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

    Pure Energy Minerals drops the next lithium bombshell As Tesla seeks supply for its Gigafactory

    This article by Peter Epstein for Mineweb may be of interest to subscribers. Here is a section: 

    Stepping back for a moment, on September 3rd, Tesla’s Founder Elon Musk reiterated his commitment to source materials from Nevada. However, that pledge did not necessarily mean another sourcing deal, announced so soon, or that it would be for lithium. Other materials besides lithium will be required. Cobalt and graphite, (among others), will also be needed to feed Tesla’s massive giga-factory in Nevada. I find this agreement to be highly noteworthy in the sense that Tesla’s growing need for lithium, perhaps more so than that for cobalt and graphite, represents the single most important raw material need. I imagine that other lithium agreements will be signed in coming months. Without question, Nevada wants further lithium deals to come from Nevada.

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    Email of the day on Tesla

    My hunch - but I may be wrong - is that electric cars are relatively easy to build... there is not much technology in an electric engine, no complexity; as for the batteries (which I understand are Panasonic's in the case of Tesla, which assembles them together in very large modules) I understand that the know how is not really in the hands of Tesla or any other producer (even Renault/Nissan stopped developing in house technology) and therefore someone else did the clever job. 

    As a first mover Tesla has very competently built a good product, taking risk only where strictly necessary: luxury brand (low risk) with traditional, long bonnet, probably off the shelf design (low risk), an old chassis for the roadster, well tested batteries. Also, the complexity of electric power train - compared even with a small 1ltr engine - is little: there are fewer (almost none in fact) moving parts, no gear box. No way a new producer could enter the industry with its own internal combustion engines, but the electric car gives this opportunity.  A good demonstration of this is that Tesla's provisions for warranties are in line with those of a mature manufacturer with a well-tested line up of cars... probably Tesla know that there is so little in an electric car that can actually go wrong.

    Traditional producers have held off from making a proper move into the sector not to cannibalize their current products and make all R&D and Capex in a probably obsolete technology completely worthless. After all they can catch up quickly: the difference between a Tesla, and a BMW or Nissan Leaf or 500e is purely the size of the battery, whose development risk is not theirs... On paper, a Leaf may have the range of a Tesla simply by doubling the size of the battery. In the meanwhile, no necessity of taking the risk of killing their current baroque business model, made of V12, V6, boxer, in line 4 or 3 or 2 cylinder hyper complex engines that you have to service all the time and last 300k when of exceptional quality.

    Traditional car manufacturers will "tolerate" Tesla as far as it does not build a too strong brand (ludicrous speed is genius by the way: intrinsic of electric engine, easy to do, but presented as cool high tech stuff), then move in and with their economies of scale and less vertically integrated structure quickly catch up... it will be dear, but unavoidable as Tesla made clear it is possible to achieve a usable and fun product with no petrol engine.? VW making its move,? but I guess everyone if working on something. 

    What I think could get ugly in this story - from the point of view of Tesla shareholders - is the excessive use of dodgy accounting (there are examples), the glorification of the CEO and its ideas (never good in a plc), just to get hold of capital for a venture that is extraordinarily risky and liable to competitive pressures from corporations much larger and much more sophisticated. How far will the individual Musk go to keep the business going? He is very successful, people love him, Tesla S has been voted best car ever. Difficult to give that up, right?

    Did not look at the other businesses of his, with Space X he is against defence and/or state run companies... difficult.

    Anyway, just a thought, I may be completely wrong...

     

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    We are nowhere near peak coal use in India and China

    This article by Frank Holmes appeared in Mineweb and may be of interest to subscribers. Here is a section

    It’s possible that if China’s coal consumption dramatically declines, India will be there to fill the hole. Macquarie estimates that by 2025, India’s energy demand will rise 71 percent, with coal taking the lead among oil, gas, hydro, nuclear and others. The south Asian country is already the second-largest importer of thermal coal, and it might very well surpass China in the coming years. Macquarie writes:

    Although all energy use will rise [in India], coal is the major theme as consumption and local production are both set to almost double by 2025 on the back of large-scale coal power plant construction plans.

    The group adds that, unlike China, India has no present interest in reigning in its use of coal. Most emerging markets, India included, recognize that coal is an extremely affordable and reliable source of energy, necessary to drive economic growth.

    Even if these predictions don’t come to fruition, the consensus is that we haven’t yet seen peak coal use in Asia. Estimates vary depending on the agency, but everyone seems to agree that demand in the medium-term will rise before it retreats. A 2014 MIT study even suggests that Chinese coal consumption could rise more than 70 percent between 2012 and 2040.

     

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    Audi electric SUV concept quick off the mark, over 300 mile range

    This article by Scott Collie for Gizmag and this promo page for Porsche’s all electric sports car due in 2020 may be of interest to subscribers. Here is a section from the former: 

    In an attempt to improve manoeuvrability, the e-tron quattro is fitted with all-wheel steering similar to the system offered on Porsche's 911 GT3 RS, the rear wheels turning in the opposite direction to the front wheels at low speeds for a smaller turning circle and working in the same direction as the fronts at high speed for a sense of stability.

    Audi has given its latest SUV concept a sleek and coupe-like sloping roofline and tapered glasshouse. At 4.88 m (16 ft) long and 1.93 m (6.3 ft) wide, the e-tron isn't a small car, but it looks far sharper than the bigger, more traditional Q7. With a drag coefficient of 0.25, it's also very aerodynamic for an SUV.

