Regarding LCOE for wind and solar there was a great analysis done with very generous assumptions which calculated that for California to go 100% renewable would require the installation of at least $3.63 trillion in battery storage. Of course with the caveat that lithium ion batteries aren't actually capable of the kind of long term storage that would be needed to hold over solar energy from summer to winter... meaning of course that going 100% renewable is nothing more than a fantasy... https://youtu.be/h5cm7HOAqZY?t=707
On the EV front, if the goal was to intelligently use available resources to reduce emission as quickly and efficiently as possible, then the governments should be making a hard PHEV push. Since most people only drive about 50 miles / day and you use substantially smaller batteries you probably net better CO2 reductions than deploying BEV's.
As a last note, even though it's not popular, global greening and related increases in global crop yields, which are not theoretical future effects, but empirically observable current effects, may show increasing CO2 to be net positive up to some threshold amount.
Hi Arjun, excellent work, thank you. Big believer/ investor in the energy sector (primarily large, integrated IOCS) since 2017 when the valuations went through the floor.
On your "What Areas Look Interesting" section, I am curious that you have not included copper miners (FCX, Teck, SCCO, etc).
Many respected gurus (Jeff Currie, Daniel Yergin) see a multi-year step change in demand likely flowing through from electrification, cutting across alternative power generation, grid expansion and upgrades, EVs, EV charging infrastructure, smart, digitized, energy efficient buildings, etc. Supply side seems seriously constrained with very few low cost copper oxide deposits being discovered and developed. Should I take your omitting copper miners from you "Interesting" list as an indication that you are not a believer in this story and if not, could you perhaps indicate why not?
Arjun, are you going to drop some suggestions on which of the oil and gas majors fall into the “well managed and capitalized” bucket today?
As a side comment on the projected hockey stick take-off for BEVs, I can’t see this happening any time soon. Not just on the supply side of batteries and improvement in battery tech, but due to the practical limitations of sufficient charging stations for those not so fortunate to have ample electrical supply in their garage. Looking around urban areas, there are practical limitations to building and wiring a sufficient number of high-amperage charging stations, especially for legacy multi-tenant buildings.
And any rapid spike in electrical power demand for BEV will come as many municipalities have the stated goal of shutting down fossil fuel powered electrical generation, and nuclear power plants, with no clear understanding of how deficient wind turbines and solar power are without sufficient baseload power and energy storage.
One other point often overlooked when comparing the cost of BEVs to ICE autos is the massive revenues generated by motor fuel taxes, both locally and nationally. A recent study estimated revenues of $1.20 per gallon of gas sold at the pump in California. This is revenue that the taxing authorities will not give up without a fight, meaning that if BEV sales were to dramatically increase there would be a political backlash with the electric “free rider” problem. This will lead to an increase in energy taxes or other fee structures to recoup the lost motor fuel tax revenues.
Arjun, great article as always, but your closing personal note got me thinking. I remember all the media reporting on biofuels as the next big thing. Apart from the "green" angle, this was before the shale revolution and there was a LOT of serious talk about conventional peak oil production back then. At the time, I recognized corn ethanol was just another farm subsidy, but admittedly I was fascinated by algae. But as you point out, none of these "great" ideas ever scaled into meaningful production (the child's bucket story you told is hilarious). Over the last few years, the stories I see about start ups working on new ways to do nuclear fusion, which the POV of the story argues will be much "safer" than conventional nuclear, remind me of the media attention biofuels got back then. I think the start ups working on better grid storage options than lithium ion battery farms and some of the now older private companies working on SMR nuclear tech would be a better place to put risk capital. Are you interested in those technologies and visiting any of those facilities, would be interested to get your take.
Feb 25, 2023·edited Feb 25, 2023Liked by Arjun Murti
Re: volatility "Enhanced by conversations with a new friend of Super-Spiked, ... that has particularly interesting takes on explicitly pricing volatility into asset and company valuation." We would be very interested to hear more about this.
