Cheap Energy to the Rescue: March Issue of TerraJoule.us

Slide1Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is open to the public. To listen, head over to SoundCloud.

Model Portfolio: The TerraJoule.us model portfolio is down -9.95% since inception and is up +4.80% in 2015. There are no changes to the model portfolio this month.

From this month’s issue:

The magnitude of China’s slowdown has become rather pronounced, and is best observed in the progress of its electricity generation. For much of the last decade, China’s annual growth in electricity generation ran in the double digits—sometimes as high as 12% per annum. For the period 2004-2014, however, that average growth rate has now fallen to 9.44%, as slower years following 2010 have pulled the average downward. TerraJoule.us has been able to source China’s data through October of 2014, and annualizing those figures indicates that China’s power generation growth has fallen to just 4.2% in 2014, compared to the prior year. There are a couple of ways to think about this trend. First, the more general weakness in global demand is reflected in China’s weaker manufacturing sector. Second, this is precisely the slow growth that makes it possible for renewables to gain market share, as coal lags. And finally, the world economy simply awaits China’s next advance in energy consumption. While many think this is a secular slowdown, the example of the US after its heavy industrial phase is instructive. The US consumer economy actually drove energy demand for many decades, after 1960, which saw demand nearly double over the following 40 years. There remains significant upside risk, therefore, in China’s energy demand over the next next several decades.  |  see: China Electricity Generation in TWh 2004-2014.

“TerraJoule.us eBook – Cheap Energy to the Rescue – March 2015″ by Gregor Macdonald – Editor on Ganxy

Renewables at the Zero Bound: February Issue of TerraJoule.us

Slide1Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is restricted to purchasers and subscribers.

From this month’s issue:

Depending on your position in the market, the recent and rapid growth of California wind+solar power generation is either joyous, or havoc-inducing. As you can see in the chart below, using the most recent data, combined wind+solar are increasing their share in California quite steadily, in a market that is mostly flat, and without growth. | see: Annual CA Power Generation in Thousand MWh: Ex-Wind+Solar (black) | Wind+Solar(checked) 2010-2014. 

As recently as 2010, combined wind+solar were providing just 6,848 thousand MWh (megawatt hours) in an annual market that generated  nearly 205,000 thousand MWh. But now in 2014, (annualized through the first three quarters), combined wind+solar generation has reached 25,650 thousand MWh in a market that really hasn’t grown—still slightly above 200,000 thousand MWh per year. The implications are clear. Combined wind+solar now provide 12.82% of California’s power generation from all sources. (Note: Although the 2014 data is annualized through the first 3 quarters the full year data will show additional growth and thus additional market share from combined+wind and solar generation). 

Moreover, as has begun to happen in Europe, combined wind+solar even from low penetration levels have started to eat the lunch of the utility sector. The two renewable energy sources are increasingly doing the heavy lifting powergrids require during peak loads: providing the electricity needed as the world turns to power for cooling, and as a greater portion of global GDP runs on the back not of oil, but MWh. Exciting, but also intimidating!

“TerraJoule.us eBook – Renewables at the Zero Bound – February 2015″ by Gregor Macdonald – Editor on Ganxy

Tyranny of Price and Energy Equity Outlook 2015: January (Double) Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is restricted to purchasers and subscribers.

From this month’s issue:

…And again, you can hear the call of the sirens: they are saying there is downside risk from here when natural gas is at $3.00 per million BTU and when WTI is near $52.00 a barrel. OK. Let’s consider that. US natural gas production just reached another all time high. But LNG exports are coming within 12 months. Meanwhile, drilling activity is dropping hard in the US, and in places like the North Sea there’s talk of a jobs and drilling massacre. Wellhead prices in Canada have also fallen way below spot. Let’s consider the chart below: the TerraJoule.us forecast is that supply will be at best flat year-over year in 2015, with about .7 mbpd (half the 2009 supply drop) at risk. Nota Bene: the risk of an actual supply drop will grow as the year goes on because, as previously discussed, the pipeline of project cancellations is still growing…

 

“TerraJoule.us eBook – New Year’s Double Issue – Tyranny of Price and Energy Equity Outlook 2015 – January 2015″ by Gregor Macdonald – Editor on Ganxy

Energy and the Currency of Nations: December Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: Please enjoy this month’s podcast for free, at SoundCloud: TerraJoule.us December podcast.

