Tag Archives: oil

those lagging electric vehicle sales

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Since I happen to be in Thailand, here are a couple excerpts from an article about lower than expected electric vehicle sales in Thailand. I am not trying to pick on Thailand or even comment on Thai government policy, but merely give a local example of what seems to be a global trend.

Thailand on Friday signalled it was hedging its bets over its previous all-out commitment to EV cars. Instead, in a new policy announcement, the kingdom is focusing on hybrid vehicle production or HEVs…

…there is a growing realisation that the EV industry, which is capital-intensive and does not support the country’s critical automotive parts industry, has been a mixed blessing.

“We are experiencing an EV oversupply as plenty of EVs imported from China over the past two years inventories,” he explained. At the same time, he confirmed that there are presently 490,000 unsold EV cars in storage. That is 63% of all vehicles produced in Thailand over the last 12 months. In the meantime, EV vehicle sales remain a relatively small percentage of overall car sales in the kingdom. In June, vehicles for the domestic market produced in Thailand were only 34,522 units. A huge drop of 43.08%. This is a catastrophic outcome by all accounts.

Anecdotally, just from moving about the country a bit, I don’t see charging infrastructure. And this echoes what I see in (my small corner of) the United States. We haven’t built the infrastructure to support electric vehicles, and we haven’t made the policy changes like adjustments to the gas tax which funds much of our highway maintenance. So we blame problems caused by a lack of planning and implementation on the technology itself.

But there is something else here. There are winners and losers with electric vehicles. The winners are all of us and our children’s lungs, plus our water and air. But these are diffuse benefits, and politically speaking it is concentrated interests that move the political system. Big business interests like the oil and automotive industries. The reference to “car parts” is telling here. Electric vehicles are superior because they have fewer complex parts and require less maintenance and service. Just like shutting down any sprawling, inefficient, polluting Soviet industry, what is good for society means some loss of jobs and profits for a minority, and that minority has some political clout. So when we hear that electric vehicles are “not catching on”, we can ask how much of this is propaganda driven by big business interests who will lose money if they do catch on.

Nonetheless, I think the hype bubble may have burst but the technology is here and here to stay. It may take a decade or two to really take over rather than exploding onto the scene the way some expected.

Will oil companies be forced to cut emissions?

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This article from Guardian talks about court cases and shareholder activism that may finally force oil companies to take climate change seriously. Even Exxon which, in my opinion, through its manipulation of the U.S. political system bears significant responsibility for the fact that we have a climate crisis in the first place, or at least for the fact that we have not made a significant attempt to deal with it.

A couple points. When we talk about an oil company “cutting emissions”, I don’t think we are talking about the emissions caused by people and businesses using the product. I think we are talking about emissions used in exploration, production, and transportation of the oil itself. Which is all good, but not the root of the fossil fuel emissions problem which is burning the stuff to liberate energy to do work. The fact that the amoral, possibly psychopathic financial industry is turning on the oil industry means they think we are going to be burning less of it going forward. An oil company that invests in “sustainable investments” other than oil is no longer an oil company. The electric utility industry and nuclear industries are completely different animals with existing players, so Exxon is not just going to take them over. So maybe Exxon will just evolve into some sort of venture capital fund looking for profitable investments for its dollars. And there are already plenty of other companies doing that for it to compete with, so I don’t see why Exxon would be particularly adept at it. If they don’t make it long term, good riddance. See you in hell, guys!

fracking with explosives in China

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China has a plan to pump shale gas using explosives. The headline grabs attention by suggesting they might be nuclear weapons, but in reality they are using the tape of explosion that sets off a nuclear weapon, which is a conventional charge directed in a very precise direction.

The problem is that 80 per cent of its deposits are located more than 3,500 metres (11,500 feet) below sea level, which is far beyond the range of hydraulic fracturing, the standard method for extraction.

But all that could be about to change, after a team of nuclear weapons scientists led by Professor Zhang Yongming from the State Key Laboratory of Controlled Shock Waves at Xian Jiaotong University in Shaanxi province, released details of a new “energy rod” that has the power to plumb depths never before thought possible.

Saudi AramCo IPO may not happen

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Saudi Aramco was planning a $2 TRILLION initial public offering which would have been unique, but now it sounds like that may not happen. Aramco is interesting:

Aramco is a company like no other. Its profits easily outstrip those of every other company on Earth, from Apple to Exxon Mobil Corp. The billions of petro dollars it pumps out every month underpin the kingdom’s decades-old social contract: generous state handouts in return for the political loyalty that maintains stability in the birthplace of Islam. Those dollars also finance the lavish lifestyles of hundreds of princes. For decades, diplomats have joked that Saudi Arabia is the only family business with a seat at the United Nations. As the world’s largest petroleum producer, Aramco is key for global economic growth and international security. At one point during the Arab oil embargo in the 1970s, the U.S. even considered the possibility of seizing the company’s oil fields by force, according to declassified British intelligence papers.

