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

    Crossing the Chasm

    Thanks to a subscriber for this report from Deutsche Bank focusing on solar. Here is a section:

    Despite the recent drop in oil price, we expect solar electricity to become competitive with retail electricity in an increasing number of markets globally due to declining solar panel costs as well as improving financing and customer acquisition costs. Unsubsidized rooftop solar electricity costs between $0.08-$0.13/kWh, 30-40% below retail price of electricity in many markets globally. In markets heavily dependent on coal for electricity generation, the ratio of coal based wholesale electricity to solar electricity cost was 7:1 four years ago. This ratio is now less than 2:1 and could likely approach 1:1 over the next 12-18 months.

    Electricity Prices are Increasing, Despite Nat Gas Price Swings
    Peak to trough, average monthly natural gas prices have decreased ~86% over the past 10 years. Yet, during this time period, average electricity prices have increased by ~20% in the US. The main driver for rising electricity bill is that T&D investments which represent 50% of bill have continued to ramp and have accelerated recently. In 2010, T&D capex levels of for US Utilities ~$27B were ~300% higher than 1981 levels. We expect electricity prices worldwide to double over the next 10-15 years making the case for solar grid parity even stronger.

    Solar System Costs Could Continue to Decline
    The economics of solar have improved significantly due to the reduction in solar panel costs, financing costs and balance of system costs. Overall solar system costs have declined at ~15% CAGR over the past 8 years and we expect another 40% cost reduction over the next 4-5 years. Yieldcos have been a big driver in reducing the cost of capital and we expect emergence of international yieldcos to act as a significant catalyst in lowering the cost of solar power in emerging markets such as India.

     

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    Tesla gearing up for release of batteries for the home

    This article by John Anderson for Gizmag may be of interest to subscribers. Here is a section: 

    As the company’s first foray into selling directly to the home energy storage market, the batteries are expected to get plenty of attention just by virtue of the attached Tesla label. And it should be an improvement from the home batteries Tesla has been quietly supplying to its sister company, the solar panel maker SolarCity, located up the road from Tesla in San Mateo, California. Those batteries are currently available in select markets within California, and only through SolarCity. The new batteries would be more widely available.

    Tesla would face plenty of competition for their batteries, with names like Bosch, GE and Samsung involved. Honda has unveiled a demonstration smart home that features a rechargeable home battery, along with an electric vehicle, solar panels and geothermal heat pump, and is driven by an energy management system.

    Researchers from both Harvard and MIT have developed flow batteries for renewable energy storage, while Bloom Energy’s fuel cell boxes act as a power source as well as an energy storage device.

    One area where Tesla might stand out is in cost. Tesla assembles its battery packs from battery cells provided by Panasonic, and is about to do it on a massive scale as soon as 2016 at its gigafactory currently under construction in Nevada. Such an economy of scale – producing 50 gigawatt-hours of battery capacity each year – is expected to push the company’s car battery costs down by 30 percent. Based on the same technology, Tesla's home battery costs should come down as well.

     

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    Fiery Oil-Train Crash Probed by U.S. Rail, Pipeline Regulators

    This article by Nancy Moran and Edward Dufner for Bloomberg may be of interest to subscribers. Here is a section: 

    The draft rule also would require that new cars be built with steel shells that are 9/16th of an inch thick, people familiar with the plan said. The walls of the current cars, both DOT-111s and the newer CPC-1232 models, are 7/16th of an inch thick.

    Monday’s derailment was the second in three days in North America. Canadian National Railway Co. shut its main line linking western and eastern Canada after an eastbound train carrying crude oil came off the tracks in Ontario.

    The train of 100 cars, all carrying crude from Canada’s oil-producing region of Alberta to eastern Canada, derailed just before midnight Saturday in a remote and wooded area about 30 miles (48 kilometers) north of Gogama, Ontario, spokesman Patrick Waldron said in an e-mail.