To add a bit to what Arjun is saying, I was listening to Dr. Anas Alhajji recently and he had some excellent commentary about the demand and supply constraints which will prolong this cycle, focussing on the ways the O&G sector has been starved of capital:
1. Middle East/Gulf producers are very dependent on their O&G exports, they view the political hostility to fossil fuels and the various ESG policies in the Western world as big risks, and so their reaction has to be taken into account which is not something we hear about much in the West. Broadly speaking they are doing two things:
(A) restricting their own production growth because, after all, if EV's and peak demand are here, or even if they're not actually here but policies will reduce O&G consumption, why risk investing in new O&G mega-projects? Even if they don't believe that peak demand is here, and they view the policies as being quickly reversible in the case of a real energy crisis, why invest in O&G mega-projects when restricted supply benefits you and the prices are very volatile right now? (Note: the complicating case is Saudi Arabia which wants to maintain spare capacity, so it's more complicated for them - anyone have thoughts on this?); and
(B) they are focussing their resources on developing the petrochemical side of the business which they see as being a future growth area even in a net-zero world.
Both these reactions divert resources away from increasing O&G production quite apart from anything the Western producers are doing.
2. Alhajji is a professor and speaks from personal experience about human capital in the O&G sector: in the Western world he's noticed most petroleum engineering classes are now mostly recent immigrants i.e. Western-born students are avoiding the sector, he says even in Saudi Arabia there is a relative shortage of young Saudi students entering the sector, so the sector has also been starved of human capital as older workers retire and take their expertise with them.
This part of the discussion has been enhanced by conversations with a new friend of Super-Spiked, a person I did not know from my analyst career that has particularly interesting takes on explicitly pricing volatility into asset and company valuation.
Regarding LCOE for wind and solar there was a great analysis done with very generous assumptions which calculated that for California to go 100% renewable would require the installation of at least $3.63 trillion in battery storage. Of course with the caveat that lithium ion batteries aren't actually capable of the kind of long term storage that would be needed to hold over solar energy from summer to winter... meaning of course that going 100% renewable is nothing more than a fantasy... https://youtu.be/h5cm7HOAqZY?t=707
On the EV front, if the goal was to intelligently use available resources to reduce emission as quickly and efficiently as possible, then the governments should be making a hard PHEV push. Since most people only drive about 50 miles / day and you use substantially smaller batteries you probably net better CO2 reductions than deploying BEV's.
As a last note, even though it's not popular, global greening and related increases in global crop yields, which are not theoretical future effects, but empirically observable current effects, may show increasing CO2 to be net positive up to some threshold amount.
Great article Arjun... I presume HAL, SLB, BKR, etc. should begin to ramp as the cycle unfolds
Hi Arjun, excellent work, thank you. Big believer/ investor in the energy sector (primarily large, integrated IOCS) since 2017 when the valuations went through the floor.
On your "What Areas Look Interesting" section, I am curious that you have not included copper miners (FCX, Teck, SCCO, etc).
Many respected gurus (Jeff Currie, Daniel Yergin) see a multi-year step change in demand likely flowing through from electrification, cutting across alternative power generation, grid expansion and upgrades, EVs, EV charging infrastructure, smart, digitized, energy efficient buildings, etc. Supply side seems seriously constrained with very few low cost copper oxide deposits being discovered and developed. Should I take your omitting copper miners from you "Interesting" list as an indication that you are not a believer in this story and if not, could you perhaps indicate why not?
Thank you.
“see recent change in tone by certain Euro Majors“
Can you enumerate? I’m not even sure who would constitute the Euro Majors - my own ignorance.
Excellent work!
Arjun, are you going to drop some suggestions on which of the oil and gas majors fall into the “well managed and capitalized” bucket today?
