Tag: energy transition

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What drives energy and oil markets in 2022 and beyond?

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Many factors are at work at the same time from different economic perspectives shaping the outlook for oil and energy markets in 2022. The world is more uncertain, climate change transitioning serving up its own realistic challenges, geopolitical tensions, as seen many years past, are at the order of the day, and the low investment in oil and gas, since 2015, is ushering in a period of high and rising oil prices. It is the overriding key factor driving the price, of not only oil, but key commodities too.

Commodities require vast amounts of cheap and reliable oil and energy resources to process and distribute it. Economics 101 teaches us that where demand exceeds the sustainable supply, the price will rise.

This is exactly what set in during April 2020 when a new commodity super cycle came into existence. The demand for Renewable Energy (RE) components drive the demand for critical minerals. Even such critical minerals need oil to process and transport them. To add insult to injury, there are not enough critical minerals easily and readily accessible to support an aggressive sustainable transition to RE.

Energy shortages fuel rising costs in all areas of the global economy. All peoples of the world will feel the bite attached to what is now quickly becoming concerns over energy and food insecurity. The world has lost sight of reality when aggressive climate change policies ramped up to support an ideology in which the effects are not fully being understood nor quantified.

An obsession with ideology, which is driven by consensus science, is leading to creating more uncertainty and more complex problems to solve as we move towards achieving the Cop26 and 2050 net-zero goals.

At the time of writing,  US Dollar strength (Dollar Strength) was not evident. Since writing in 2021, about the current commodity super cycle (that formed in April 2020), the million-dollar question remained then what Dollar Strength could do. We have seen both commodities (CRB Index, S&P GSCI Index) and crude oil pulling back. Mainly driven by Dollar Strength amid the sharp rise in US interest rates combined with the US Dollar as safe-haven status. With that, almost all short-dated yields in the USA are now above the long-term US government 10-year yield.

DXY

source: Trading Economics

DXY

source: Trading Economics

What we observe is contributing to the oil-financial market and the oil-physical market moving sharply out of alignment. The fundamentals, as I discuss and point out to them below, remain valid. The reality is the world is short oil and many other key energy commodities. Goldman Sachs, and specifically Jeff Currie, leading Commodity Economist, points out the imbalances that are prevailing in energy markets with the expectation that it will take a long time for supply and demand to be fully back in equilibrium.

Seeking Alpha writes: “Commodities took a dip in June, despite strong performance in the first half of 2022. We believe the outlook for shortened supply is unchanged and may keep commodities in a long-term bull market.”

Eugene van den Berg, May 2022 (updated July 2022)

EvB Market analysis_a
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EV targets depend on critical minerals

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https://www.cbc.ca/news/canada/calgary/minerals-mining-metals-ottawa-nickel-electric-vehicles-1.6415887

Eugene van den Berg, May, 2022

Access to and the ability to mine Critical Minerals on a sustainable basis will be the next quest in energy transition. The requirements to meet the ideology to rapidly shift to EV are staggering. That does not mean I am anti-Renewable Energy and Electric Vehicles (EV). It comes down to scarce resources and access to them measuring against steep transition expectation curves.

Here are other important things to consider concerning the required charging infrastructure and the headaches that represent.

The World Bank’s Impractical Electric Car Clap-Trap

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The world WILL wheep – “Peak Oil-Hysteria” the new Peak-Oil

Eugene Van Den Berg - Ahead by a Century

Reading Time: 3 minutesManhattan Contrarian Announces The Arrival Of “Peak Oil-Hysteria” — Manhattan Contrarian

https://www.manhattancontrarian.com/blog/2021-11-3-manhattan-contrarian-announces-the-arrival-of-peak-oil-hysteria

Eugene van den Berg, Nov 2021

WSJ writes:

I think it’s been a big mistake, quite frankly,” Mr. Biden said Tuesday on the sidelines of the summit. “The rest of the world is going to look to China and say, what value add are they providing? They’ve lost an ability to influence people around the world and all the people here.”He said he felt the same way about Russia. “Literally, the tundra is burning,” Mr. Biden said of Russian President Vladimir Putin. “He has serious climate problems and he is mum on his willingness to do anything.

