barely enough to survive the winter, as the inventories usually drops by between 17500-20000 MCM/D between late October and mid-March. This is too much of a knife-edge situation to be truly comfortable with. Remember that natural gas makes up around 25% of the total energy consumption in Europe still. We are counting on you Vladimir!

The situation is about as bad in China, if we just replace natural gas with coal in the charts, which could prove to be even more problematic as coal makes up around 60% of the energy consumption in China. Per anecdotal evidence China has now re-allowed Australian coal shipments to reach Chinese land-territory despite the ongoing geopolitical dispute between the two countries.

A link to the full report is posted in the Subscriber's Area.

A topic I discussed in yesterday’s audio was the current energy crisis in Europe and China highlights an important logical inconsistency for environmentalists. If one believes the climate is going to change in an unpredictable fashion, then building an alternative energy future which depends on weather patterns remaining constant does not make sense.

It looks like the government has blinked first. Miners, after months of being ordered to stick closely to capacity limits, are now being ordered to produce as much as they can, people familiar with the matter told Bloomberg News. That should help to take the wind out of surging thermal coal prices and prevent the current crisis from extending into the winter, when sufficient energy supply can be a life-or-death matter.

There is, to be sure, an attempt to make this retreat look like a withdrawal. The latest advice from Beijing’s economic planners last week focuses on protecting individuals but continuing the crackdown on industry, especially when it’s most energy-intensive and polluting. Allowing generators to raise prices to end-users, as is happening in Guangdong province, will also help create a more commercial power market. Electricity consumption controls have even been loosened in a way that would permit potentially unlimited volumes of cheaper renewable power into the market.

The risk, as with the rapidly fading fears over Evergrande, is that Beijing has simply deferred a pressing problem again. If China doesn’t reform a system that refuses to face up to its internal contradictions, the problems of an economy fed by credit and carbon will only fester and grow. 

 

Self sufficiency is Chinese government policy. Coal imports do not gel with that ambition so efforts to defray demand are likely to persist in a piecemeal manner subject to necessity. However, the reality is winters north of the Yangtze River are harsh and most communities rely on coal to heat homes, factories and run electricity.

Despite the pressure to ramp up output, OPEC+ was concerned that a fourth global wave of COVID-19 infections could hit the demand recovery, a source told Reuters a little before the vote.

"The (price) move looks a bit outsized given the ministers just reaffirmed the decision announced in July, but it shows how tight the market is, reinforcing our view of asymmetric price action with risks skewed to the upside at these inventory levels," Barclays said in a note. 

Investors will closely watch Wednesday's crude inventory data from the U.S. Energy Information Administration for further direction.

OPEC has a clear interest in sustaining reasonably high prices but not so high that significant additional supply is encouraged back into the market. At prices above $80, a lot of marginal supply becomes economic and it takes about 6 months to bring significant volumes online.

The Australia-Asia PowerLink project, led by Australia's Sun Cable, plans to create a mammoth "Powell Creek Solar Precinct" on 12,000 hectares (29650 ac) of arid land about 800 km (500 miles) south of Darwin. The site, chosen because it's one of the most consistently sunny places on Earth, would be home to a mind-boggling 17-20 gigawatts of peak solar power generation and some 36-42 GWh of battery storage.

To give you a sense of scale, that's nearly 10 times the size of the world's current largest solar power installation, the 2.245-GW Bhadia Solar Park in India, and more than 30 times more energy storage than the last "world's biggest battery" project we covered in February. It's a bit big.

Not all that long ago spending more than $20 billion on a first of its kind project was considered completely unreasonable. Today, $20 billion is a rounding error compared to the quantities spent on stimulus.

The market for High Voltage Direct Current lines has been growing for more than five years. The first report of a feasibility study for an Australia - Indonesia connector is from 2016.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”

Supply Inelasticity Meets Rising Demand was the phrase David coined to explain the last commodity-led bull market. After decades of underinvestment in commodity supply infrastructure, the market was not prepared for the massive swell of new demand from China; as it leaped from economic obscurity into one of the largest economies in the world. A decade of investment in new production was needed to supply China and that crested ahead of the credit crisis in 2008.

Today, we also have extreme example of supply inelasticity, and demand is breaking records for all manner of goods and services. The factors contributing to these trends are quite different from a decade though. Some will be resolved relatively quickly. Others will take years.

You mentioned the energy shortages in China. These two articles from the Daily Telegraph spell out the scale and the implications globally. Best wishes to you and family

Thank you for the wishes and both these articles. Here is a section from Ambrose Evans Pritchard’s and here is a link to the other: 

The property squeeze is compounded by a parallel squeeze on carbon. Xi has promised peak CO2 emissions by 2030, a 25pc cut per unit of GDP by 2025, and a 3pc cut in energy intensity this year.

He knows that China is paying a high credibility price for foot-dragging as Europe and the US launch green deals (nobody can hide behind Trump any longer), and may soon face a carbon border tax in its top markets if it is not careful.

Energy-saving edicts are raining down. Party cadres have been mobilised to pursue CO2 crimes, and are reportedly doing so with the zeal of the Cultural Revolution. The state planner (NDRC) says 20 Chinese provinces have failed to meet this year’s goals on cutting energy intensity.

Nomura says nine have received “Level 1 warnings”, including Guangdong and Jiangsu, 35pc of China’s economy between them. Woe betide the Party officials responsible.

The steel, cement, and aluminium industries face production caps by the industry ministry (MIIT). They stole part of their allowance over the first half, and must cut back this half to compensate. That means drastic falls in steel output. It has already begun and is hammering iron ore prices, along with miners such as Vale and BHP Billiton.

I wonder does anyone remember the butter mountains and the wine lakes of the late 1980s and early 1990s? They were a political embarrassment, but prices were low. The EU and North America were overproducing because they subsidized farmers and low prices meant third world country farmers were impoverished and could not compete. The result was the abandonment of subsidies, much higher prices, still impoverished global farmers and a migration of market dominance to Brazil. I mention it here to emphasise that no good intention is left unpunished in the commodity markets.

Dear Eoin, Many thanks for your comment on inflation as a solution for the massive public debts. In these circumstances how would you structure your portfolio? In which sectors would you invest your funds?

Thank you for this question which may be of interest to subscribers. This is a very big question because the stocks that have done best over the last decade have benefitted enormously from the massive availability of liquidity and very low rates. Divesting from the best performers runs contrary to most people’s instinct to run their winners so monitoring the consistency of their price action is particularly relevant to all portfolios over the next decade.

Think, you may find interesting this Financial Times story that looks into the longer-term consequences of Evergrande saga - https://on.ft.com/3io45gH (open link). It seems that the Chinese real estate market finally (at long, long last) is crumbling, not without help of the country leaders. If it is so and given the fact that the property market accounts for 29% of the Chinese GDP (and land sales to developers, for the third of local governments’ revenues), the economic growth seems to slow dramatically in the coming years. What could be implications, in your view? We all remember that China and its industrialization were the major drivers of the global commodities supercycle in the 21st century. Also, every time China has got into trouble, the Communist party used the same recipe “more investments in infrastructure and construction, more leverage. If now China and its property sector grow much more slowly, not to mention possible contraction of the latter, it will need much less metals and materials, and also possibly less gas (to power plants and send it to homes) and even oil (fewer working trucks and construction equipment). What do you think?

Thank you for this informative email which may be of interest to the Collective. Here is a section from the FT article:

An even more consequential trend for China’s political economy is the collapse in land sales by local governments, which fell 90 per cent year on year in the first 12 days of September, official figures show. Such land sales generate about one-third of local government revenues, which in turn are used to help pay the principal and interest on some $8.4tn in debt issued by several thousand local government financing vehicles. LGFVs act as an often unseen dynamo for the broader economy; they raise capital through bond issuance that is then used to fund vast infrastructure projects.

The property market has funded local governments for decades. Without a solid trend of land sales municipal governments face bankruptcy. There is just no way the central government can let that happen. The first order solution will be to avert contagion into the rest of the property market following Evergrande’s demise.

Europe is facing gas shortages, but Russia has a crunch of its own. Gazprom has boosted production this year, but it’s directing the additional output to refill depleted storage sites at home. Russia has been producing close to its maximum capacity, but its domestic needs have curbed availability to Europe, according to the Oxford Institute for Energy Studies.

“Russia is not running out of gas and its prolific gas reserves allow Russia to meet much higher overall demand, but this requires time, money, and contractual assurances of offtake,” said OIES Senior Research Fellow Vitaly Yermakov.

Some analysts have argued that Russia has capped flows to Europe as a way to get its controversial Nord Stream 2 pipeline to Germany online. Flows through the link could improve supplies, but the start of commercial operations will depend on regulatory certification -- first in Germany, then at the European Commission. That could run well into next year. U.S. sanctions have also created challenges for the project.

The IEA stressed that it’s wrong to blame the shift away from fossil fuels for the surge in gas prices. The comments came a week after Frans Timmermans, the EU’s climate chief, warned that the record spike in energy prices must not undermine the European Union’s resolve to cut emissions.