As a side comment on the projected hockey stick take-off for BEVs, I can’t see this happening any time soon. Not just on the supply side of batteries and improvement in battery tech, but due to the practical limitations of sufficient charging stations for those not so fortunate to have ample electrical supply in their garage. Looking around urban areas, there are practical limitations to building and wiring a sufficient number of high-amperage charging stations, especially for legacy multi-tenant buildings.
And any rapid spike in electrical power demand for BEV will come as many municipalities have the stated goal of shutting down fossil fuel powered electrical generation, and nuclear power plants, with no clear understanding of how deficient wind turbines and solar power are without sufficient baseload power and energy storage.
One other point often overlooked when comparing the cost of BEVs to ICE autos is the massive revenues generated by motor fuel taxes, both locally and nationally. A recent study estimated revenues of $1.20 per gallon of gas sold at the pump in California. This is revenue that the taxing authorities will not give up without a fight, meaning that if BEV sales were to dramatically increase there would be a political backlash with the electric “free rider” problem. This will lead to an increase in energy taxes or other fee structures to recoup the lost motor fuel tax revenues.
Arjun, great article as always, but your closing personal note got me thinking. I remember all the media reporting on biofuels as the next big thing. Apart from the "green" angle, this was before the shale revolution and there was a LOT of serious talk about conventional peak oil production back then. At the time, I recognized corn ethanol was just another farm subsidy, but admittedly I was fascinated by algae. But as you point out, none of these "great" ideas ever scaled into meaningful production (the child's bucket story you told is hilarious). Over the last few years, the stories I see about start ups working on new ways to do nuclear fusion, which the POV of the story argues will be much "safer" than conventional nuclear, remind me of the media attention biofuels got back then. I think the start ups working on better grid storage options than lithium ion battery farms and some of the now older private companies working on SMR nuclear tech would be a better place to put risk capital. Are you interested in those technologies and visiting any of those facilities, would be interested to get your take.
Re: volatility "Enhanced by conversations with a new friend of Super-Spiked, ... that has particularly interesting takes on explicitly pricing volatility into asset and company valuation." We would be very interested to hear more about this.
To add a bit to what Arjun is saying, I was listening to Dr. Anas Alhajji recently and he had some excellent commentary about the demand and supply constraints which will prolong this cycle, focussing on the ways the O&G sector has been starved of capital:
1. Middle East/Gulf producers are very dependent on their O&G exports, they view the political hostility to fossil fuels and the various ESG policies in the Western world as big risks, and so their reaction has to be taken into account which is not something we hear about much in the West. Broadly speaking they are doing two things:
(A) restricting their own production growth because, after all, if EV's and peak demand are here, or even if they're not actually here but policies will reduce O&G consumption, why risk investing in new O&G mega-projects? Even if they don't believe that peak demand is here, and they view the policies as being quickly reversible in the case of a real energy crisis, why invest in O&G mega-projects when restricted supply benefits you and the prices are very volatile right now? (Note: the complicating case is Saudi Arabia which wants to maintain spare capacity, so it's more complicated for them - anyone have thoughts on this?); and
(B) they are focussing their resources on developing the petrochemical side of the business which they see as being a future growth area even in a net-zero world.
Both these reactions divert resources away from increasing O&G production quite apart from anything the Western producers are doing.
2. Alhajji is a professor and speaks from personal experience about human capital in the O&G sector: in the Western world he's noticed most petroleum engineering classes are now mostly recent immigrants i.e. Western-born students are avoiding the sector, he says even in Saudi Arabia there is a relative shortage of young Saudi students entering the sector, so the sector has also been starved of human capital as older workers retire and take their expertise with them.
Arjun love your work and videos - what do you mean by "non OECD" domestic Coal ? Met coal is really only USA Aus and used come from Russia ?
Great stuff Arjun. You sum up and organize it so well. Much appreciated. I may link this in a future article if that's ok. Cheers
This part of the discussion has been enhanced by conversations with a new friend of Super-Spiked, a person I did not know from my analyst career that has particularly interesting takes on explicitly pricing volatility into asset and company valuation.
Can we read their stuff somewhere? :-)