Energy and Automation

Energy and Automation, the December issue of TerraJoule.us, explores the winners and losers that automation will create in the energy sector:

In the same way that the global coal sector has not only lost jobs, but will no longer add jobs in the future, the global oil and gas sector is likely headed towards the same fate—especially in an era of low demand growth for oil, and the electrification of economies. Early estimates are that in the US alone, the decline of oil prices has triggered the shedding of about 200,000 sector-related jobs, and the global oil and gas sector has roughly lost the same. Like the coal sector, the global oil and gas industry will continue to employ engineers, platform workers, and decision makers to serve existing demand. But as TerraJoule.us noted earlier in the year (now picked up by IEA in Paris) global oil demand growth has downshifted from roughly 2% to 1% per year. To repeat our previous commentary: that seemingly small shift is not small at all, and is profoundly impactful on the sector. There also is risk that the wider impact of that slowdown could be felt broadly, as many countries, pension funds, and workers are connected to professions in engineering, manufacturing, transport, and finance sustained by the oil and gas industry.

But there is good news: the acceleration in the buildout of solar and wind requires extensive physical labor and this is especially true in the Non-OECD. We have referenced previously the ultra-fast construction of Kamuthi solar, using over 7,000 workers in India. Moreover, in the US, employment in renewables has absolutely skyrocketed, and according to Bloomberg using one measure, solar employment has now edged ahead of oil and gas extraction. (see graphic, below). As the shift from fossil fuels to renewables plays out, there should be ample opportunities for workers to switch industries. But at some point, the labor-intensive extraction industries will go into a steeper decline, and, the less labor intensive energy capture industries—wind, hydro, and solar—will scale to a large base that needs only light maintenance. That is the wealth-creating promise of renewables, but is also a key factor in its disruptive potential. As TerraJoule.us has observed previously, most of the gains from renewables will be distributed to society through the benefits of a clean environment. But ownership may be quite concentrated.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, the forecast for power generation growth from wind and solar is maintained, for the third month in a row. We continue to expect that in 2017, a full 35% of the marginal growth in global power generation will come exclusively from these two sources..

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, finished the year at 104.22, having started 2016 at a notional value of 100. The index is henceforth rebalanced for 2017.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

Can’t Save Coal

Can’t Save Coal, the November issue of TerraJoule.us, explains that no set of policies from any country, including the United States, can rescue coal from the rapidly declining costs of wind and solar power.

If you believe the global coal crash is entirely due to policy, then you might be persuaded that policy alone could revive coal. However, the evidence is overwhelming now that China, in singular fashion, revived global coal  from a multi-decade slumber; and when China’s economy finally slowed down (after completing the bulk of its industrial buildout) coal returned to its previous resting place. More devastating for coal: as China’s growth revolution came to its inevitable resolution, US natural gas was waiting in the wings to replace a very old fleet of coal-fired power plants; and solar’s cost decline gathered speed. This is why, as we look  ahead to the start of a Trump administration, we can pretty easily see the free-market has already spoken on the coal question. However, it is worth inspecting once again the veritable wall that coal now faces, as the costs to fund the global supply chain of coal extraction, and combustion, are simply not budging. Meanwhile, the world’s energy system outside of coal continues to press forward. Even if some miracle does  spur coal growth in the future, it’s likely by then the world will have moved on to a different reality.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, the forecast for power generation growth from wind and solar is maintained. We continue to expect that in 2017, a full 35% of the marginal growth in global power generation will come exclusively from these two sources..

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, declined to 99.8 at the end of October, having started the new year at a notional value of 100.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

Cheap Energy Works its Magic

Cheap Energy Works its Magic, the October issue of TerraJoule.us, suggests that after a dismal year for global growth, Non-OECD economies are finally ready to pick up speed and that cheap energy, from all sources, stands ready to fund better global growth:

Largely due to aging populations, future growth in developed markets (DM) will be mostly constrained well into the future. Japan of course is the central factor in this constraint, and Europe is close behind. The main uncertainty in the future of any DM growth outlook centers exclusively, therefore, on the US. If the US undertakes a long overdue infrastructure buildout program, and innovation spreads to second tier US cities, then the US economy could effectively counter the structural weakness in Japan and the EU, and lift DM growth higher overall.