Could Russia do more to ease the supply shortage of gas in Europe? Probably. Will it? That’s going to be a strategic decision and it will probably come with caveats. Natural gas is not oil. The network for mass transportation across oceans is still immature. Pipelines remain the preferred transportation network. Russia has a clear interest in opening its Nordstream 2 pipeline in a timely manner. That will need to be weighed against the need to bolster its reputation as a reliable supplier.

When Lucid Motors first announced its Air sedan would return 517 miles (832 km) on a single charge, it sounded too good to be true. But Lucid didn't think so, having hired an independent test firm to run it through the EPA cycle. A year and change later, Lucid's best-in-market electric car range stands. The official EPA numbers are out and show that the first 2022 Air models will all surpass the 405-mile (652 km) EPA benchmark set by the 2021 Tesla Model S Long Range, with the longest-distance variants breaking 500 miles.

The gauntlet has been thrown down. The Lucid vehicle has a longer range and charges faster than Tesla’s best in class vehicle. Right now, it costs about double what a Tesla does and deliveries are only just starting but the equivalent of an electric vehicle arms race is beginning.

A key U.K. power cable knocked out by a fire will stay partly offline until March, National Grid Plc said, deepening the energy crisis threatening Britain as it heads into winter.

The timing couldn’t be worse. The U.K. is already struggling with shortages, with gas and power prices breaking records day after day. The energy crunch is fueling concerns about inflation and a potential hit to businesses just as the economy emerges from the worst impact of the pandemic. How the U.K. fares through the winter now hinges in large part on the weather.

One has to question how long it will be before the population wakes up to the reality that wind and solar are not base load suppliers of electricity. Placing one’s faith on an intermittent source of power is inevitably going to result in blackouts when the system breaks down.

Copper inventories extend a drop to the lowest level in almost 10 years, while aluminum holdings also fell and nickel inventories climbed, according to weekly data from Shanghai Futures Exchanges.

Copper -11% to 61,838 tons, lowest since Dec. 2011
Aluminum -1.6% to 228,529 tons, lowest since Dec.
Lead +3.3% to record 204,008 tons
Nickel +45% to 8,608 tons, following a more than 30% gain the previous week

The realisation that contagion risk in the property sector could bring down the whole economy has refocused the attention of the Chinese administration on easing up on liquidity tightening measures. That has helped to stabilise the high yield sector and is also helping to improve the outlook for industrial resources.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

If it walks like a duck and quacks like a duck, it must be a duck. Wall Street is behaving like it is in a bubble. The most important thing is the bubble is still inflating.

Since their initial development in the early 2000s, the US shale gas fields have completely overwhelmed US gas markets. Between 2007 and 2020, shale production grew by an incredible 68 bcf/d on a starting base of 50 bcf/d. Over that time, the shales represented 150% of total US production growth, with conventional supply declining steadily. Notably, the Marcellus (in Pennsylvania) and associated gas from the Permian (in Texas) were responsible for nearly 70% of that increase. In 2019, our neural network indicated that both plays were in the early stages of resource exhaustion. We predicted both basins would have a hard time growing at the same rate as in prior years and may actually begin to decline.

Our models appear to be correct. Between December 2019 and June 2021, the Marcellus has been flat while the Permian has added only 1.1 bcf/d. To put these figures into perspective, over the eighteen months between June 2018 and December 2019, the Marcellus added 6.5 bcf/d while the Permian added 5.5 bcf/d. In other words, Marcellus growth declined by 98% while Permian growth fell by 80%. While COVID certainly impacted drilling activity, recent production trends have not improved. Year to date, production from the Marcellus and Permian combined is down 250 mmcf/d.

If the shales stop growing, total US production would decline quite quickly. For example, total US dry gas production peaked in December 2019 at 97 bcf/d. As of April (the most recent month with complete data), US supply was down 4.5 bcf/d or nearly 5% to 92.5 bcf/d. Given that preliminary data suggests the shales declined between April and June, it seems almost certain total US dry gas production has continued to decline as well.

The shale oil and gas boom transformed the USA’s energy market but also played a significant role in the geopolitical theatre. The biggest idiosyncrasy attached to the market is the constant drilling requirement. Unconventional wells have prolific early production but quickly peak. The only way to ensure production grows or is sustained is to keep drilling new wells. The economics of the sector are capital intense so interest rates, availability of funding and the price of the commodity play a significant role in how many wells are dug.

Carmakers are exacerbating issues by producing more components in-house. Tesla, VW and Porsche are making car batteries themselves or with a partner from outside the traditional car-parts industry. VW aims to cut procurement costs by 7% and fixed costs by 5% over the next couple years, potentially pressuring suppliers including Continental, Magna and ZF Friedrichshafen, my colleague Joel Levington wrote for Bloomberg Intelligence. During a visit to Germany earlier this month, Tesla CEO Elon Musk publicly called out Bosch for not supplying chips quickly enough.

The industry’s struggles won’t be over soon. The semiconductor shortage will cut worldwide auto production by as many as 7.1 million vehicles this year, with pandemic-related supply disruptions hobbling output well into 2022, according to IHS Markit. This week, VW's Wolfsburg plant — the world’s
biggest, employing some 60,000 people — restarted from its usual summer break running only one shift.

Chancellor Angela Merkel’s government, which has been kind to the industry in past years, earlier this month green-lighted a 1 billion-euro “future” fund to help German regions reliant on autos survive the shift away from the combustion engine. Still, analysts anticipate greater consolidation of the parts industry. So, what can suppliers do? Roland Berger says they must overhaul long-established processes to become leaner, invest more in software and digitization, become more open to R&D partnerships and look to Asia for potential growth.

I wonder if the CDU/CSU is prepared for the destruction of the auto parts sector to become an election issue because these kinds of events tend to spark populist uprising. There is no getting around the fact that electric vehicles do not have nearly as many parts as internal combustion engine-driven vehicles. As carbon credit taxes surge the incentive to sell rather than buy them ensures a migration towards batteries. That’s going to put a lot of people out of work in Germany’s CDU dominated industrial heartland.

It’s hard to think of two metals with more disparate fundamentals than copper and lead, and long-term projections for prices reflect that. In one corner, there’s a metal that looks set to soar as it powers the world’s rapidly burgeoning renewable-energy and electric-vehicle industries, and in the other corner there’s lead. The highly toxic metal has been substituted out of virtually every product it’s been used in throughout history, and now the electric-vehicle revolution is posing a manifest threat to its last major application in conventional car batteries.

Still, for buyers scrambling to get hold of spot metal on the LME, the fact that lead prices are likely to crumble in the future will be of no comfort at all. And the general rule in commodities markets is that as long as buyers are bidding up spot prices, futures are likely to follow.

Every country has some form of a recovery plan from the pandemic and so does every consumer. That points to increased spending and not least because many purchases were delayed by the pandemic. That’s helping to support the price of all industrial resources since infrastructure spending is the go-to area for government stimulus.

China's MingYang Smart Energy has announced an offshore wind turbine even bigger than GE's monstrous Haliade-X. The MySE 16.0-242 is a 16-megawatt, 242-meter-tall (794-ft) behemoth capable of powering 20,000 homes per unit over a 25-year service life.

The stats on these renewable-energy colossi are getting pretty crazy. When MingYang's new turbine first spins up in prototype form next year, its three 118-m (387-ft) blades will sweep a 46,000-sq-m (495,140-sq-ft) area bigger than six soccer fields.

Every year, each one expected to generate 80 GWh of electricity. That's 45 percent more than the company's MySE 11.0-203, from just a 19 percent increase in diameter. No wonder these things keep getting bigger; the bigger they get, the better they seem to work, and the fewer expensive installation projects need to be undertaken to develop the same capacity.

The overall result should be a drop in offshore wind energy production prices – a sorely needed drop, too. Current levelized costs of energy, as estimated by the US Energy Information Administration for new energy generation assets going live in 2026, place offshore wind as the most expensive way of generating a megawatt-hour right now, at US$120.52, where ultra-supercritical coal is more like $72.78 and standalone solar is around $32.78 before subsidies.

Obviously, wind fills in gaps that solar can't, and it'll be a crucial part of the energy mix going forward. Scaling the industry up with these mammoth turbines is the key reason why industry experts are predicting that the cost of offshore wind will drop by between 37 and 49 percent by 2050, as reported by Renew Economy.

MingYang says the MySE 16.0-242 is just the start of its "new 15MW+ offshore product platform," and that it's capable of operating installed to the sea floor or on a floating base. The full prototype will be built in 2022, installed and into operation by 2023. Commercial production is slated to begin in the first half of 2024.

The challenge for the wind sector is that many of the best locations have been taken up by turbines that are not nearly as powerful as the models currently being marketed. In many respects the wind sector is suffering from the same dilemma as the oil sector. How do you introduce new technology to an area where you have already sunk significant resources?

“We need to see higher carbon prices to make those projects profitable,” said Anders Opedal, chief executive officer of Equinor ASA, which is developing CCS in the U.K., Norway, Germany and the Netherlands. “It actually needs to be more expensive to pollute than actually capture and store.”