The truth and reality is, China gets it. Without fossil fuels, it’s much harder, costly, and more challenging to transition to net-zero.

China seems to have adopted a two-pronged strategy around duality. Keep on relying on fossil fuels whilst developing Renewable Energy. It’s a phased approach.

China is rated high on the “food chain” concerning electric vehicle (EV) developments. Yet, it still has to set a legislative date when the country will ban the sale of Internal Combustion Engines (ICE) in the future.

Excluding the impact that China may have on global oil demand, the graphic below depicts what the reduction in the demand for oil may look like considering EV legislated cut over future dates. The analysis includes the bold ambitions of Ford and General Motors announced earlier in 2021.

Eugene Van Den Berg - Ahead by a Century

The demand for oil will not disappear instantly. Mankind is the “Siamese Twin” of energy. Without energy, poverty eradication efforts will fail. Without oil, the quality of life will be substantially lower.

A very big part of what is being missed, in all climate change adaption and transition policy and discussion, is the undeniable fact that what we are looking to transition to, being RE, has many obstacles still to be solved around storage, reliability, and replacing baseload. Solving those are more important compared to the effort being invested in sizing up Green House Gas emissions reduction targets.

On top of that, electric grids require massive expansion and capital to expand capacity to feed and support the increase in demand stemming from charging needs. That’s not the issue but rather a consequence.

What’s different with this energy transition compared to when society transitioned from horse and carriage to the ICE, was that what we transitioned to was cheap and in unlimited supply.

In comparison, RE energy is free from the sun and wind. However when the sun shines and when the wind blows. The current global energy crisis, yes it’s driven mainly by low investment in fossil fuels since 2015, and compounded by lower wind occurrence to drive reliance on RE wind.

Eugene Van Den Berg - Ahead by a Century

CNN’s Fareed Zakaria sums it nicely. We need an energy transition strategy. Even if the world can reduce GHG emissions the reality is the world still depends on ~84% of its energy needs forthcoming from fossil fuels.

cnnfareedzakari

The question is how much RE is required to fully replace fossil fuels? RE investment and expansion still have a long way to go.

cnnfareedzakari

We are undeniably in a compounding energy crisis. It’s merely the beginning gauging the recent rise in electricity production costs in the US and Europe.

cnnfareedzakari

cnnfareedzakari

Put the climate hysteria to the side and develop policies and strategy that embraces duality as the world transitions to RE.

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Momentum Catalyst for the Commodity Supercycle unfolding

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Eugene van den Berg, Oct 2021

In another post of the current commodity supercycle unfolding I made reference to commodity supercycles also being supported by accompanying dollar weakness.

CRB Index
What are we looking at and what are we observing:

    • The US Dollar (USD) as measured by the DXY Index vs. the Commodity Research Buro (CRB) Index
    • We compare the start of the commodity supercycle of 2002 to 2011, and more specifically, the behavior of USD weakness and commodity strength shortly after the onset of the supercycle, to the behavior today (far right) of the onset of the current commodity supercycle (that started in April 2020), and more specifically the behavior of USD weakness and commodity strength shortly after the onset of the supercycle;
    • The inverse relationship between USD weakness and commodity strengths was when the last commodity supercycle gained momentum around 2004. We are perhaps not there yet in the current cycle; and
    • The current USD weakness is less inversely correlated with the CRB index. The CRB Index performance at the start of the current commodity supercycle is much more aggressive in relation and is at a steeper inclination compared to the start of the commodity supercycle of 2002 to 2011.