     

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    Is That All There Is? A Fresh Look At U.S. Gas/LNG Export Potential

    Thanks to a subscriber for this article by Housley Carr for RBN Energy. Here is a section:  

    Exports of U.S.-sourced natural gas as liquefied natural gas (LNG) will likely begin within a year’s time, and will ramp up through the 2016-19 period. That much seems certain. What’s less clear is whether the capacity of U.S. liquefaction/export projects will plateau at the roughly 6 Bcf/d in the “First Four” projects now under construction or continue rising higher. Yesterday’s decision by the BG Group to delay its commitment to the 2 Bcf/d capacity of the Lake Charles LNG terminal until 2016 certainly casts doubts on those further expansions. Prospects for additional export projects hinge on a few interrelated factors, including the higher capital costs associated with some next-round projects; the costs and challenges of shipping LNG through the expanded Panama Canal; and the possibility of competing LNG export projects being developed elsewhere, including western Canada. Today we consider these factors and handicap the handful of export projects on the cusp of advancing.

    Making a final investment decision (FID) on multibillion-dollar liquefaction and export projects is not for the faint of heart. Once that FID trigger is pulled, there’s really no turning back. But the decision to build a project is in many ways easier than the decision by a Japanese utility or global LNG trader to commit to 15 or 20 years of LNG purchases. After all, if (as has been the case with all U.S. liquefaction/export projects so far) the project’s economics are based largely on long-term take-or-pay liquefaction commitments, the developer is basically assured of recovering the costs of its investment (and making at least some profit) once it has the necessary Sales and Purchase Agreements (SPAs), even if the LNG buyer elects not to use all the liquefaction capacity it has lined up.

    An LNG buyer, on the other hand, is committing to pay up to $3.50/MMBTU for liquefaction capacity and—if, as is likely, it uses that capacity--115% of the Henry Hub price of natural gas for the gas that is liquefied. As a result, prospective LNG buyers need to be very sure that any SPA they enter into will work to their benefit over a wide range of possible scenarios, including the possibility (and current reality) of low oil prices that make once-onerous oil-indexed LNG contracts look not so bad anymore.  As we said in Episode 1, the first liquefaction “train” at Cheniere Energy’s Sabine Pass facility in southwestern Louisiana by early 2016 will be supercooling natural gas and loading LNG onto ships for export to Asia and other markets. Three more trains at Sabine Pass will start operating later in 2016 and in 2017, and soon thereafter the Cameron LNG, Freeport LNG and Cove Point LNG liquefaction/export facilities (a total of six more trains) will be up and running too. The LNG production capacity of what we call the First Four (four trains at Sabine Pass, three at Cameron, two at Freeport and one at Cove Point) totals 45 million tons per annum (MTPA)—enough to consume just over 6 Bcf/d of U.S.-sourced natural gas, or about one-twelfth of current U.S. gas production.

     

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    Musings From the Oil Patch February 10th 2015

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report. Here is a section on the Baker Hughes rig count:

    Another week and another huge drop in the Baker Hughes oil-directed drilling rig count. The speed with which the rig count is dropping has encouraged forecasters to translate the decline into an immediate fall in oil output. The focus of analysts has been on the oil rig decline since the world is absorbed with determining when either Saudi Arabia cuts its production to boost global oil prices from current levels or the American shale industry cuts back drilling sufficiently that the natural decline rate of shale wells eliminates the existing oil surplus.

    The chart of the count of active oil drilling rigs since the turn of the century shows an almost vertical decline in recent weeks. The angle of this oil rig decline is sharper than occurred in the 2008-2009. On the surface, this picture would support the view of a rapid decline in new oil production. Below the surface there may be some variances in the pace of decline of the various drilling rig types that could moderate the optimism of a quick production reaction.

    In Exhibit 21 we plotted the change in the weekly rig count since Thanksgiving by whether the rigs were drilling directional, horizontal or vertical wells. In the first couple of weeks, there seemed to be little or no reaction to the start of the collapse of oil prices following the Thanksgiving Day meeting of the Organization of Petroleum Exporting Countries (OPEC) at which the members agreed to sustain the organization’s 30-million-barrel a day production level. The announcement of that decision caused one of the largest one-day drops in global oil prices and started the industry on the slide into its current recession.

     

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    Oil Heads for Biggest Two-Week Gain in 17 Years Amid Volatility

    This article by Moming Zhou and Jake Rudnitsky for Bloomberg may be of interest to subscribers. Here is a section: 

    Saudi Arabia led a decision in November by the Organization of Petroleum Exporting Countries to maintain its collective output target of 30 million barrels a day. The 12-member group, which pumps about 40 percent of the world’s oil, produced 30.9 million barrels a day in January, exceeding its quota for an eighth straight month.