Britain has the most ambitious climate goals of the G-20 nations, targeting a 78% reduction in emissions by 2035. The nation has committed to helping fund two industrial hubs, where heavy industry and power generation can use carbon capture and storage by 2025, with another two by the end of the decade.

The aim is to scrub as much as 10 million tons of carbon dioxide from the atmosphere every year. Details on how the funding will be allocated are due before December. At today’s power prices, the U.K.’s largest planned project at Drax Group Plc’s biomass station in north England already would be profitable using carbon-capture technology, according to Credit Suisse.

“We need to be sure we could get those prices over a long time period, but we’re getting pretty close,” CEO Will Gardiner said in an interview on Bloomberg Radio. Drax’s project will start in 2027, and by 2030 it will capture and store 8 million tons of carbon dioxide a year.

In 2019, the world emitted about 33 gigatons of carbon. Operational projects are capturing just a fraction of that, about 40 million tons, according to Wood Mackenzie. There are 19 large-scale CCS facilities in operation today and another 32 in development, according to Credit Suisse. If these all come online, they could store 100 million tons – a slightly bigger fraction.

There’s also a chance the technology might not be as effective as promised. The world’s biggest project, at Chevron Corp.’s $54 billion liquefied natural gas plant in Australia, has fallen short of its target to capture 80% of emissions from the plant, burying just 30% over five years.

“The tech isn’t there yet for large-scale adoption, but our industry has to start changing how we operate,” said Andrew Gardner, chairman of Ineos Grangemouth Ltd., which is working with Royal Dutch Shell Plc on the Acorn project in Scotland that’s scheduled to start in 2027.

The system developed by Oslo-based Aker Carbon Capture ASA costs between 60 euros and 120 euros per ton, CEO Valborg Lundegaard said. That means CCS could be nearing a crossover point.

The fundamentals of carbon prices focus on the outlook for the economy and how much emissions will be created to achieve the anticipated growth rate. The reality, however, is that this is a politically motivated rate. The European Commission has said on regular occasions that it wants to see prices trade up to €100 and nothing has happened to question that view.

I wondered if you had come across HydrogenOne. The Investment Trust came to market on 30 July.  The trust has not yet invested in any assets but its website outlines what it sees as its worldwide "investable universe" of assets and also describes in outline how it will identify potential investments. Sir Jim Ratcliffe and INEOS have a stake.

What I found particularly interesting and enlightening is that they have produced a "bluffers guide" to hydrogen which is attached (and is also on their website). Subscribers might also find this useful.

https://hydrogenonecapital.com/ and 
https://hydrogenonecapitalgrowthplc.com/ (for investor info)

Thank you for this informative email which I’m sure will be of interest to the Collective. I have added HydrogenOne Capital Growth Plc to the Chart Library.

Here is a section from the report:

We expect material green hydrogen manufacturing to commence, particularly in around the high-quality wind resources in the North Sea (UK, Netherlands, Denmark), the wind and solar resources of Southern Europe, Middle East and Australia. We expect many of these activities to be clustered around industrial zones and ports, with off-takers in incumbent hydrogen[1]consuming sectors and centralised bus and truck fleets.

Hydrogen fuel cells have been deployed at commercial scale in selective transport applications, such as fork lift, city buses, and portable power generators. We expect to see rapid build out of these applications to continue, particularly in the multiple countries and cities that have committed to early phase out of ICE transport. Much of this hydrogen will be derived from dedicated hydrogen hubs, which will have offtake agreements and supply logistics configured to specific transport fleets, industrial sites and other customers.

2025-2030.
In this timeframe, we expect to see the emergence of larger clean hydrogen manufacturing sites, with a more rapid pace in growth in green hydrogen ahead of other sources, at 500MW or larger scale. As intermittent and seasonal renewable energy grows in the overall mix, the requirement for energy storage for system buffering will be met by geological storage of hydrogen and Compresses Air Energy Storage (CAES). Blending technologies and mandates to distribute hydrogen via modified natural gas infrastructure will become widespread.

Hydrogen should be more widely available to short term contracted and spot market customers at this time.

We expect to see the deployment at scale of hydrogen used for building-scale heat and power (“CHP”), and hydrogen burned in modified turbines at large scale power plants, which are in the pilot stage today. A wider uptake of hydrogen in trucks, trains and shipping will come alongside the buildout of HRS. We expect to see hydrogen introduced more widely by blending with natural gas in modified natural gas grids.

2030 and beyond.
In the longer term, once single hydrogen production projects have been scaled up to 1GW and beyond, and distributed projects have been successfully built-in industrial centers and ports, we expect that hydrogen use will move into the public consumer areas. At this point fuel cells could be economic for passenger vehicles, particularly heavy applications such as SUVs. Hydrogen will likely have been rigorously tested in the aerospace industry and hydrogen powered aircraft could be in mainstream use, either in fuel cells for turboprop, or via synthetic fuels in jets.

Humanity will have about a 50% chance of staying below the 1.5°C threshold called for by the Paris Agreement if CO₂ emissions from 2020 onwards remain below 500 billion tons. At the current rate of emissions, that carbon budget would be used up in about 13 years. If the rate doesn’t come down, the planet will warm more than 1.5°C.

“Our opportunity to avoid even more catastrophic impacts has an expiration date,” said Helen Mountford, vice president of climate and economics at the World Resources Institute. “The report implies that this decade is truly our last chance to take the actions necessary to limit temperature rise to 1.5°C. If we collectively fail to rapidly curb greenhouse gas emissions in the 2020s, that goal will slip out of reach.”

The new publication lands in the middle of the ramp-up to COP26, to be held in Glasgow in November. A global deal to pursue faster emission cuts would depend on poor countries securing $100 billion a year in climate finance from rich countries, something envisioned in previous climate agreements
but not yet achieved. National governments would also need to agree to rules governing the trading of emissions permits, to ensure those moving faster towards cuts are rewarded for doing
so.

The amplification of worries about the trajectory of the “climate emergency” has been building well in advance of the publication of this report. There is a clear set of policies being adopted to ensure much of the existing industrial base is going to have to fund the construction of alternative infrastructure.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

We are 17 months on from the panic low in 2020. At this stage it is quite normal to marvel at the speed of the advance and worry that the pace can’t possibly be sustained. The abiding sentiment is something like “surely, the world is not nearly as good as it was before the pandemic and therefore how on earth can prices be so high?”.

The world is not as good as it was before, millions of people have been deeply inconvenienced and many are traumatized by the events of the last 17 months. The counter argument is the quantity of money in circulation has only been matched during wartime and that has helped to inflate the price of everything. That’s the key to the argument. Having spent so much to achieve this recovery does anyone really believe central banks are going to endanger it? So where do we go from here?

Manmade global temperature increases can only be limited to 2°C if significant additional efforts are undertaken to become carbon-free in 2100

Is the limit of 2°C enough? To keep the global warming below 2°C had long been regarded as the right target measure to limit the most dangerous risks. More recently, 1.5°C has been considered safer, which requires rapid, far-reaching, and unprecedented changes across all aspects of society.

I posted a podcast featuring Jeremy Grantham a few weeks ago. He is a very vocal advocate for decarbonisation but he also echoed this prediction that limiting emissions to 2% was nowhere near enough. He also opined that the trend of climate change is irreversible anyway. Those are two extremely important considerations. 

If the marginal cost of production is now around $50, prices cannot fall below that level for a sustained period. In a volatile market like oil, there will inevitably be occasions when prices test the lower bound and rise enough to encourage marginal production in off the side lines.

Canada-based vanadium mining company Largo Resources has announced that its U.S.-based unit Largo Clean Energy has signed its first supply agreement for its VCHARGE ± vanadium redox flow battery system, with Enel Green Power Spain, a unit of Italian renewable energy company Enel Green Power, which is itself part of the Enel group. Under the terms of the deal, Largo Clean Energy will provide a five-hour, 6.1 MWh system for a project in Spain whose start-up is scheduled for the third quarter of 2022.

The company's VPURE and VPURE + vanadium products come from one of the three largest vanadium mines in the world, the company's Maracás Menchen mine, located in Brazil. These compounds are used to develop's Largo's  VCHARGE ± vanadium redox flow battery technology.

Largo Clean Energy began, last year, the development of its vanadium redox flow battery (VRFB) technology based on 12 patent families previously owned by U.S. storage specialist VionX Energy, whose assets it acquired for $3.8 million.

Vanadium surged in 2018 on expectations that the world would adopt redox flow batteries for utility-scale energy storage. The uptake was less enthusiastic than many expected and the price of the metal collapsed.

Before the launch of the national ETS, China had already established regional ETSs in eight provinces and cities, including Beijing, Shanghai and Shenzhen. Seven of the regional ETSs started trading in 2013, while the one in the eastern province of Fujian kicked off three years later. These regions allow companies to buy carbon credits equivalent to as much as 5% to 10% of their original quotas or actual emissions. The average price of carbon credits traded on the regional ETSs stands at 50 yuan ($7.73) per ton, analysts at Guotai Junan Securities Co. Ltd. estimate, far lower than the 250 yuan equivalent per ton in the EU ETS in 2020.