However, we don’t need to fret quite so much about the near term-direction of DM growth, because EM growth is already picking up. The IMF now expects EM growth in 2016 to average 4.2%, up from 4.1% in their prior forecast. The IMF also sees EM growth rising to 4.6% in 2017. Despite a concurrent downgrade of DM growth, the higher EM growth forecast bodes well for global growth. In fact, it bodes very well. The next unit of energy consumption, infrastructure expansion, and technology deployment is far likelier to take place in EM, regardless. Moreover, the 5 billion people in the developing economies contain tremendous, pent-up development potential. It is why, as one example, TerraJoule.us has paid particular attention to India as that country undertakes a revolutionary effort to bring 350 million citizens into the electricity system.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, the forecast for power generation growth from wind and solar is revised upward this month. We now expect that in 2017, a full 35% of the marginal growth in global power generation will come exclusively from these two sources..

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, rose to 103.51 to finish the month of August, having started the new year at a notional value of 100.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

Emissions Story

Emissions Story, the September issue of TerraJoule.us, queries whether future growth of global CO2 emissions may be lower than forecast, due to demographic changes in population and fertility rates; the completion of fossil fuel adoption cycles in a majority of the world’s economies; and the ferocious learning rate of global wind and solar power:

Recent data from China indicates that, in 2015, 100% of the growth in that country’s electricity system was more than amply covered by two sources: wind, and solar power. According to Greenpeace—which contrary to historical perceptions now possesses actual data gathering capabilities on the ground globally, including Beijing—China’s power generation in 2015 grew by only 22 TWh. But combined new wind and solar generation grew by 48 TWh. This is precisely the regime-change that TerraJoule.us has been warning about over the past year. While we remain with our forecast that wind and solar will more reliably come to dominate growth in global power generation by the year 2020, it is telling that in several important domains—the UK, China, the US—the ability of combined wind and solar to crowd out other energy sources in the market for electricity growth is telling. TerraJoule.us is increasingly concerned that energy transition itself is starting to land more forcefully, move more quickly, than many understand. If so, the implications for global emissions growth— a huge scientific and political challenge—could be altered meaningfully, if not dramatically…

…To emphasize this point further, it’s now clear that CO2 emissions in the OECD have peaked. If that conclusion seems uncertain to you, then attempt the following experiment: try to model a case where the OECD enters a new adoption cycle for fossil fuels. Try to make the case that Japan, Australia, Europe, and the United States will see a new push into coal, oil, and natural gas. Not easy, right? The OECD is also host to aging populations, and low fertility rates. And it’s also the epicenter of persistently low interest rates which are telling you that future growth is likely to either be low—or much lower than most would hope. So again, given all those factors, try to make the case for a net gain in combined oil, coal, and natural gas. Even in domains where you can make the case for consumption upticks in one of those sources, you will generally find that either one or two of the other sources are in decline.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, the forecast for power generation growth from solar is maintained this month, but the forecast for global  growth from wind power is revised up sharply, due to capacity factor gains and rapid 2016 deployment: again, mainly in the US and China.

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, rose to 102.51 to finish the month of August, having started the new year at a notional value of 100.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

Oil Trouble

Oil Trouble, the August issue of TerraJoule.us, confronts the surprising risk that oil demand growth has entered a long term slowdown, and that oil consumption in the future may look a lot like the coal market—a stagnant dependency that lacks the prospect of further market expansion:

Something has clearly gone very wrong for oil prices in the past two years. Let’s make a list:

Stagnant OECD oil demand growth. Construction of global transit, and rail. The marginal growth of EV, and the coming wave of EV friendly policy. Political concern about air pollution in the Non-OECD, and the next wave of climate policy rollouts in the OECD. The current or future sidelining of the automobile through new urban policy in cities from Barcelona to San Diego. The more habitual use of cars for power (load), rather than distance. The migration of GDP to the powergrid. The growing indications among large oil producers, like Saudi Arabia, that oil in the future may be worth less, than it is today. The return of conventional oil supply in the MidEast. The continued learning curve of tight-oil extraction, which places downward pressure on costs. The stagnation that has hit the Oil Services industry. And finally, that no major country, outside of perhaps India, is currently situated in an oil adoption phase—a distinct level of economic development in which GDP and oil demand rise steadily together, rarely diverging, for many years.

All these factors were set to combine much later in this decade. Instead, they have come together already, and the main expression of their effect is in the growth rate of global oil demand. When we look at the price chart of Brent oil, we notice immediately how quickly prices hit bottom in 2009, during the worst of the great recession. That’s how price should behave in a normal market: a spiky extreme, and then a move back to expected price ranges. But no such rebound has occurred since the summer of 2014. Oil is telling you that, absent a black swan event, its dominance and importance which defined so much of the 20thC is now dissipating. Oil dependency remains. But oil based growth is hard to find.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, the forecast for power generation growth from solar is maintained this month, after upward revisions to the forecast this summer from greater than expected growth of both resources in various markets: namely the US and China.

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, rose to 104.22 in mid-August, having started the new year at a notional value of 100. The Index plays a favored super-theme of TerraJoule.us: that the global economy is transitioning away from liquid fossil fuels, to the powergrid. And, that the costs of fossil fuel extraction and combustion increasingly place the energy-capture technologies of wind and solar power in a favorable position. Industrial names in the index continue to perform well in 2016, while the basket of solar equities continues to underperform.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

The New Dependency – Natural Gas

The New Dependency – Natural Gas, the July issue of TerraJoule.us, takes a look at the success of natural gas to embed itself in the global energy system, at a time when LNG exports are rising, leading to a world pricing system. In particular, recent data shows that the United States is developing natural gas capabilities along two fronts: increasing exports not only by ship but by pipeline, while at the same time becoming more reliant itself on the resource. From this month’s issue:

US exports of natural gas in LNG form have only just begun. And yet, 2016 NG exports on annualized basis are taking off more strongly than expected, in part, from the next leg of NG pipeline exports to gas-hungry Mexico. This quieter, more incremental growth of NG exports has been building more slowly the past 2-3 years. But when we add pipeline exports to the unfolding wave of new LNG capacity, it now seems likely that total NG exports from the US will exceed all forecasts, including TerraJoule.us’, by the year 2020.

For example, the US last year was exporting, on a daily basis, 4.88 bcf/d (1718 bcf/365). This year, 2016, the US is on pace to export 5.80 bcf/d (2124/366). TerraJoule.us has been forecasting that the US will be exporting at minimum 12.82 bcf/d by the years 2020-2022. This is based on the simple calculation of approved LNG projects. But given the strong growth in natural gas by pipeline, it now seems likely the US will be exporting at least 15 bcf/d by 2020-2022 (Or, 5465 bcf annually).

The more intriguing question to ask, however, is  whether natural gas prices can really stay at current levels through that time. TerraJoule.us has been wrong, since late 2014, in asserting that the buildout of new US LNG capacity would take US NG prices higher.

What does seem clear, however, is that barring a new global recession, US NG prices have certainly seen the price lows. In the years 2016-2020 therefore, there will be a continual tug-of-war between the rollout of new global dependency on natural gas, operational expenses of the LNG infrastructure required to serve this demand growth, and the geological realities of NG supply. …

If you accept the proposition that natural gas prices have finally bottomed, then you might be more likely to agree with the following proposition: the production growth required between now and 2020 to serve both domestic demand and exports is large enough to finally move the price of NG higher… This risk in no way conflicts with the TerraJoule.us view that recoverable NG resources in North America are vast. Rather, it’s the pace of demand that poses such risk.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, the forecsast for power generation growth from solar is revised upward, due to better than expected deployment in the world’s solar leader: China..