Will the premise hold that a commodity supercycle is also partly driven by USD weakness? What is different this time around?:

    • When the commodity supercycle started in 2002 the world was:
      1. flush in oil to support increased manufacturing and shipping;
      2. Renewable Energy (RE) was mainly talked about with less strongly articulated RE policies; and
      3. China was the main driver of growth experiencing economic growth above ~10% constant double digits. China also became the “world’s factory”
    • The start of the current commodity cycle:
      1. lacks the benefit of sufficient investment in oil and gas;
      2. RE and energy transition is contributing to an energy crisis;
      3. Vast under investment in oil and gas since 2015 driven by climate activism
      4. China’s economy is showing signs of slow growth;
      5. RE and Electronic Vehicle legislated start dates (dates that Internal Combustion Engines end to be sold in countries) driven the energy transition to green with a specific demand for core commodities (lithium, cobalt, copper) and component parts that are required for the manufacturing of microchips. Microchips are experiencing severe supply chain challenges not expected to be resolved before 2023. What does that do to pivoting to selling more EV’s?;
      6. RE core commodities experiencing demand that exceeds supply; and
      7. Covid19 that contributes to labor shortages and shipping backlogs

I believe the fact that many nations, including the USA, which is also the world’s reserve currency nation, are focused on RE development and energy transition, could see the inverse correlation panning out differently from what we observe from previous commodities supercycles. Would this suggest that the impact on inflation for many nations could be more severe, rising commodity prices combined with relatively less weak USD performance?

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Energy crisis could threaten global economic recovery, IEA says – The Globe and Mail

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https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-energy-crisis-could-threaten-global-economic-recovery-iea-says/

Energy crisis could threaten global economic recovery, IEA says
Oil and natural gas prices have soared to multiyear highs recently, sending power prices surging to record levels as widespread energy shortages engulf Asia and Europe

Eugene Van Den Berg, Oct 2021

From the above article Reuters and The Globe and Mail states:

“A global energy crunch is expected to boost oil demand by 500,000 barrels a day and could stoke inflation and slow the world’s recovery from the COVID-19 pandemic, the economic recovery from the pandemic was “unsustainable” and revolved too much on fossil fuels. Investment in renewable energy needs to triple by the end of the decade if the world hopes to effectively fight climate change”

The article lacks expression about the true origins of the crisis. Since 2015 investment in oil and gas exploration declined sharply. That has led to an energy imbalance with demand exceeding supply.

Since the end of the first decade of the 2000s, climate activism and policy contributed to shutting in reliable electricity generation. The world is trying to take a short cut from coal, skip natural gas, and instantly land on utopia where solar and wind energy is the primary source to support base load, or worse even, as is the case with Germany, ditching nuclear for wind and solar. It did not quite work out as planned and Germany now is looking into the eyes of Russia to fall back on natural gas.

BIG MISTAKE! To have believed that natural gas and LNG are not a suitable replacements for coal fired powerstations.

Since April 2020 a commodity supercycle is unfolding. Growth in demand for commodities fuel the thirst for oil. That is because processing commodities rely on heavily industrial equipment and processes that drive the thirst for oil. Renewable Energy (RE) policy shifts too contribute to the rising demand for critical commodities used in RE component parts. On top of all this supply chain challenges are contributing to imbalances.

Eugene Van Den Berg - Ahead by a Century
Eugene Van Den Berg - Ahead by a Century
Commodity Supercycle
Commodity Supercyclews
Eugene Van Den Berg - Ahead by a Century

Without policy changes aimed at duality, and remaining stuck on policy that only supports ideology will not solve matters but instead grinding the crisis even deeper. The world cannot transition in a cost effective fashion without oil and gas. That view has nothing to do with climate denialism, it’s all to do with reality. Energy is mankind’s siamese twin. It’s inseparable, the two goes together like a horse and carriage. Energy sustain quality of life.

The challenge is up to solve RE reliability and storage. Without it net-zero looks pale.

When the world transitioned from horse and carriage to car over an approx. 50 year period, the world transitioned leveraging duality and transitioned to an energy source in unlimited supply. The notion that the wind and sun also provide unlimited, and even better, free, energy sources are true. The reality is the technology to make effective use of such free resources are lacking technological realibility and effective storage backup efficiency. Billions of dollars can be invested in more RE wind and solar over the next decade. If however investment is purely driven by constructing large energy farms and hoping that it will solve the problem, it is not likely going to achieve the desired outcome.