And

Initially, China’s national ETS will only cover the electricity generation sector. A batch of 2,225 electricity companies (link in Chinese) will participate in the trading.

In addition to electricity, the trading system will eventually cover seven other industries (link in Chinese), including petrochemical, chemical, construction materials, steel, nonferrous metal, papermaking and aviation. Companies that emit greenhouse gases equivalent to more than 26,000 tons of carbon dioxide a year will be included in the system.

It is expected that financial institutions will indirectly engage in the carbon market, as central bank Governor Yi Gang in April said that “the carbon market should be a financial market in nature and allow carbon financial derivatives trading.”

China appears to be serious about its intentions to migrate away from its reliance on coal (65%) for electricity generation. As a country’s economy progresses the relative value received from the health and wellbeing of citizens increases relative to the benefit gained from physical output. China crossed that barrier a decade ago so it is logical to expect greater focus on air and water resources.

Thanks for bringing Seadrill to our attention back in April. Given the recent price performance what are your thoughts from a chart and fundamentals perspective? Many thanks and best wishes, Nav

Thank you for your email and here is a link to what I last wrote about Seadrill:

Offshore oil supply has been the big casualty of this bear market to date. Seadrill came out of bankruptcy in 2018, fell 98% from the relisting price and filed for bankruptcy protection again on Wednesday. If it can survive through forbearance maybe they can reinvent themselves as offshore wind turbine installers.

About 66% of production was battery grade lithium carbonate vs 21% a year earlier.

Sales of Olaroz lithium carbonate were 2,549t at $8,476/t FOB, with pricing up 45% on the March quarter

Inventory has increased due to Covid-19 related transport delays and the requirement to hold additional safety stock in Japan to guarantee delivery into the Prime Planet Energy and Solutions contract

Prime Planet Energy and Solutions is a joint venture between Toyota and Panasonic to produce enough batteries for 500,000 vehicles per annum. The factory is reaching completion in Japan and Orocobre will be supplying the lithium required for the project. 

The services index of inventories also shrank, indicating that supply chain constraints continue to hold back economic activity. Supplier delivery times remain elevated due to truck availability, slower rail services, port congestion and container shortages, Nieves said on a call with reporters.

A separate gauge of inventory sentiment dropped to a record low, showing more service providers see their stockpiles as too lean. The index of prices paid for materials fell slightly, suggesting that while still elevated, the acceleration in cost pressures may be starting to cool.

The argument inflation is transitory got a boost today with services data coming in weaker than expected. The challenge is that the labour market has been distorted by massive government intervention and global supply chains are simultaneously struggling to recover from the impact of the lockdowns. The tendency to focus on year over year comparisons further muddies the economic picture in most countries.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “secular themes review”.

News today that Johnson & Johnson’s vaccine is effective against the delta variant should help to allay fears that the world is about to experience a round of upheaval similar to early 2020.

There is no question that the pandemic has acted as an accelerant. It forced migration and adaption to new conditions in a manner that might otherwise never have happened. Some of those changes will stick, others will fade away.

Everyone seems to think that the pandemic has to mean something and that we will never again get back to normal life. I don’t believe it. The surges back into social activity whenever restrictions are lifted is confirmation that humans are social beings. We crave physical contact and fellow feeling. That’s not going to change, even if we have a better appreciation for it today than since the demise of organised religion.  

As with every other crisis, the liquidity created to deal with the shock will remain in the system for much longer than it is strictly required. Central banks cannot afford to jeopardise the recovery they worked so hard to create. Meanwhile, populations everywhere are impatient for better conditions.

“The last thing Saudi Arabia and the United Arab Emirates, even Russia, want is $85 a barrel, much less $100 a barrel,” Bob McNally, president of Rapidan Energy and a former White House official, told Bloomberg Television on Thursday. “So far in Washington, it’s been quiet. As we get closer to $80 a barrel, it’ll set off alarm bells” about the risk it poses to the economic recovery, he said.

The big question for investors is what price retards growth potential in the economy. That number is going to be different for every country. For the USA, as an exporter, the potential for higher oil prices will support parts of the economy and challenge others. That suggests there is a happy medium where unconventional supply is profitable but not too profitable. $70-$80 might be that balance point where everyone can tolerate prices.

Some officials “may see the foreign-exchange liquidity as a feather in China’s cap, and some may worry that the surge is flighty,” said George Magnus, a research associate at Oxford University’s China Centre. “It’s fine when the flows are coming in, but a big problem for financial stability when they try and go the other way.”

For Magnus, the increase in dollar deposits is “random and most likely temporary,” and will slow when other nations recover from the pandemic.

While it lasts though, the situation offers an opportunity for China to implement reforms and loosen its grip over its tightly controlled capital borders.

“China will take the chance of flush dollar liquidity to make its cross-border flows more balanced,” said Becky Liu, head of China macro strategy at Standard Chartered Plc in Hong Kong. “Policy makers in the coming two to three years will keep widening channels for funds to leave the country.”

China’s accumulation of Dollars as a result of the relative strength of the economy during the pandemic should naturally put upward pressure on the currency. The rally over the last year is at least a partial reflection of that. The big question is how do they loosen capital controls while also discouraging capital flight?

A link to the full report is posted in the Subscriber's Area 

When numbers in excess of $100 trillion are bandied about most people’s eyes glaze over. The global annual GDP in 2020 was $93 trillion. That suggests to achieve the stated aim of containing temperature rises to 1.5% by 2050, we need to made big assumptions. The most important is that if we go ahead and make the sacrifices and spend the money, that it will work.

The election of a conservative cleric as Iran’s president will probably hold up the lifting of U.S. sanctions on the Islamic Republic’s energy exports, said analysts including Sara Vakhshouri, president of SVB Energy International LLC.

“The election of a hard-liner delays the expectation of a rapid return of Iranian oil,” she said.

The absence of Iranian oil from the international market has helped to support prices. It is also worth considering that the absence of 8 million barrels of oil from OPEC+ has been an even bigger tailwind for the price.

The spread between Brent and WTI crude has almost closed. The compression should be encouraging more onshore domestic supply into the market. However, the big question for the sustainability of the oil price rally is when will the supply discipline of OPEC+ end?

A link to the full report is posted in the Subscriber's Area. 

The beginning of any new bull market creates a wide dispersion of views about future potential. The most important are between the cyclical versus secular camps. Cycle bull markets are powerful but short lived while secular bull markets surprise in their persistence over years.

There is likely to be a lot more dispersion in the commodity complex on this occasion that there was at the beginning of the big bull market that began in the early 2000s. The biggest difference is there is no secular shortage of oil.

Seaborg's solution is to use another molten salt – sodium hydroxide – as a liquid moderator. Thus, the core design places the fuel salt tube inside a larger tube filled with sodium hydroxide, creating a first-of-its-kind all-liquid reactor that's remarkably compact. But sodium hydroxide itself is a powerfully caustic base, often used as oven cleaner or drain cleaner; the Seaborg design has to deal with this added corrosive agent too.

And on top of all that, there's the freaky phenomenon of "grain-boundary corrosion" to boot, caused by the presence of tellurium as a fission by-product in the fuel salt stream. Tellurium atoms can merrily penetrate through metals, and swap positions with other elements, leading to embrittlement of the metals at their weakest points.

The company is well aware of its key challenges here. "Seaborg’s core IP is based on corrosion control in the moderator salt, and applying the lessons learned since the 1950s," says Pettersen. "But it is not just a question of corrosion, it is also how easy it is to put these things together. Hands-on experience is important. They need to be welded, tested, inspected, maintained. We are working towards having perhaps 20 or 30 test loops in Copenhagen, with the experiments designed, set up and executed. The conceptual design is already done; we are now working on the basic design and in that way we are working up towards a full-scale prototype."

Here is a link to the presentation Seaborg’s CEO gave at the Singapore Week of Innovation & Technology earlier this year. 

To my mind creating a nuclear energy solution that accepts that accidents do happen as the primary starting point is a significant development. The primary attraction of molten salt is it does not present a massive dispersion or bomb threat. After that everything else comes down to economies of scale.

Oil traders including Vitol and Trafigura, as well as a host of hedge funds have been building up trading desks to profit from one of the hottest commodities trades of the year. Traders are bracing for tighter supplies as the European Union is preparing for the markets biggest reform to date to align emissions trading with a stricter climate goal for the next decade.

“Carbon is already the largest commodity in the world, with the potential to be 10 times the size of the global crude markets,” Hauman said the FT Commodities Global Summit on Wednesday. “We see a massive potential here.”

Carbon emissions are a growing market as the willingness to enact legislation to tax fossil fuel usage goes global. That is limiting the supply response of large companies because they are unwilling to make the investments necessary to replace reserves. The global economic recovery and OPEC+’s supply discipline continue to support oil prices as a result.