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, fell to 98.30, having started the new year at a notional value of 100. The Index plays a favored super-theme of TerraJoule.us: that the global economy is transitioning away from liquid fossil fuels, to the powergrid. And, that the costs of fossil fuel extraction and combustion increasingly place the energy-capture technologies of wind and solar power in a favorable position. Industrial names in the index continue to perform well in 2016, while the basket of solar equities continues to underperform.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

Big Global Energy Data

Big Global Energy Data, the June issue of TerraJoule.us, reviews the profound changes taking place in the global energy system. This year’s release of the BP Statistical Review showed that coal’s collapse was much broader, and deeper, than many anticipated. Coal production and consumption was hit very hard in nearly all domains, especially China. Meanwhile, some truly astonishing data continued to flow from the combined wind and solar sectors, as they truly dominated in a year when global growth of electricity production advanced by only 0.9%. Is it any wonder therefore that global CO2 emissions have flattened the past three years? Confirming data already released by IEA in Paris, BP also shows that emissions barely grew in 2015. On the other side of the ledger, natural gas adoption continued to find strength in the US, the EU, and China. The world is growing a new  dependency on natural gas—but the price does not reflect it—just yet. Finally, per previous speculations of TerraJoule.us, oil consumption in the OECD has bottomed. No blast off in OECD oil demand is imminent, but for the first time in 10 years, oil demand grew in the EU—by 1.5%. Newsflash: Europe is back from the dead.

In the second essay of this month’s issue, “Five Questions for Garvin Jabusch, of Green Alpha Advisors,” we consider the first round of losses already suffered by investors in fossil fuels, and speculate as to whether the next round of losses is near. While EV adoption remains slow, the learning rate of solar presses onward. To what extent are investors, even today, still not taking seriously the dislocations yet to come from quickly growing power generation from wind and solar?

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, data for 2015 is radically revised to reflect the very slow growth in global power generation which was entirely dominated by new wind and new solar generation. The forecast for better overall growth in global power generation is maintained for 2016, and 2017.

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, fell slightly to 99.67, having started the new year at a notional value of 100. The Index plays a favored super-theme of TerraJoule.us: that the global economy is transitioning away from liquid fossil fuels, to the powergrid. And, that the costs of fossil fuel extraction and combustion increasingly place the energy-capture technologies of wind and solar power in a favorable position. Industrial names in the index continue to perform well in 2016, while the basket of solar equities continues to underperform.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

A Terawatt of Solar

A TeraWatt of Solar, the May issue of TerraJoule.us, reviews the falling costs and accelerated schedule now driving the buildout of global solar capacity. Because India is now very much in the solar game–and because the economics of coal have also quickly become unattractive–we speculate the world will achieve its first terawatt of solar sometime in the next 5-7 years. Relatedly, TerraJoule.us also makes a more complex projection in this month’s issue: that sometime before 2025, solar will compose 20% of total world power capacity. While capacity is not generation, of course, the figure is a testament to solar’s rapacious advance. Finally, we note the number of domains across the world where, surprisingly, solar generation is already producing surplus power. Indeed, many of the forecasts made just five years ago about solar’s costs, competitiveness, and generation, have been completely overtaken by the global solar buildout.

In the second essay of this month’s issue, “Oil Update–Shoulder Season or Worse?,” we consider the impact of oil’s recent price recovery on the enduring hope that the market will find balance. While US production has finally started to fall meaningfully, upward supply pressure across OPEC and Russia has continued to negate the much needed supply declines in Non-OPEC. The factor that would render these calculations moot, of course, would be a shift in demand. Even the slightest uptick in global demand would be enough to return prices back to a healthier level around $75/barrel. Alas, here too pockets of stronger demand are negated by weak demand growth elsewhere.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, projections for solar generation are slightly raised, both for 2016 and 2017. We are also slightly increasing the market share of new generation from combined wind and solar in 2016, owing to faster retirements of existing coal capacity, and, the more recent blunting of new coal capacity additions.