From this month’s issue:

The United States has heroically tripled exports of energy over the past ten years, with more volumes coming as LNG terminals come online between 2016-2021. True, the bulk of these exports currently are in the form of petroleum products, which is a testament to US industrial capacity and infrastructure—not surplus oil. But that’s OK. To coal and petroleum product exports the US will soon add LNG and by 2020, this will tack on another 3.5 – 4.0 quadrillion BTU of exports. It is not inconceivable therefore, as US oil consumption will continue to stagnate and US coal exports will, contra forecasts, start to grow again, that by 2025 the US could be exporting 20 quads of energy per year. That would put the US Dollar in a position of extreme strength, and for those who are already looking to make a case for a secular USDollar strengthening trend, the structural shift in US energy exports adds credibility to that thesis. Indeed, although the US has emerged from the great recession with a much higher level of government debt, now approximately 18 trillion, this still is dwarfed by wartime debt to GDP levels from the country’s history. Indeed, with US GDP at roughly 17 trillion, the relationship is a benign 1 to 1 and this is reflected in the decided unconcern expressed towards the price of US Treasury debt, and again, US Dollar strength. It is a surprise to many that the US economy, while certainly riddled with inequality, has emerged strongest of all globally from the crisis. Energy production is playing a large role in that story.

 

“TerraJoule.us eBook – Energy and the Currency of Nations – December 2014″ by Gregor Macdonald – Editor on Ganxy

Investing for Energy Transition: November Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: Please enjoy this month’s podcast for free, at SoundCloud: TerraJoule.us November podcast.

From this month’s issue:

No country better illustrates the three phases of energy transition than the United States, which was damaged initially by the energy shock, then struggled and stagnated for five years, and is now starting recover. An excellent way to measure this story has been to follow energy expenditures, which rose sharply on oil’s initial repricing, crashed during the crisis, rose again during the early part of the recovery, and are now falling.  | see: US Annual Energy Expenditures as a Percent of GDP 2004-2014. The United States has been busily constructing new wind and solar capacity, and taking advantage of its very cheap and plentiful supply of natural gas. All the while, Americans have been dumping their demand for oil—which remains expensive despite the recent seasonal decline from $100 to $80. Accordingly, energy expenditures as a percent of GDP are in a four year downtrend, and at 8% are back to levels last seen in 2005. A reminder: upfront costs for the deployment of wind and solar can be high, but the ROI starts immediately and actually increases as time moves forward. The US is now vying with China to be the biggest world mover in the buildout of wind+solar. This pathway will pay increasing dividends as time progresses. We should expect the downtrend in energy expenditures to continue, with gains distributed to the US economy in the form of wealth and GDP.

US Annual Energy Expenditures as a Percent of GDP 2004-2014

Also in this month’s issue:

The model portfolio as of 31 October 2014 is down – 4.26% since the inception date,  April 1, 2013. The portfolio remains fully invested. There are no changes this month to the portfolio’s composition. 

“TerraJoule.us eBook – Investing for Energy Transition – November 2014″ by Gregor Macdonald – Editor on Ganxy

USA – Emerging LNG Giant: October Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is for subscribers and purchasers only.

From this month’s issue:

TerraJoule.us remains firm with its call that global oil prices will reprice to $150/barrel by the year 2020. In the chart below, which equalizes various energy sources using the unit of a million btu, that translates to $25.86—per million btu. Notice, also, that the forecast does not make radical pricing changes for the other energy course outside of oil. CApp Coal (Central Appalachian coal) and PRB Coal (Powder River Basin coal) are only about 25% higher than today’s prices—which are currently at extreme lows. The most important pricing relationship, however, can be found between the price of N.A. NG (North American natural gas) and Asian LNG. Sourced at $6.00 per million btu and sold into the robustly growing Asian LNG market at $14.00, this arbitrage marks a substantial improvement in the price paid to producers in North America, and better still, the price paid by buyers in Asia. Indeed, the era of ridiculously high wintertime LNG prices in Asia near $20.00/million btu are coming to an end. Australia and the US together are in the process of dismantling the Middle East’s price gouging of Asian buyers. And although profit margins for Australian LNG will be lower, that country does have the advantage of its closer proximity to the whole of Southeast Asia. Overall, the prospect of substantial new LNG supply to Asia is bullish, economically, for that region. This adds another piece to the view of a global economy very much recovered by 2020.

Forecasted Prices Million btu in the Year 2020

Also in this month’s issue:

The model portfolio as of 30 September 2014 is up +1.62% since inception. The portfolio declined along with the broader market, during the month of September. There are no changes this month to the portfolio’s composition.

“TerraJoule.us eBook – USA: Emerging LNG Giant – October 2014″ by Gregor Macdonald – Editor on Ganxy

Uber and Oil: September Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is for subscribers and purchasers only.