Wind and solar respectively yield approx. 17% and 25% of installed capacity. Quick math suggest to go all out wind and solar require 4x to 5x the amount of installed capacity that is required to get close to 100% yield of needed-installed capacity.

To support projected electricity demand to power a world driven by electric only energy would mean that the projected demand needs to converted to generation capacity and take that number and times it by 5 and from there configure the required generation and storage capabilities.

The Interstellar effect, as I call it. In the movie, for years mankind could not solve the math around defeating gravity on a cost effective basis. That illustrates that nothing gets solved doing the same thing and expecting a different outcome.

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Why The Left Cancels Any Climate Questioning | Science Matters

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Why The Left Cancels Any Climate Questioning | Science Matters (rclutz.com)

Why The Left Cancels Any Climate Questioning
Daniel Turner writes at The Spectator Big Tech is censoring the climate change debate. Excerpts in italics with my bolds. Wittgenstein wrote that as an ontological and epistemological foundation f…

Eugene Van Den Berg, Oct 2021

Form the source the author writes:

“He who controls the language also controls reality, something that today’s left understands brilliantly, even devilishly. The language around climate change and the green movement is one more area the left wants to control, especially given that trillions of dollars in spending are on the line. Big tech is now doing its part to protect the Green New Deal and radical green ideology from dissenting views. Google and YouTube’s recent announcement that they now prohibit “climate deniers” to monetize their platforms” 

What exactly is a Climate Denier? Are you in denial when asking question about feasibility, reality, costs, value for money and returns, affordability, etc.?

The Google and Youtube ban comes into effect in November 2021. The ban will cover ads for – and the monetization of – content that contradicts the “scientific consensus around the existence and causes of climate change”.

To question is not denial. Denial means:

de·ni·al
/dəˈnīəl/
noun
    • the action of declaring something to be untrue. “she shook her head in denial“
Similar:
contradiction, counterstatement, refutation, rebuttal, repudiation, disclaimer, retraction, abjuration, negation, dissent, disaffirmation, confutation, retractation
a statement that something is not true.
plural noun: denials
“official denials”
 
Opposite:
confirmation
 
    • the refusal of something requested or desired. “the denial of insurance to people with certain medical conditions”

The interesting words are: a) “content that contradicts the “scientific consensus”, b) “causes of”.

What happens if there are more evidence out there that reflect on the drivers of global warming not limited to Green House Gas (GHG) emissions only? There are reputable peer-reviewed research undertaken that focuses on all causes. What exactly is scientific consensus? A group of PhD’s that meet and drink tea and shake their heads in agreement with each other? Is scientific evidence not based on fact, hypothesis and proven theories. The boundaries with which science operate today is far different from the time of Einstein.  Steve E. Koonin’s “Unsettled” aims to explain the concept around consensus. This book received a lot of criticism. However, one need to maintain an open mind. Another great book “Inconvenient facts, The science that Al Gore doesn’t want you to know”, by Gregory Wrightstone

So by questioning the causes of climate change leading to people being banned, marginalized and de-platformed (seems to be the modern-day in-thing to do as we live in a snowflake and cancel culture) infringes directly on freedoms of expression.

No matter how we look at it ALL SCIENCE matter not only selective science (I am not talking about pseudo science. I am talking about science that can be backed up by fact). In addition to that, without energy live on earth cannot be sustained given the strong data correlations between energy consumption, growth, poverty eradication, improvement in life expectancy all driven by population growth. Are the Climate Activists next going to petition the culling of people given these correlations? 

emissions population

The only way to bring all the pieces together is:

    • to focus on duality for the interim amid the current energy crisis;
    • vast effort and money to be invested in solving RE (wind and solar) reliability and battery storage efficiency for Electric Vehicles and RE (wind and solar); and
    • disconnect the aforementioned from hard emissions reduction targets. solve the conundrum in a piece-meal fashion. Not everything can be solved at once.
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