“We’re at a point where a lot of the cyclical tailwinds, if they haven’t blown themselves out, are past their peak,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone. “That fear that things are just going to go higher and higher and higher -- that’s come out of the market now.”

Copper has been one of the standout performers in a year-long rally seen across commodities markets as a surge in demand coincided with bottlenecks that have wreaked havoc on global supply chains. The key questions for investors across asset classes are whether the rally would prove transitory, and whether the inflationary impact on consumers would prove short-lived.

 

China wants lower commodity prices because of the upward trend of prices at the factory gate. They have a lot more ability to manipulate copper prices because they have such large stockpiles. That's not quite the same for metallurgical coal or iron ore.

A link to the full report is posted in the Subcsriber's Area. 

Electric plane designs are being commercialised for hopper flights but medium to long-range aspirations depend on innovations in battery technology which have not yet been solved. Hydrogen is a promising potential alternative for jet fuel but it requires a total redesign of aircraft. Both these solutions depend on massive investment in new infrastructure and supply chains. They will also depend on high carbon trading costs to drive the transition for at least the next decade.

Government policy support has improved dramatically...Growth from non-OECD nations has always been the bedrock of our positive demand outlook, and this view has only strengthened following the release of China's 14th Five-Year Plan, which called for an ~40% expansion in its nuclear fleet to 70GWe by 2025, with an additional 50GWe under construction. Adding to this is a more constructive view around North American and European demand in the wake of (1) bipartisan support for nuclear energy in the US for the first time in 48 years, the US rejoining the Paris Agreement, and clear support for nuclear energy in the "American Jobs Plan" and (2) the European Commission announcing that it will potentially include nuclear energy in the European Union's sustainable financing taxonomy.

...and we have upgraded our demand forecasts accordingly. The acknowledgement of nuclear's critical role in providing cost-effective emissions-free baseload power has been slow in coming, but has now gained momentum. This has reduced the risk of accelerated plant closures in OECD nations and continues to drive growth in developing nations. Accordingly, we increase our demand growth to 2.6%pa to 2035 (2.3% prior), a forecast which excludes any potential positive impact from small modular reactors (>300MW), which are garnering increased attention globally.

Mine closures and unscheduled curtailments. Primary supply remains under significant pressure, a situation which has only been compounded by the shutdown of Ranger in January (produced 3.5Mlb in 2020) and Cominak in April (approximate capacity 3.9Mlb). While the re-start of Cigar Lake (18Mlb) should provide some welcome near-term relief, we continue to expect a supply deficit of ~25Mlb in the 2021 uranium market, which follows on from a 25Mlb deficit in 2020 (CGe). We estimate that over the last five years mine capacity has been reduced by ~45Mlb/year, and this is before any consideration of COVID-19 related disruptions.    

A link to the full report is posted in the Subscriber's Area.

Nuclear energy is a proven reliable zero-carbon producer of electricity. The one thing that every zero-carbon solution being proposed today shares is a significant increase in demand for electricity. Against that background there is room for the nuclear industry to continue to provide base load power in a wide number of jurisdictions.

The Fed’s move away from pre-emptive action in its new policy framework is the most important factor raising the risk that it will fall well behind the curve and be too late to deal effectively with an inflation problem without a major disruption to activity. Monetary policy operates with long and variable lags, and as we have noted, it will also take time to recognize that inflation has actually overshot excessively and persistently. As inflation rises sustainably above target, forward looking expectations are likely to become unanchored and drift higher, adding momentum to the process.

By this point, the Fed will likely be moved to act, and when it does the impact will be highly disruptive to the markets and the economy. In the past, the Fed has not been able to reverse a sustained run-up in inflation without causing a recession and potentially large increase in unemployment. Being behind the curve when it starts will make the event that much more painful. Rising interest rates will also cause havoc in a debt-heavy world, leading to financial crises especially in emerging markets. If the Fed lets up and reverses rate increases in response to rising unemployment and other economic pain as occurred during the 1970s, inflation could back up again, leading to a repeat of the stop-go economic cycles that occurred during that period.

Depending on the timing of this potential inflation scenario, the 2022 midterm elections could be crucial. A surprisingly strong showing on the Democratic side could even pave the way for modifying the Federal Reserve Act to raise the inflation objective. This discussion has been brewing in academic circles for some time, not the least as a way to enhance the Fed’s power to move interest rates into negative territory when needed. But such a move could damage the Fed’s inflation fighting credibility. It could also lead to still higher inflation over time and ultimately intensifying the kind of boom-bust cycle experienced during the 1970s.

In brief, the easy policy decisions of the disinflationary 1980-2020 period appear to be behind us.

A link to the full report is posted in the Subcsriber's Area.

The response to the credit crisis resulted in massive asset price inflation which exacerbated inequality across society in most countries. The response to the pandemic is aimed at reversing that trend and providing greater opportunity to the people left behind by the last recovery. That implies massive money printing, spending and social programs.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic panic is now one year in the rear-view mirror. It seems to have lost its ability to scare us so that begs the question what happens next? That’s the big conundrum

Some still believe that technology will solve all our problems and that the largest companies in the world will continue get even larger. Others believe that the inflation genie has been releases so it is inevitable that bonds will collapse in value. Others believe that we are in for a long grind of subpar growth because the debt is so large, it will sap the will to live out of every speculative asset. Others believe we are in a stock, commodity and property market bubble that could pop at any moment. Still other believe that cryptocurrencies are the solution, though no one is exactly sure what the problem is. So how do we make sense of these divergent views?

Personally, I have a strong feeling of déjà vu. In late 1999 and early 2000 I was selling Optus cable connections door to door in Melbourne. When I tired of backpacking, I went to London and within three weeks had started at Bloomberg. I was amazed at the speed of the Royal Mail. I saw an ad in The Times on a Wednesday for European sales people. I posted my CV that afternoon and had a reply back from Bloomberg delivered the next day. I had an interview on Monday and started on Tuesday. To say they were desperate for sales people is a gross understatement. I was in Belgium, visiting private banks, 10 days later. That was the top of the market and it was evidence of a true mania in the TMT (Telecoms, Media and Technology) sectors.

By the end of the Nasdaq bear market in 2003 the number of Bloomberg terminals being sold to mortgage bankers was surging. I was even offered a job by one. The Dollar was pulling back, there were fears about financial repression, China’s demand for commodities was only beginning, emerging markets were breaking out and gold was completing its base formation. A year later oil broke out.

Drought in key Brazilian growing regions is crippling crops from corn to coffee, and vegetable oil production growth has slowed in Southeast Asia. That’s boosting costs for livestock producers and risks further straining global grain stockpiles that have been depleted by soaring Chinese demand. The surge has stirred memories of 2008 and 2011, when price spikes led to food riots in more than 30 nations.

“We have very little room for any production shock. We have very little room for any unexpected surge in demand in any country,” Abdolreza Abbassian, senior economist at the UN’s Food and Agriculture Organization, said by phone. “Any of those things could push prices up further than they are now, and then we could start getting worried.”

The prolonged gains across the staple commodities are trickling through to store shelves, with countries from Kenya to Mexico reporting higher food costs. The pain could be particularly pronounced in some of the poorest import-dependent nations, which have limited purchasing power and social safety nets as they grapple with the pandemic.

The UN’s index is treading at its highest since September 2011, with last month’s gain of 4.8% being the biggest in more than 10 years. All five components of the index rose during the month, with the advance led by pricier vegetable oils, grain and sugar.

Farmers that survive the pandemic disruptions will want to plant as much acreage as possible for their next growing season in every agricultural zone in the world. High prices are all the incentive they need. That’s particularly true for the grains and beans where production is possible in multiple different geographically diverse regions.

Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 outbreaks, boosting consumer and business confidence. A massive fiscal-monetary injection strengthened the financial position of households and firms during the lockdown, and consumers are spending and companies hiring.

“Australia is in rare company here -- only five other countries can boast an economy that’s larger now than before the pandemic,” said Kristian Kolding, a partner at Deloitte Access Economics. “Maintaining this trajectory is now the task at hand -- the lockdowns in Victoria are a stark reminder that the pandemic is far from over.”

Deloitte noted that on average, economies in the Organisation for Economic Cooperation and Development are 2.7% smaller than they were before the pandemic. The U.K. is almost 9% smaller, the European Union is 5% smaller and the U.S. has shrunk 1%, it said.

Yet a potential risk to the outlook is the sluggish rollout of a Covid vaccine. This has been magnified by a renewed outbreak of the virus in Melbourne that prompted a lockdown in the nation’s second-largest city, and has now been extended for another week.

Victoria is back in lockdown but the number of cases is comparatively low and the rest of the country is reasonably unaffected. Investors are taking the news in their stride. After more than a decade of liquidity infusions the reality remains liquidity beats most other factors most of the time. Central bankers also understand that logic and must feel vindicated in their actions. Every time there is a problem, they boost money supply and act to depress yields and the economy rebounds. They are unlikely to do anything different until that policy stops working.