From this month’s issue:

The supertrend in which Uber is already taking part is the transition of vehicle use from one that concentrates on distance, to power. In the post-automobile growth era, the culture has become re-acquaninted with the fact that the highest and best use for vehicles is the short-distance hauling operation, in which concentrated energy (oil) is employed to ferry improbably large loads that would otherwise take many human hours of labor. In order to control uniformity of the ride-service to users, and to reduce exposure to upward volatility in oil prices, it seems inevitable that Uber is going to continue to concentrate on the short-distance market, and will eventually have to invest in capital equipment: namely, electric vehicles. Whether Uber builds a fleet of EVs (electric vehicles), or helps drivers purchase their own, is an open question. The important point here is that global transportation will become increasingly bifurcated between long and short-distance travel. Governments, as previously discussed, will increasingly take over the responsibility to provide interstate high speed rail, commuter rail, and light-rail. That leaves a fairly large and enduring market around the great urban sprawls: not only in the OECD, but in the Non-OECD. Given that the spread between a gallon of gasoline and an eGallon (see graphic below, from doe.gov) will continue to widen, it’s inevitable that Uber will have to eventually embrace EVs. The prospect that Uber will eventually own a lot of depreciating capital equipment may take the shine off its current business-model and attractiveness of its prospects as a growth company, but there would seem few ways Uber can control costs during the next repricing of oil—which is also likely to not be accompanied by an advance in wages. The good news is that the prospects for significantly higher electricity prices, at least in the US, are low. While Terrajoule.us remains firm that global oil supply has permanently entered a constrained era, the growth of inputs to global electricity has no constraint—just yet. North America has enormous reserves of natural gas; coal reserves globally are gargantuan; and best of all the growth of renewables will continue at its astonishing pace.

Also in this month’s issue:

The model portfolio as of 31 August 2014 is up +11.92% since inception, having recovered  nicely since the market declines of summer. This month will see the cash level taken down to zero, as we head into Autumn fully invested. Using the last bit of cash left in the model portfolio, we are going to become heavily weighted this month in oil…

“TerraJoule.us eBook – Uber, and Oil – September 2014″ by Gregor Macdonald – Editor on Ganxy

The New Dependency on US Oil: August Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is opened up, and is freely available at SoundCloud.

The United States has been a commodity producing giant for over a century. And so, in one sense, there is nothing new in its latest emergence as a major energy exporter. The US contains the world’s largest coal reserves, with exports nearly tripling in the decade from 2002-2012. And even at the low points of US natural gas and oil production—approximately in the year 2005—the US was still the single largest producer of natural gas globally, and, produced more daily oil than Iran, or Iraq, or Canada. However, it’s been the remarkable change in the country’s oil balance sheet that has grabbed headlines the past several years. Growing oil supply by a million barrels per day each year, while reducing oil consumption at the same time, has greatly reduced the US call on global oil.

Accordingly, the world has become unwittingly dependent on this the strong rate of US supply growth, reflected mainly in the stable price of oil. Should US oil supply growth slow, however—and we think it will—the price sensitivity to such a change will be far higher than global oil markets currently anticipate.

“TerraJoule.us eBook – The New Dependency on US Oil – August 2014″ by Gregor Macdonald – Editor on Ganxy

Combined Global Wind+Solar

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Dear Reader,


Thankyou for your interest in TerraJoule.us. If you’ve not had a chance to read the latest issue, Big Trends in Global Energyit’s available now.

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Model Portfolio: Up +9.48% Since Inception

The TerraJoule.us model portfolio, at mid month, is currently up +9.48% since inception (April 1, 2013). The portfolio’s cash level is currently at 14.37%. We will continue to deploy this cash in August, and September.

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Free Issue

To understand better the TerraJoule.us call for the next repricing of oil, the May issue, Here Comes Oil, is available at no charge. Thankyou for your support and readership.

Mid-Month Data Update

As discussed in this month’s issue, Big Trends in Global Energy, combined Wind+Solar composed over 12% of the total growth of global energy consumption last year. This is unquestionably impressive.

However, we must remember that combined Wind+Solar still form a very small part of the ongoing global power mix. In 2013, total global electricity generation stood at 23,127 TWh (terawatt hours). Of this, total generation from combined Wind+Solar stood at 753 TWh, or just 3.25% of the total

That said, TerraJoule.us is forecasting that by 2025 combined Wind+Solar will provide at least 10% of total global power generation. To see which countries are in a leadership position already, see the below chart of Global Wind+Solar Consumption in TWh 2013. The US consumed 178.7 TWh of combined Wind+Solar in 2013, with China just following at 143.8 TWh. The US and China are unquestionably on the verge of supersizing their Wind+Solar resources further, with enormous project pipelines building quickly. As discussed in last month’s issue, India Unleashed, the third main country to watch now is India. (click on image for larger chart hosted at Tableau.)



Next Issue of TerraJoule.us

The next issue of TerraJoule.us will be published Friday August 1, 2014.

Thanks so much for reading TerraJoule.us, and we hope to see you again next month.

-Gregor Macdonald


____________________
Gregor Macdonald
Editor, of TerraJoule.us Monthly ebook
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