Apparently, the U.S., China and India are all pressuring Saudi Arabia to pump more and lower the price of oil, while it needs to prop up the price of oil to support this IPO.

The main problem is valuation. There’s a wide gulf between MBS’s ambitious $2 trillion target—which the prince says is nonnegotiable—and the $1 trillion to $1.5 trillion that most analysts and investors see as more realistic, according to two persons directly involved in the internal discussions. The gap between what the market thinks Aramco is worth and what the Saudi royals want is so wide that, even at the narrowest end it would overshadow the combined value of America’s two largest oil companies—Exxon Mobil and Chevron Corp...

Fund managers also worry that the value of oil fields could dwindle as governments ramp up their efforts to reduce fossil-fuel consumption to fight climate change. The spread of electric vehicles, for example, will reduce demand growth over the next two decades. In May a group of investors including Standard Life Aberdeen, Fidelity Investments, and Legal & General Group warned oil companies about the risk of global warming. “As long-term investors, representing more than $10.4 trillion in assets,” they said in an open letter, they believed “the case for action on climate change is clear.”

Maybe that last paragraph is wishful thinking, I don’t know. Personally I want to believe it. Maybe the market is starting to reduce how much it thinks oil is worth in the long term if viable alternatives emerge.

peak oil is still nigh

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This Telegraph article suggests that OPEC expects oil prices to come roaring back relatively soon, and when they do there are worries that the drop in investment caused by the current low prices will make it impossible to keep up with demand. And market speculation can supercharge the up swing when it comes.

Mr al-Badri said the world needs an investment blitz of $10 trillion to replace depleting oil fields and to meet extra demand of 17m barrels per day (b/d) by 2040, yet projects are being shelved at an alarming rate. A study by IHS found that investment for the years from 2015 to 2020 has been slashed by $1.8 trillion, compared to what was planned in 2014.

Mr al-Badri warned that the current glut is setting the stage for a future supply shock, with prices lurching from one extreme to another in a deranged market that is in the interests of nobody but speculators…

The paradox of the current slump is that global spare capacity is at wafer-thin levels of 2pc as Saudi Arabia pumps at will, leaving the market acutely vulnerable to any future supply-shock. “In the 1980s it was around 30pc; 10 years ago it was 8pc,” said Mr Descalzi…

By the end of this year there may be a “small deficit”. By then the world will need all of Opec’s 32m b/d supply to meet growing demand, although it will take a long time to whittle down record stocks.

So to put it in stock and flow terms, there is a big stock built up right now, and demand is less than what can physically be supplied (these are flows), so prices are low. When (if?) the global economy picks up at some point, demand may be greater than what can physically be supplied. The stock will gradually get used up, and as investors start to realize it is getting used up and supply will not be able to keep up, prices will rise, maybe fast. High prices will eventually spur investment and the cycle will repeat. This is how it plays out all other things being equal. But some of the other things are renewable energy, maybe nuclear energy, carbon credits/taxes/caps, maybe approaching physical limits on the big Middle East oil reservoirs, food and water economics, public sentiment, and geopolitics, all of which can shift the economics at the same time fossil fuel technologies and markets are going through their gyrations. Interesting times.

more on oil

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Here’s an argument that oil prices are likely to stay low for awhile. Basically, the argument is that the OPEC countries will keep pumping at full capacity and allow prices to fluctuate, thereby forcing the fracking companies to cut production every time prices fall below their costs. This article puts those costs at something like $50.

the only way for OPEC to restore, or even preserve, its market share is by pushing prices down to the point that US producers drastically reduce their output to balance global supply and demand. In short, the Saudis must stop being a “swing producer” and instead force US frackers into this role.

Any economics textbook would recommend exactly this outcome. Shale oil is expensive to extract and should therefore remain in the ground until all of the world’s low-cost conventional oilfields are pumping at maximum output. Moreover, shale production can be cheaply turned on and off.

Competitive market conditions would therefore dictate that Saudi Arabia and other low-cost producers always operate at full capacity, while US frackers would experience the boom-bust cycles typical of commodity markets, shutting down when global demand is weak or new low-cost supplies come onstream from Iraq, Libya, Iran, or Russia, and ramping up production only during global booms when oil demand is at a peak.

Sounds okay except I figure demand will continue to rise, slowly but surely, and drilling technology will continue to get cheaper, slowly but surely. So maybe this will go on for awhile, but one day fracking may be as cheap as traditional oil, and/or the traditional fields may start to run out faster than new ones are being found. Or maybe renewable energy will come to our rescue – I hope so, but cheap oil and gas aren’t going to make that day come any sooner. An international carbon price putting a floor on fossil fuel costs would do it, of course, and would create predictability for everyone, but at the moment it is hard to envision the political will materializing for that.