"The system is considered a subtropical cyclone rather than a tropical cyclone since it is still entangled with an upper-level low as evident in water vapor satellite images, but it does have some tropical characteristics as well," according to the National Hurricane Center.

There have been pre-season named storms in the past six years, but Ana’s addition to the group is distinct for another reason. Storms in May normally form near the eastern Gulf of Mexico, the western Caribbean Sea or the Southeastern coast of the United States, CNN reported. But subtropical storm Ana is distinct because it formed in the Atlantic. 

The National Oceanic and Atmospheric Administration (NOAA) recorded a record-breaking 30 named storms in 2020. NOAA reported that 2020 was the fifth consecutive year with an “above-normal” hurricane season. There have been 18 “above-normal” seasons out of the last 26. 

“As we correctly predicted, an interrelated set of atmospheric and oceanic conditions linked to the warm AMO were again present this year. These included warmer-than-average Atlantic sea surface temperatures and a stronger west African monsoon, along with much weaker vertical wind shear and wind patterns coming off of Africa that were more favorable for storm development. These conditions, combined with La Nina, helped make this record-breaking, extremely active hurricane season possible,” said Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center. 

La Nina has dissipated and we are now in the lull before a new El Nino forms. How long that takes is likely to have an impact on how storms form over the summer months. Seven years in a row for an early hurricane season is not an aberration but looks more like a trend.

Eoin Hope you are well and settled in your new home. In your comments, you refer to companies having to purchase carbon credits and how Tesla has profited at the expense of others. Could you kindly share some more color on this or direct us to articles you may have posted. Also, could you please shed some light on carbon futures, and where they trade? Thanks much and stay safe Regards

Thank you for this timely email. Royal Dutch Shell’s failure to avoid censure in the Netherlands brings the issue of how emissions are priced into sharper focus.

Here is a section from a relevant article:

“Companies have an independent responsibility, aside from what states do,” Alwin said in her decision. “Even if states do nothing or only a little, companies have the responsibility to respect human rights.”

There are currently 1,800 lawsuits related to climate change being fought in courtrooms around the world, according to the climatecasechart.com database. The Shell verdict could have a powerful ripple effect, not least among its European peers including BP Plc and Total SE. Those companies have set similar emissions targets, which have also been criticized by campaigners for not going far enough.

Court Wins
The courts have become an increasingly successful arena for campaigners to hold governments and countries to account over pollution and climate change. This is the second time in quick succession that a Dutch court has ruled that Shell’s parent company in The Hague is liable for environmental damages in other jurisdictions.

In January, a court of appeals said that Hague-headquartered Shell had a duty of care to prevent leaks in Nigeria. The German government fell foul of a judge over its climate targets when its top court ruled that Chancellor Angela Merkel’s climate-protection efforts were falling short in April.

“Urgent action is needed on climate change which is why we have accelerated our efforts to become a net-zero emissions energy company by 2050,” a Shell spokesperson said. “We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels.”

For the solar industry, the timing couldn’t be worse. Renewable energy finally has a champion in the White House and ambitious climate goals have been announced across Europe and Asia.

At the center of the crisis is polysilicon, an ultra-refined form of silicon, one of the most abundant materials on Earth that’s commonly found in beach sand. As the solar industry geared up to meet an expected surge in demand for modules, makers of polysilicon were unable to keep up. Prices for the purified metalloid have touched $25.88 a kilogram, from $6.19 less than a year ago, according to PVInsights.

Polysilicon prices are expected to remain strong through the end of 2022, according to Roth Capital Partners analysts including Philip Shen. 

And the problem isn’t limited to polysilicon. The solar industry is facing “pervasive upstream supply-chain cost challenges,” panel manufacturer Maxeon Solar Technologies Ltd. said in April.

This is just one more sector facing medium-term supply disruption. The clear conclusion is when we look around the world there is too much money chasing too many goods and services. The big question is how long will it take for this inflationary bias to become anchored in the minds of consumers?

A link to the full report is posted in the Subscriber's Area. 

The one thing the market teaches us is the consensus is seldom correct. What happens when we spend until trillions on energy diversification only to learn that it does nothing to arrest a warming trend? Will we then lament not moving sooner on risk mitigation strategies like building higher seawalls or developing additional food supplies? The one thing I can be sure of is the vilification of opposition is a key symptom of mania.

An untouched stand of trees in Oregon – as in our compliance market example above – generates one big benefit – the carbon sequestered in the living trees themselves. However, voluntary development projects may offer other social or environmental benefits in addition to lowering GHG emissions, such as poverty reduction, habitat preservation, and increases to local living standards.

These are all benefits that support U.N. Sustainable Development Goals, so a company able to tout participation in programs with co-benefits scores valuable PR wins for its shareholders.

For example, one of Bluesource’s founders helped start a venture named the Paradigm Project to subsidize highly efficient wood-burning stoves and easy to use water filtration units to rural families in Kenya. In Kenya, as is true for other less developed rural areas, a lot of deforestation is brought about by families cutting wood to boil water and cook.

Through projects developed by the Paradigm Project, organizations are able to invest in carbon credits generated by verified emission reductions from rural households’ reduced burning of wood for fuel.

Proceeds from the sale of those carbon credits are ploughed into to the operations of a company that employs local people to build stoves and filters and distributes these products to their rural neighbors. The filters help cut the amount of firewood needed for boiling water and the stoves are much more efficient at converting wood fuel into usable energy.

This article highlights the virtuous circle argument for carbon credits when low emitting companies voluntarily redeploy money devoted to public good to socially acceptable carbon offset strategies. 

Reducing emissions to net zero -- the point at which greenhouse gases are removed from the atmosphere as quickly as they’re added -- is considered vital to limit the increase in average global temperatures to no more than 1.5 degrees Celsius. That’s seen as the critical threshold if the world is to avoid disastrous climate change.

But it’s a path that few are following. Government pledges to cut carbon emissions are insufficient to hit “net zero” in the next three decades and would result in an increase of 2.1 degrees Celsius by the end of the century, the IEA said.

“This gap between rhetoric and action needs to close if we are to have a fighting chance of reaching net zero by 2050,” the agency said. Only an “unprecedented transformation” of the world’s energy system can achieve the 1.5 degrees Celsius target.

The IEA’s road map appears to be at odds with climate plans laid out by Europe’s top three oil companies -- BP Plc, Royal Dutch Shell Plc and Total SA. They all have targets for net-zero emissions by 2050, but intend to keep on seeking out and developing new oil and gas fields for many years to come.

“No new oil and natural gas fields are needed in our pathway,” the IEA said. If the world were to follow that trajectory, oil prices would dwindle to just $25 a barrel by mid-century, from almost $70 now.

Many of the oil majors have significantly reduced plans for additional new supply already. That decision was as much about the price structure as it was about appeasing the increasingly powerful green lobby. Today, the European oil companies in particular are attempting to reorient towards becoming utilities to boost their green credentials.

Today, there’s ample reason to expect a positive term premium to return. For one, the Fed has a new, more patient monetary policy stance. As a result, inflation will be higher and more variable — a risk that must be compensated with higher long-term yields. Also, keeping inflation in check will require a higher peak fed funds rate, reducing the risk that the Fed will again get pinned at the zero lower bound. Beyond that, deficit financing is expanding the supply of government bonds: Treasury debt outstanding has quadrupled since 2007, and the Biden administration is seeking to add several trillion dollars more. Meanwhile, one big source of demand for the bonds is set to dwindle as the Fed phases out its asset purchases, most likely next year.

Putting the pieces together, one can expect a 10-year Treasury yield of at least 3%: The 2.5% floor set by the federal funds rate, plus a term premium of 0.5% or more. But that’s not all. The Fed says it wants inflation to exceed its 2% target for some time, to make up for previous shortfalls. This, in turn, could stoke inflationary fears and lead markets to expect a higher path for future short-term rates. As a result, the 10-year Treasury yield could more than double from the current 1.6%. And if persistent deficit financing prompts concern about growing U.S. debt, the yield could go to 4% or higher.

Anyone who has been in finance for less than a decade has rarely seen 10-year Treasury note yields above 3%. So what’s coming could, for many, be quite a shock. The secular bond bull market that began nearly 40 years ago is finally ending.

US job openings now far exceed the pre-pandemic peak. At the same time credit card balances are declining even as debt loads are increasing. Meanwhile the unemployment rate is holding at 6%.

The conclusion is simple. Households are buying capital goods like houses and cars, that do not require credit cards, because they are flush with cash. Companies are desperate for workers, but unemployed people are in no hurry to take up offers. The reality is the stimulus enacted in the first quarter was overly generous and has created economic disincentives. It exacerbated bottlenecks and enhanced consumer perceptions of rampant inflationary pressures.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

After a crash everyone is wary. We all seek to learn lessons from our most recent experience because it is the only way to help us emotionally move past the trauma. Coming out of the pandemic most investors wished they had sold everything at the first sight of virus news in early 2020 and bought everything back again following the crash. Today they are worried that there is another big shock waiting around the corner that will cause a repeat of pandemic panic.

