Courtesy of The Automatic Earth.
Dorothea Lange Country filling station owned by tobacco farmer, Granville County, NC Jul 1939
I woke up today to a request to comment on an article I hadn’t even read yet at the time. Now, I don’t do requests, but when I saw that it was an article by my favorite nemesis Ambrose Evans-Pritchard, and I has read this piece, I thought alright, let’s have a go. Just this once.
Ambrose sings the praise of solar and natural gas in this one, and that‘s not because he’s green, the only green he likes is the color of money. And that’s just why he’s interested in solar etc.: great fortunes to be made!
As is usual in his finance articles, Ambrose is great at collecting data, and far from great at interpreting them. He gets carried away by grand visions. But that, in my eyes, makes him charming too. Finance is easily dull enough that it needs its ‘color(ful) commentators’.
Since Ambrose talks a lot about the demise of oil, and the risk of prices falling further, I’ll start off with a Yahoo Finance article that features Dan Dicker, who’s not so sure about those price drops.
Personally, I would think too many people draw too many hasty and easy conclusions. All you need in today’s world to raise oil prices is one bomb in the wrong – or is that the right? – place, and to make that happen, I’m sure Big Oil would be more than happy to drop a Little Boy.
In my view betting against oil and gas is either for big time gamblers or for people who don’t think or know enough about 1) how volatile production and delivery is at the moment, and 2) what oil really is (unique carbon structures).
To top it off, I’ll conclude with the best take down I’ve seen in a while of the imaginary German solar miracle. Might as well throw that in too. First, then, Dan Dicker:
Crude Oil ‘Super Spike’ May Be Coming
Commodity traders and analysts have wondered why oil hasn’t gone higher. Geopolitical tensions abound across the world; the Middle East seemingly hasn’t been this unstable in years. In fact, some believe the commodity could actually go lower. [..]
Dan Dicker, president of MercBloc and author of Oil’s Endless Bid, says much has changed in the past few years, other factors also explain why oil has stagnated recently: Investment banks, particularly Morgan Stanley, Goldman Sachs, and JPMorgan have not only left oil trading but have also abandoned the oil marketing business, which used to bring a steady supply of new players to the energy market. Individual oil traders (including Dicker himself) have disappeared as well.
Dicker speculates around 3,000 traders have left the industry. Remaining funds are trend and algorithmic firms with long-term positions already established. The big alpha players remaining in the oil trading business are physical commodity, private firms like Glencore, Vitol, and Trifugura among others. Dicker believes these changes have all but killed immediate speculative activity, which has been good for consumers in the short term, but will be bad for the prospects of cheaper oil in the long term.
Without the liquidity provided by these players in the energy market, a crude oil ‘super-spike’ could be in the cards. The demise of offshore oil drilling could also be a catalyst in Dicker’s mind, not to mention oil supplies going offline in places like Libya, and decreasing in countries like Iran and Iraq.
This is leading to an upcoming oil supply crisis he says, and ultimately with liquidity not what it once was, and with the cost of oil now making it prohibitive to develop new sources, ultimately the fundamentals will have to matter again. “When you have an oil price that’s hanging around $95, you won’t see a $10 spike, you’ll see a $40 spike, because that’s what will be necessary to get these guys (oil exploration and production companies) ginned up” in order to produce more crude supply.
And then Ambrose’s big screen technicolor dreams about solar and great fortunes:
Oil Industry On Borrowed Time As Switch To Gas And Solar Accelerates
… world energy markets are entering a period of “extreme flux”, with oil caught in triple encirclement by cheap natural gas, much more efficient vehicles and breathtaking advances in solar power as scientists crack the secrets.
… eroding the assumptions that have underpinned a threefold rise in Western oil industry debt to $600bn since 2005, much of it to hunt for crude in prohibitively expensive places. Costs rose 9% in 2012 and 11% last year [..]
Gasoline demand in the OECD rich states has been sliding in absolute terms since 2007, punctuated by ups and downs, but dropping overall from 15.5m barrels a day (b/d) of crude to 14m b/d.
The ‘OECD rich states’ have gotten a lot less rich since 2007, not a trivial detail.
Citigroup’s report – “Energy 2020: The Revolution Will Not Be Televised” – says the average efficiency of new cars in the US has risen by 4.6 miles per gallon (mpg) since 2008 [..] Gasoline demand will slide by 900,000 b/d in the US alone by 2020. China has even more draconian curbs coming into force, with a 50mpg fuel economy mandate by 2020. Its output of electric cars is up 177% in a year, and hybrids are up 567%. India will reach 50mpg by 2021, Mexico by 2025.