    Statoil will deepen spending cuts by 30 percent to $1.7 billion from 2016 and reduce capital expenditure to $18 billion this year from earlier targeting $20 billion, the Stavanger, Norway-based company said Friday. The move followed similar announcements by competitors including Shell, BP and Chevron Corp. that they would cut billions of dollars in investments.

    U.S. companies pulled 83 oil rigs out of fields in the latest week, following 94 in the previous week, according to Baker Hughes data.

     

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    Petrobras Top Management Resigns in Brazil Corruption Case

    This article by Sabrina Valle, Denyse Godoy and Paula Sambo for Bloomberg may be of interest to subscribers. Here is a section: 

    “With low oil prices and Petrobras’s financial difficulties, the incentives to lean more on international oil companies to help develop the pre-salt have grown substantially,” the Eurasia analysts wrote about the company’s offshore discoveries. “It is clear that any substitute to Graca is likely to be someone with industry credentials and capable of conducting a ‘house cleaning’ of the firm.”

    The scandal has also engulfed Brazil’s largest construction companies, which may bring public works projects to a halt, and threatens the presidency of Dilma Rousseff, who served as Petrobras chairman during some of the time when the alleged graft was occurring.

    Foster, a frequent guest at the presidential palace in Brasilia, had offered to resign “one, two, three times” after the company was forced to delay quarterly results because of the scandal, she told reporters on Dec. 17. Foster said then that she would stay in the job as long as the president trusted her.

    Rousseff has been a personal friend since the two worked together at the Ministry of Mines and Energy in 2003.

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    Oil Bears Miss Biggest Rally Since 2012 as Rigs Withdraw

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

    The United Steelworkers union, which represents employees at more than 200 U.S. oil refineries, terminals, pipelines and chemical plants, began a strike at nine sites on Sunday, the biggest walkout called since 1980. A full walkout of USW workers would threaten to disrupt as much as 64 percent of U.S. fuel production.

    The U.S. oil rig count dropped to a three-year low of 1,223, Baker Hughes said Jan. 30. Drillers idled 352 oil rigs in eight weeks.

    Royal Dutch Shell Plc, Occidental Petroleum Corp. and ConocoPhillips alone said they would reduce spending by almost $10 billion this year.

    Chevron Corp. cut its drilling budget by the most in 12 years and said it may delay some shale projects. The company is targeting $35 billion in capital projects this year, from $40.3 billion in 2014.

    “Oil production growth should be flat or declining by May or June unless there’s some substantial recovery in oil prices,” James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas, said by phone Jan. 30.

     

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    3 Myths That Block Progress For The Poor

    The 2014 report from the Bill and Melinda Gates Foundation may be of interest to subscribers. Here is a section: 

    You might think that such striking progress would be widely celebrated, and that people would rush to figure out what is working so well and do more of it. But they’re not, at least not in proportion to the progress. In fact, I’m struck by how few people think the world is improving, and by how many actually think the opposite—that it is getting worse.

    I believe this is partly because many people are in the grip of several myths—mistaken ideas that defy the facts. The most damaging myths are that the poor will remain poor, that efforts to help them are wasted, and that saving lives will only make things worse.

    I understand why people might hold these negative views. This is what they see in the news. Bad news happens in dramatic events that are easy for reporters to cover: Famine suddenly strikes a country, or a dictator takes over someplace. Good news—at least the kind of good news that I have in mind—happens in slow motion. Countries are getting richer, but it’s hard to capture that on video. Health is improving, but there’s no press conference for children who did not die of malaria.

    The belief that the world is getting worse, that we can’t solve extreme poverty and disease, isn’t just mistaken. It is harmful. It can stall progress. It makes efforts to solve these problems seem pointless. It blinds us to the opportunity we have to create a world where almost everyone has a chance to prosper. 

    If people think the best times are in the past, they can get pessimistic and long for a return to the good old days. If they think the best times are in the future, they see things differently. When science historian James Burke wrote about the Renaissance in The Day the Universe Changed, he pointed to one source for many of the advances that happened in that amazing period: the shift from the belief that everything was decaying and getting worse to the realization that people can create and discover and make things better. We need a similar shift today, if we’re going to take full advantage of the opportunity to improve life for everyone.

     

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