The challenge for investors is less to learn from the most recent mistake but rather to know when to deploy the lessons learned. The best time to be wary about a massive decline is when no one is worried about it. The time to take precautionary action is when it seems like a waste of time and when you are most afraid of giving up on the potential for even better gains. That’s the best time to remember the experience of the crash but the interval of time and the positive reinforcement of experience in an uptrend make it difficult.

America’s shale producers will keep output in check even as global crude oil prices near $70 a barrel, Ovintiv Inc. Chief Executive Officer Doug Suttles said in an interview with Bloomberg Television.
Explorers are focused on low growth, strong operating performance and returning cash to shareholders, Suttles said. Ovintiv is prioritizing paying down debt and maintaining its dividend, he said.

Private operators’ ability to weigh on oil prices by ramping up production is limited after recent tie-ups with publicly traded companies, Suttles said. While closely held producers have more influence on the natural gas market, “it’s a little bit of a concern, not a big one,” he said.

European natural gas prices have bounced impressively from the region of the trend mean and are quickly approaching the highs of the last decade. That is likely to encourage more sea-borne gas into the market which is contributing the US prices bouncing impressively from the trend mean.

The global oil market “is on the one hand positive, we see a recovery of demand and higher global GDP estimates,” Russia’s Deputy Prime Minister Alexander Novak told Rossiya 24 television after the OPEC+ committee’s conference call. Nevertheless, the group must keep monitoring the coronavirus situation across many regions, including Asia, he added.

“We see that some countries record higher coronavirus numbers, like in India and Latin America, which raises some concerns about further growth of demand,” Novak said.

Crude futures held gains after the OPEC+ gathering, trading 0.4% higher at almost $66 a barrel in London.

Strong Demand

It was the OPEC+ Joint Ministerial Monitoring Committee that initially recommended sticking to their planned output increase. Ministers from the panel then asked other OPEC+ members to cancel the full meeting scheduled for Wednesday, and instead they drafted Tuesday’s statement by exchanging diplomatic messages.

There is no shortage of oil and there is no mystery about where to find more if it is needed. The drop off in domestic US drilling and the combined efforts of OPEC+ to curtail supply have shaved at least 7 million barrels a day from the market. That has been instrumental in the rebound for oil prices.

“Established models have supported this excellent result along with the latest additions to our product range, above all the new model variants of the all-electric Taycan,” Porsche sales chief Detlev von Platen said of the brand’s 36% first-quarter surge. “We can look back on a very positive start to the year.”

The Taycan, which Porsche recently flanked with a more spacious version, is a litmus test for the carmaker’s costly shift to electric vehicles. Boosting EV sales with Porsche will be key to maintaining healthy margins as the division is VW group’s biggest profit contributor by far.

Porsche’s total global deliveries rose to 71,986 vehicles in the first quarter, driven mainly by demand in China, its largest market. The compact Macan SUV was the brand’s best-selling model, ahead of the larger Cayenne. Porsche will launch a battery-powered version of the Macan next year that’s underpinned by a new platform for upscale electric cars co-developed with sister brand Audi.

Porsche remains optimistic about business prospects this year even as a global shortage of semiconductor parts disrupts production plans across the industry. Order books “continue to develop very well,” Von Platen said.

Introducing new technology at a high price point before filtering it down to cheaper models in subsequent years has been the go-to model for automakers. Nothing has changed. The positive reception the Taycan has received will fortify the mood at Volkswagen that they have made the correct decision to bet on electric vehicles.

Two weeks ago, Biden unveiled a $2.25 trillion plan to overhaul the country’s physical and technological infrastructure. He has said the plan needs to go far beyond bridges and roads and has called for investment in electric vehicles, renewable power and the electric grid.

Shares of Gerdau and Tupy are up 27% and 15% this year, respectively, while the benchmark Ibovespa index is down 0.6% and Weg is little changed.

“Limited geographical diversification puts a cap on Brazilian companies seizing this moment, but we can see some clear winners,” the analysts said. “Although we believe they have not gone unnoticed by the market, recent performance indicates that the impact is likely larger than what is currently priced in.”

Brazil is currently dealing with the challenge of rising pandemic case numbers and deaths. That’s a near-term challenge for the economic recovery and it might be a few months before the worst is over. 

There is one theme that seems to be running through every asset class at present. Perhaps it is because we have been locked up for a year, and literally can’t wait until it is all over, but there is a distinct air of impatience in every circle of life. The pandemic has accelerated the decision-making process for everyone in every facet of our lives.

Mrs. Treacy and I have been discussing moving from Los Angeles for two years but there was never a push big enough to stir us into action. We looked at Las Vegas suburbs in 2019 and toured schools but my eldest daughter was accepted into one of the most prestigious high schools in Los Angeles, so we decided to linger.

The experience of living in Los Angeles during the lockdowns, from schooling to public safety, made us impatient for a change. Like many others we decided to move and have only been delayed by reapplying to schools for our daughters and finding a suitable home.

The hydrogen embrittlement challenge is a highly complex materials and engineering problem. There are many aspects that still need to be understood before tangible solutions can be proposed.

For example, what are the conditions for hydrogen entry into different metals? Can this be controlled? Is it possible to completely stop hydrogen entry in metals using coatings or other surface treatments? What if these coatings get a scratch? If the hydrogen does get in, under what conditions will it cause failure of the metal? How much hydrogen is too much? How quickly will it accumulate? Can we design new engineering alloys that can better resist hydrogen embrittlement for the global hydrogen economy? If so, will the new alloys be economically feasible?

These questions can only be answered through collaboration between researchers and engineers who have a deep understanding of hydrogen embrittlement.

An economy powered by liquid hydrogen is the end point of all renewable energy arguments. It is the only way that the energy by volume arguments can be overcome. The question is how to do get there from where technological solutions stand today?

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on March 5th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The pandemic has been an accelerant. The full ramifications of what that means are becoming increasingly clear.

The pandemic took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.

Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out when they get into trouble. There is no evidence that the trend of using all available means to buy back shares has ended. In fact, buybacks are back at pre-pandemic levels. Companies were touting “resiliency” last summer. It appears to have been just talk. Buybacks represent a powerful tailwind for stock markets that were absent for much of 2020 but are now back in force. 

Egyptian authorities were desperate to get traffic flowing again through the waterway that’s a conduit for about 12% of world trade and about 1 million barrels of oil a day. This has been the canal’s longest closure since it was shut for eight years following the 1967 Six Day War.

Firms including A.P. Moller-Maersk A/S and Hapag-Lloyd AG were forced to reroute their ships via the southern tip of Africa, which can add two weeks on to a journey between Europe
and Asia.

Shipping experts anticipate that the disruption will last for months because of schedules being upturned and the uneven wave of cargo that will hit ports down the line.

While the hit of the canal’s $10-billion-per-day closure will likely be small given that global merchandise trade amounts to $18 trillion a year, the prospect of hundreds of ships being thrown off schedule will ensure cargo delays in the weeks if not months ahead. The dozen or so container carriers that control most of the world’s ocean freight capacity are already charging record-high rates on some routes, and shortages of everything from chemicals and lumber to dockside labor already abound.

It seldom pays to bet against small well-funded teams who are presented with a gargantuan task. The freeing up of the Suez Canal after a week is just such an example, and the snarl in the global supply chain will be smoothed out in a week or so. That’s good news but the whole episode is representative of the stress the global supply chain is under. Everyone is exhausted after a year of strife and disruption and that raises the risk that accidents will happen.

Loadings scheduled from Qatar’s Ras Laffan export terminal may experience “considerable delays” if the situation doesn’t improve by the end of this week, according to Rebecca Chia, an analyst at market information group Kepler.

The congestion is also hitting bulk carriers that ship products from wheat to iron ore. There’s a long queue of bulk ships at the moment -- just shy of 40 vessels -- according to Peter Sand, chief shipping analyst at trade group BIMCO.

“Unless the situation is resolved very quickly we will soon see ships sailing south of Africa,” Sand said. “Oil tanker rates are terribly low at the moment so that’s where there’s most upside. Then some upside for dry bulk.”

The global supply chain has a number of chokepoints. Panama has invested heavily in providing additional capacity for its canal. Egypt has been much less proactive in planning for the future. The current blockage of the canal is a headache and has the capacity to cause short-term disruption.

Some estimates are stretching the solution time to weeks rather than days. Considering how essential the shortcut is to the global economy every effort will be made to ensure the delay is a short as possible. Generally speaking, teams can perform the impossible in short periods of time provided they are given the resources required so I doubt this is an issue we will be worrying about in a few weeks.

The final decision on next year’s budget will be taken by the government that takes charge of Europe’s biggest economy after Chancellor Angela Merkel steps aside following the election.

Merkel’s conservative CDU/CSU bloc is on track to lead the next administration and favors a return to frugality once the coronavirus recedes, while Scholz’s struggling SPD and the surging Greens have pledged to invest billions in technology and tackling climate change.

As things stand, Merkel’s bloc could form a coalition with the Greens, though the outcome is far from certain with discontent increasing among citizens weary of virus restrictions and unhappy with the slow pace of Germany’s Covid-19 vaccine rollout.