What those percentages mean is that they had barely any hybrids or electric cars before; these kinds of increases are meaningless. And also: a 50mpg fuel economy mandate is not what I would call draconian.
[..] The US shale revolution has caused natural gas prices in North America to collapse. With a long delay, and by convoluted means, this effect is spreading to Asia, where liquefied natural gas (LNG) prices have halved this year. Natural gas lorries are expected to take around 4% of the US market this year as new taxes and pollution laws come to bear. “We think a large portion of the freight market could utilise LNG and penetration rates could ultimately top 40% … “
This may be so, but the revolution won’t last; we already know that. If we now hastily adapt our infrastructure thinking it will, we’ll be in deep doodoo soon.
The industry can at last tap a “large investor universe” through the market for asset-backed securities. It priced debt below 5% last year. Some US electric companies are starting to build solar farms for hard-headed commercial reasons as a hedge against future shifts in the gas price. Roughly 29% of all electricity capacity added in America last year came from solar. [..]
More empty numbers: what this means is simply that very little capacity was added in the US in 2013.
… installed solar power in the US across all sectors has dropped from $6 a watt to $2.59 in four years, largely due to the collapse in the cost of solar cells. [..] The clinching shift will come when the battery storage is cheap enough and lasts long enough for users to draw down their surplus generated during the day to cover needs at night, opening the way for mass exodus from the grid …
Wow, wow! Any idea what a mass exodus from the grid would mean? First, there are plenty of things you can’t run on solar. Second, you can’t just close down half the grid. You’ll have to redo and redesign the whole thing if you lose large numbers of clients. Not everything scales up in simple ways, and not everything scales down easily either.
Harvard is working on an organic flow battery using quinones – from rhubarb – instead of rare earth metals. It hopes to cut battery costs by two-thirds within three years. Rivals at the University of Southern California think they can eventually slash the cost by 90% below today’s lithium-ion batteries.
I’m sure batteries will get better and cheaper. Whether that will happen at the pace Ambrose fantasizes about comes with a big question mark. I’m all for rhubarb batteries, but …
It is a fair bet that scientists will have conquered intermittency by the end of the decade, at which point the switch to renewables becomes a stampede. This is where great fortunes may be made, perhaps the mirror image of the wealth to be lost on fossil defaults. Brokers Sanford Bernstein call it the new order of “global energy deflation”. Technology momentum is unstoppable, and one-way only.
This is where we go from fact to techno happy fantasy. And the one about ‘great fortunes’, of course. I doubt it’s a ‘fair bet’ that all problems with intermittent energy sources will be solved over the next 5 years and 4 months. What’s going to do the trick, molten salt and rhubarb? Whenever someone says things like ‘technology momentum is unstoppable’, I want to go check on my cucumbers.
There’s enough hot air being sold in the shale industry, we don’t need another plot in the energy field that’s also nothing but pure financial speculation. We are never going to replace oil and gas one on one with some other miraculous source of energy, and if the reason why is not clear, there is a ton of information in the Automatic Earth archives that can explain.
Oil-patronage regimes violate the loose rule that societies with a per capita income above $10,000 become more tolerant, rational and pluralist over time, so we may be doing a favour for these nations if we curb our appetite for oil. Their revolutions may, however, be televised.
I never saw the ‘loose rule’ Ambrose mentions, but there can be no doubt that many regimes built on oil revenues face a very uncertain future as supplies dwindle. And as their own, often rapidly growing, populations use ever more of those resources themselves, as our friend Jeffrey Brown has explained for years in his Export Land Model. I just doubt that low global market prices will play the protagonist part in this.
And now that we’re so deep into the promises of solar, why not break them down to the ground in one fell swoop, so we can all have our own two feet solidly planted on that same ground? Unless you would rather fantasize with Ambrose, but rest assured, the vast majority of it is fantasy, founded upon dreams of multi trillion dollar wealth. In my view, reality is the better option, but I can’t decide for you.
From Robert Wilson at the Energy Collective:
Reality Check: Germany Does Not Get Half of its Energy from Solar Panels
The rise of the Internet means that simple factual issues can be checked quicker than would have been believed possible a generation ago. The rise of social media means that facts are not checked, they are retweeted. Such is the case with renewable energy in Germany, where it appears almost anything is to be believed.
Here is the most popular meme: “Germany now gets half of its energy from solar panels.” This does the rounds of Twitter and Facebook almost every day. In fact, it has now spread to more reputable outlets such as Popular Mechanics, and has even appeared on the website of Richard Dawkins, the inventor of the term meme, under the headline “Germany Now Produces Half Of Its Energy Using Solar.” The problem, of course, is that Germany does not get half of its energy from solar panels, and will not do so any time soon.