    This is partially thanks to the sleek shape of the body and partly thanks to electronically-actuated aerodynamic elements in the bonnet, the side of the car and at the rear that activate at 80 km/h (50 mph). Just as it has done with the new A4, Audi has also worked hard on the underbody to cut down on drag. The e-tron has a fully enclosed floorpan.

     

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    Brazil Downgrade Leaves Firms With $270 Billion Debt Hangover

    This article by Cristiane Lucchesi and Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section: 

    Brazilian companies that piled on $270 billion in international debt during the boom years are seeing their funding costs rise after the nation’s credit rating was cut to junk.
         
    The spread for five-year credit-default swaps to protect against a government default, one benchmark for setting what Brazilian companies must pay for external funding, has jumped 7.5 percent to 400 basis points since the downgrade, the highest since 2009. Adding to the pain, the dollar surged to a 13-year high, making principal and interest on international borrowing more costly for local firms.

    “Even very small, unknown companies issued international bonds when Brazil was considered one of the most promising economies after the 2008 financial crisis,” Salvatore Milanese, a partner at debt-restructuring adviser firm Pantalica Partners, said in an interview in Sao Paulo. “Now many of them are facing the consequences.”

    Standard & Poor’s last week lowered Brazil’s sovereign credit rating one level to BB+ and said it might cut it further in response to the administration’s inability to shore up fiscal accounts as the economy falters. President Dilma Rousseff has failed to win support for her initiatives amid an investigation into corruption at the state-controlled oil company, some of which allegedly occurred while she was its chairwoman, sending her popularity to a record low and generating calls for her impeachment.

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    Email of the day on the US rig count

    The press has been touting the "sharp drop in rig counts" as evidence of an imminent slowdown in oil production, headlining off the drop of 18 rigs in the week ending 9/11. Now if we look at the facts, we are at 652 oil rigs versus 635 2 months ago. Last I checked, 652 is more than 635. Oil rigs dropped 10 in the past week. Gas rigs have been in a pretty clear, slow downtrend for most of this year.

    Now of course a drop of 10 oil rigs in a week may sound like a lot to the untrained ear (which most journalists appear to have), but 10/662 = 1.51%, which is not exactly a blow-off-the-socks change. In fact, it is within the normal ebb and flow of wells being taken down to move to the next location, rigs offline for maintenance, etc.

    I think the IEA's prediction of "slamming the brakes" on the production of shale oil (see http://www.ft.com/intl/cms/s/0/15e4dc9a-585e-11e5-9846-de406ccb37f2.html ) needs to be taken with a somewhat wait-and-see attitude. Low prices will ultimately bring down high-cost production, but economists' predictions about oil production costs just might have included too much sunk cost and not factored in enough efficiency gains in the oil patch. This just could further reinforce the notion that oil prices will stay lower for longer than most in the financial media expect.

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    Email of the day on China plans to launch an oil price benchmark

    I have just read that China is apparently planning to launch its own oil benchmark in October, thus competing with the Brent & WTO oil future markets! (See attached)

    Would it be possible for China to succeed?  … Should they really do, that could create unwanted volatility in these markets!

    As usual, your view would be appreciated.

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    Musings from the Oil Patch September 8th 2015

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

    The Bernstein report contained a chart showing LNG terminals in existence, under construction and planned globally as of late 2011. The chart actually understates the number of LNG export terminals in the United States.

    One area of concentration is Australia where huge offshore gas reserves and gas from coal fields are feeding into new LNG export terminals that when all are completed will position the country as the world’s largest gas exporter, surpassing Qatar. Virtually all of this gas has been targeting Asian markets, but with the slowing economies there and now the resumption of nuclear power plants in Japan, that may be smaller than previously anticipated. A report from consultant EY shows projected global LNG demand beginning in 2012 through 2030. While the demand from Japan and Korea was projected to grow, it rose very slowly. The more dramatic growth was projected to come from other Asian countries including China. Since this forecast, China and Russia have agreed to a deal to ship Siberian natural gas into the Chinese pipeline system reducing the need for China to buy as much LNG as originally planned

    Even with the projected demand growth, the EY report shows that the planned construction of LNG export terminals globally would exceed demand beginning as early as 2015 but certainly by the end of the forecast period in 2025. At that point, all the speculative liquefaction capacity as of 2011 would be surplus for meeting the world’s gas needs. 

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    Yingli Fights to Survive as Another Solar King Dethroned

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

    One of those investments was the 2009 purchase of Cyber Power Group Ltd. for $77.6 million, a company that makes polysilicon, the main raw material in solar cells. Yingli’s founder and Chief Executive Officer Miao Liansheng invested another $270 million to upgrade the plant. The project made more sense then, when the material sold for $400 a kilogram; today, it can be bought for less than $20, said Angelo Zino, an S&P Capital IQ analyst in New York.

    Yingli spent aggressively on marketing as well, including sponsoring the World Cup. Its logo was prominent during matches in Brazil last year. “They spent on capacity, they spent quite a bit on marketing,” Sanganeria said. “They took everything to the extreme.”

    Suntech and Q-Cells faced similar issues, borrowing to expand capacity and then finding themselves constrained by debt, said Raymond James’ Molchanov. Both struggled to cut manufacturing costs fast enough to keep up with the market. The challenge was exacerbated starting in 2011 when slowing demand in Europe led to a global oversupply of panels and falling prices.

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