With the contagion rate on the rise again, Merkel is holding talks with cabinet ministers and regional leaders later on Monday to decide the next steps in the government’s pandemic strategy.

Generally speaking, the junior member of a coalition government comes out worse off after entering government. That’s because voters had faith in them to deliver on their promises, but the sacrifices they have to make to enter power mean their primary goals are unrealisable. At the same time the senior partner takes credit for any successes.

Crude oil has fallen the most in nearly three months, sliding as much as 4.75% today, and on its way to a test of the March 4 low at $60.52 per barrel. The move is probably linked to some unwinding of long positions from CTAs as daily price gains or losses of more than 3% can often trigger this account group to quickly unload. Watch for this unwind to continue if price action maintains this pace in the days ahead.

Beyond that, money managers could be unwinding longs. This group’s crude holdings are the longest in more than two years, according to the most recent CFTC data. Let’s not forget Iran is swamping China with oil. Also, quarter-end window dressing can also get in the way of an otherwise nice trend.

There is no shortage of oil. OPEC is deliberately restricting supply. The shale properties massively reduced drilling activity in response to low prices and rising borrowing costs have inhibited a swift recovery. However, it is not as if the world has to spend hundreds of billions to find new sources of supply. Everyone knows where the oil is. The question is only at what price it will be produced. The higher prices move the greater the sensitivity to supply gains.

This video is very interesting. It is hard to comprehend the scale of this project.  It is part of China's ''ending poverty'' project.

Whilst the US has been engaged in adventurism in the M-E and elsewhere (right up till today) resulting in heavy losses, both financial and human cost, China has been powering ahead in leaps and bounds, spreading their sphere of influence far and wide. Interesting times.

 

Thank you for this interesting video which is both information and raises some important questions. The point they seek to get across is that solar panel power plants can create clean energy, reverse desertification, and create lucrative income streams for local populations. 

The video at no point discusses the efficiency of the solar panels, the sustainability of using the precious water resource to regularly clean them, the cost/efficiency of power lines to get the electricity to where it is needed or the desire for energy self-sufficiency.

In 2020 the platinum market was in a deficit of -932 koz, the largest annual deficit on record albeit below the -1,202 koz deficit forecast in November 2020. This difference was due to Anglo American Platinum Converter Plant (ACP) Phase A being restarted in December 2020, three weeks earlier than expected. However, over the year, as a whole, lower supply due to COVID-19-related mine closures, ACP outages and reduced recycling far outweighed the pandemic-driven fall in demand from the automotive, jewellery and industrial sectors, which fall was partially offset by increased investment demand.

For 2021 the platinum market is forecast to remain in a deficit for the third consecutive year. The modest deficit of -60 koz results from a 17% increase in total supply and a 3% increase in total demand. Interestingly, total supply in 2021 will still be 3% lower than in 2019, with industrial, jewellery and automotive demand levels all above their respective levels in 2019.

Total platinum demand in 2020 was 7,738 koz, 7% (-569 koz) lower than in 2019. Automotive demand reduced by 17% (-474 koz) year-on-year, largely due to lower vehicle sales in the first half of the year, as measures to control the spread of COVID-19 resulted in vehicle factory and showroom closures. However, platinum automotive demand losses were cushioned by the impact of higher metal loadings on catalysts to meet tighter emissions regulations. Jewellery demand was similarly impacted in 2020, with volumes 13% (-279 koz) lower on a full-year basis despite quarter four demand returning to pre-pandemic levels. Industrial demand was 5% (-111 koz) lower, with strong glass sector demand largely compensating for weakness in all other industrial demand segments.

In 2020, weakness in automotive, jewellery and industrial demand was partly offset by strong investment demand, from bars and coins and ETFs, collectively up 24% (+295 koz) year-on-year. Heightened global risk drove investor demand for hard assets such as platinum during the first half of the year, further encouraged by the weak platinum price. Investment demand increased in line with the improving economic outlook in the second half of 2020 and was bolstered by NYMEX futures exchange physical metal stocks, that increased significantly to address the disconnect between the price of platinum futures and platinum. However, as the year progressed bar and coin demand moderated somewhat as the platinum price increased and stock shortages in North America were addressed. ETF holdings increased strongly over the year with growth in North America, Europe and Japan far exceeding declines in South Africa.

A link to the full report is posted in the Subscriber's Area.

Platinum is more of an industrial metal than an investment vehicle. The demise of diesel engines resulted in a crash because catalytic converter demand evaporated.

That is exactly what happened to silver when digital cameras eroded demand for photographic film. The price of silver halved between 1989 and 1991 as the first digital cameras arrived on the market. Without that major source of demand, the price drifted in a range for more than a decade. It did not breakout until a new source of demand appeared. It broke out in 2003 as emerging market investment demand heated up and Western investors worried about financial repression in the aftermath of the tech bust.

Royal Dutch Shell Plc agreed to buy Next Kraftwerke, the operator of a virtual power plant that brings together clean-energy capacity across Europe to sell the electricity into the market.

Next Kraftwerke remotely connects and manages more than 10,000 off-grid units -- including solar, hydropower and bioenergy facilities -- across eight countries, the Hamburg-based company said Thursday in a statement. The deal expands Shell’s footprint in low-carbon technologies as the Anglo-Dutch oil major seeks to slash its emissions.

“The acquisition of Next Kraftwerke will accelerate Shell’s strategy to grow by adding smaller renewable assets to our portfolio,” David Wells, vice president of Shell Energy Europe, said in the statement. The terms of the deal, which is expected to complete in the second quarter of this year, were not disclosed.

Power is a key part of Shell’s ambition to become a “net-zero” company by 2050 and one of the world’s largest providers of green electricity. Shell aims to double electricity sales to 560 terawatt-hours by 2030.

European oil majors have been delivered a clear message to evolve or die. The political tide of support for green energy and decarbonisation continues to favour reduced emphasis on fossil fuels. Royal Dutch Shell is at the forefront of that regional energy transition.

Oil price is in the news and as a holder of a leveraged position I was very happy with the price spike. Here's an article that is arguing it's a sellers’ market, will remain so, and that shale production will not drive prices back down. What are your thoughts.

Thank you for this article. Here is a section: 

The big players are consolidating the shale field now. And if you think that they want to pump barrels of oil at a loss, then you’ve got another think coming. They don’t have to do that. And once the land grab ends and the conservation of capital game begins, suddenly everyone is Opec.

The shale guys would be quite happy to see oil sustainably higher than it is now, especially given that competition within that area is now calming down. Everyone can make a profit as long as no one gets too greedy. That’s not going to upset them.

On top of that, Saudi Arabia has US president Joe Biden backing its hunches on this one. The president’s focus on “green” policies could make it tougher to develop shale fields and so it’ll be tougher to expand supply and so prices will go up. It’s another illustration of how regulation very often is exactly what any big incumbent player in a market wants. It keeps the competition at bay.

​The low return on invested capital has been a major challenge for the oil and gas sector over the last few years. Unconventional supply is extremely capital intensive. With prices below $60 large portions of the market are not economically viable. That reality led to the lower for longer mantra gaining traction. The lack of additional investment created the conditions for the current rebound and the massive decline in drilling during the pandemic exaggerated the effect.

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on January 8th. These reviews can be found via the search bar using the term “Secular Themes Review”.

The rollout of vaccines to COVID-19 continues to accelerate and that will continue through the balance of the year and 2022. There is encouraging news about the number of different vaccines which have been approved and their success against variants. By the end of the year, the world will be inundated with doses which will provide at least some protection from the virus for anyone who wants it. That’s all the rationale any government needs for reopening the economy.

On Valentine’s Day 2020 Mrs Treacy and I went out for dinner with another couple. We talked about the news of a virus threat from China and how it could potentially cause ructions further afield. We told them we had stocked up on rice, meat, protein bars and batteries just in case. They thought we were crazy crackpots jumping at shadows.

It was hard to imagine then just how disruptive the decision to lockdown was going to be. A similar condition exists today. After a year of being confined to our immediate vicinity it is tempting to think this is how it will always be. The reality, however, is we are going to see a surge back to normalcy much quicker than most believe possible.

Humans are social animals and we yearn for social contact. We’ve been starved of that basic need for a year and we’ll overdose on it when we are able. That suggests we are looking at a boom in consumer activity over the coming couple of years.

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.

The oil price has been rebounding in part because of a renewed demand outlook as the global economy reflates and also because supply growth has been both intentionally and unintentionally constrained.

The brief but traumatic trip below zero last year was a catalyst for OPEC members to be more amenable to supply discipline. They want to ensure prices stay at economic levels and that means somewhere in the region of $60 to $80.

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.

The views expressed in this report elaborates on many of the points made by other analysts. There is no getting around the fact that renewables are dependent on access to metals like copper, lithium, cobalt and nickel. That’s in addition to the significant additional quantities of rare earth metals required. These are all extractive industries. A lot of renewable infrastructure is also placed in very remote, ecologically pristine areas.