As with any myth there are multiple versions. In this case it is either that Germany gets half of its electricity or half its energy from solar panels. The latter version is easily refuted by pointing out that the majority of German energy consumption is not in the form of electricity. BMWs, Mercedes and Volkswagens run on petrol and diesel, not electricity. The more common version of the myth is debunked with simple reference to Germany’s official statistics for electricity generation.
And what they tell us is quite simple. Germany does not get half of its electricity from solar panels, instead the figure is around ten times lower. Last year only 4.5% of Germany’s gross electricity generation came from solar panels, far short of 50%. And if you want to think that half of Germany’s electricity comes from something green you will be disappointed. 46% of generation comes from coal. And just over half of coal powered electricity in Germany comes from burning lignite, perhaps the most polluting way to generate electricity on the planet.
These statistics, then, make it clear that the “solar revolution” that has supposedly occurred in Germany is not worth the name, and is mostly just a combination of hype and wishful thinking. I can make this even clearer by comparing the growth of solar in Germany with that of more old fashioned forms of electricity generation.
In 1990, Britain got no electricity whatsoever from gas power plants. Yet, within one decade this went from zero to forty percent. This is a much more rapid growth than has been in German solar wind, or anything else. In fact, no country has grown any source of renewable electricity at such a speed. An even more sobering comparison, given Germany’s much trumped green credentials, is with the growth of coal power plants this decade. At the end of last year Germany had a total of 36 gigawatts of installed solar capacity, and this produced 28.3 terawatt hours of electricity.
However, between 2011 and 2015 Germany is opening 10.7 gigawatts of new coal power plant capacity. The consulting company Poyry projects that these new coal power plants will have average capacity factors of 80%. If so, they will have a combined average annual output of 75 terawatt hours. In other words, in five years Germany is opening coal capacity which will have an annual output of more than double that from all of its solar panels. However, this comparison is perhaps too generous. Solar panels typically last twenty to twenty five years, but coal power plants easily last twice that long.
What we are seeing in Germany, then, is much more of a coal lock-in than a solar revolution. And solar power in Germany faces fundamental problems. For obvious physical reasons – the sun always sets – there is absolutely no output from solar panels a lot of the time. In the case of Germany it is around 46% of the time. However, Germany can, on a sunny day, get a lot of its electricity demand from solar panels. On the occasional sunny day solar panel output can exceed half of total electricity demand. This is the source of the myth that Germany gets half of its electricity from solar panels. Media reports on solar in Germany focus on the peak, and not on the average. The average, well, that’s one tenth of the peak, but I guess not even half of the story.
[..] The new German government has put in place a long-term target of having between 2.5 and 3.5 gigawatts of solar panels installed each year. If we take the higher figure, and assume that 3.5 gigawatts is installed each year, it will take Germany almost ninety years to reach 50% solar electricity. This however is an underestimate. Solar panels must be replaced every twenty or twenty fives years, and 50% solar energy in Germany would require massive advances in energy storage techniques. Germany, then, is around a century away from getting half of its electricity from solar panels. Does this look like a revolution?
Note
Statistics for Germany’s energy consumption are available from BP and Eurostat. In total, solar energy was 2% of Germany’s primary energy consumption last year, using BP’s statistics. The precise percentage however will vary depending on how energy consumption is defined. If we used the IEA’s definition of primary energy consumption for solar, then the figure would be around 1%. I discussed the problem of measuring renewable energy consumption here.
There you go. 4.5% of German electricity, and 1% of its primary energy, came from solar in 2013. Since the intermittency of solar places hard limits on its use in the central electricity grid (of about 15%), Germany is increasing its coal – no, make that lignite – capacity, which is about the opposite of solar in an environmental sense.
Since Germany is hooked up to the European grid, it can rely to an extent on France’s nuclear power to balance out the intermittency issue – after it shut down its own nukes -, but that too comes with limits.
It seems like we’ll all just have to wait for, and dream about, yet to be invented veggie batteries and salty power storage. Something tells me even just the dreams will take a lot of money, from the already hugely – if not fatally – indebted economies we all live in.
Hoping for solutions on nation-wide scales doesn’t appear to be a wise choice. But you can do your own thing. Cut your energy use, even 90% is certainly possible. Be creative. There’s nothing wrong with solar, it’s just not a panacea for all our future troubles. We ourselves must be the solution.
Look, say you live in Germany and you get an electric car. Then you’re driving on 46% lignite. Nasty stuff. And another 16% nuclear. Is that what you want? It’ll take a very long time, if it ever happens (which is very doubtful), to change those numbers significantly towards more benign sources. Why not just drive less? It’s easier, faster, and a whole lot more likely to actually make a difference.