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, stands at 101.34 as of April 30, 2016 having started the new year at a notional value of 100. The Index plays a favored super-theme of TerraJoule.us: that the global economy is transitioning away from liquid fossil fuels, to the powergrid. And, that the costs of fossil fuel extraction and combustion increasingly place the energy-capture technologies of wind and solar power in a favorable position. Industrial names in the index continue to perform well in 2016, while the basket of solar equities continues to underperform.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

New Directions in Global Oil

New Directions in Global Oil, the April issue of TerraJoule.us, reviews the expanded supply capabilities created over the past five years by the global oil industry. Because North American oil supply growth, however, cannot be expected to continue during a low priced environment, we speculate OPEC will be successful in its quest to win back market share. More broadly, TerraJoule.us concludes that the forecast for global oil production over the next five years will essentially track global growth. If global GDP weakens, oil supply will guide downward. If global GDP strengthens, oil production will advance, and supply the global economy with oil at an affordable price. This new equation is made possible by the intersection of new production capacity with the phenomenon of energy transition, in which oil itself has lost market share every year since the start of the new millennium.

In the second essay of this month’s issue, “The Path We Are On“, we welcome back new writer and analyst Justin Ritchie, of the University of British Columbia. Mr. Ritchie’s essay focuses on the four main pathways of future GHG emissions, and asks questions–in light of slowing global economic growth–about the probabilities of future demand growth for fossil fuels. Again, given the energy transition already underway, Ritchie’s essay, along with this month’s issue, calls into question wildly high projections for future energy consumption. This is an important topic, that probes issues surrounding the tendency to extrapolate past growth into the future.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, projections for marginal growth from wind and solar are largely maintained for both 2016 and 2017. We maintain our view of better global growth next year. And one note of interest here: new generation from solar in 2016 is forecasted to exceed new generation from wind power.

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, stands at 97.54 having started the new year at a notional value of 100. The Index plays a favored super-theme of TerraJoule.us: that the global economy is transitioning away from liquid fossil fuels, to the powergrid. And, that the costs of fossil fuel extraction and combustion increasingly place the energy-capture technologies of wind and solar power in a favorable position. Industrial names in the index continue to perform well in 2016, while the basket of solar equities continues to underperform.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.

Waiting for Growth in the Non-OECD

Waiting for Growth in the Non-OECD, the March issue of TerraJoule.us, discusses the compression of the growth spread, between developed and developing economies over the past three years. Higher rates of global growth, during a time of demographically-driven slow growth in the OECD, depend heavily on development and investment in the Non-OECD. Optimistically, TerraJoule.us concludes that 2017 will reveal the effects of universally cheap energy, as this form of thermodynamic-easing acts as a transmission mechanism in developing economies. We pay particular attention to India in this regard, as a potential driver for global demand and especially oil demand.

In the second essay of this month’s issue, “Portfolio Construction During Energy Transition“, we welcome new writer and analyst Garvin Jabusch of Green Alpha Advisors. Mr. Jabusch’s essay asks several important questions, but mainly explores issues around Modern Portfolio Theory’s applicability, as we head through energy transition into the next decade.

In the continuously updating TerraJoule.us Global Grid Decarb Monitor, projections for marginal growth from wind and solar are maintained for 2017. We recognize the 2017 forecast is rather aggressive, but we maintain our view of better global growth next year.

Finally, The TerraJoule.us Transition Index, composed of 70% ETFs and 30% individual equities, stands at 91.75 having started the new year at a notional value of 100. The Index plays a favored super-theme of TerraJoule.us: that the global economy is transitioning away from liquid fossil fuels, to the powergrid. And, that the costs of fossil fuel extraction and combustion increasingly place the energy-capture technologies of wind and solar power in a favorable position. We note that several of the industrial names in the index were largely stable, during the market volatility seen in the first two months of this year.

–Gregor Macdonald, Editor of TerraJoule.us – A Journal of Energy Transition.