The Market Ticker
Commentary on The Capital Markets- Category [Energy]
Logging in or registering will improve your experience here
Main Navigation
Full-Text Search & Archives
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. For investment, legal or other professional advice specific to your situation contact a licensed professional in your jurisdiction.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.


Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be sent unmodified to lawmakers via print or electronic means or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media, to republish full articles, or for any commercial use (which includes any site where advertising is displayed.)

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.

Considering sending spam? Read this first.

2022-06-20 07:00 by Karl Denninger
in Energy , 1266 references
[Comments enabled]  

I'm getting tired of political feelz being paraded around as alleged "facts".

Treasury Secretary Janet Yellen said Sunday that the Biden administration’s policies are not responsible for record-high gas prices, and the only way to fix the energy crisis in the "medium-term" is to move towards "renewables to address climate change."

...

"Actually, consumption of gas and fuels are currently at lower levels than pre-pandemic, and what's happened is the production has gone down. Refinery capacity is declined in the United States and oil production has declined. ...."

Refinery capacity and production declined because Biden said he would ban both and, within days of being inaugurated, took concrete steps to do both.

Refineries and pipelines have a 30, 40, 50 or more year service life.  Nobody in their right mind is going to put forward capital investment with a 30 year payback when you're told that investment will be destroyed and that threat is credible because the people making it then act in accordance with same, thus confirming that its not mere election-year rhetoric (which we all know happens and usually means nothing.)

Yellen argued that the best way to address the energy crisis in the "medium-term" is to transition the country off of fossil fuels.

That's a thermodynamic impossibility within the current realm of knowledge.  In short: You can't.

To make an EV battery you must dig up 500,000 lbs. of earth.  For one battery.  Which has a service life, after which it must be replaced.  Which has no current means of economically recycling the components either, so unless you'd like the price of the pack to wildly exceed the crazy levels it is at now you will throw the old away and buy another one with another half-million pounds of earth dug up.  All of which are dug up, transported and processed using fossil fuels because there is no other rational way to do so.

Renewables in the form of wind and solar require these fossil fuel inputs, as do storage batteries.  Because the energy they produce is uncertain, that is the sun does not always shine and the wind does not always blow, you can never guarantee how much output you will have from them even if you could somehow resolve the fossil fuel requirement for creating the panels, concrete and blades for the windmills, and rare earth materials you must dig out of the ground and refine to make them.  For this reason the energy they produce will always fluctuate wildly in price simply due to fluctuations in supply.

If you build "enough" that you're comfortable you will not be short there will be times there is so much supply the price is zero and the economic incentive to build them will likewise be zero.  At any build-out less than this there will be times when you demand it but can't have it.  Of course the time when you demand it and can't have it will be at the most inconvenient time of all, typically when its freezing-butt cold or broiling hot.

Look at the price of these things and the fossil alternatives over long periods of time.  Natural gas has seen wild spikes in both directions in price.  So has wind power, solar and similar.  There are only two that do not over our history of use: Coal and fission-based nuclear.

It doesn't matter one bit whether you like any of this or not.  These are facts and unless you want a power bill that varies by 400% or more (natural gas has seen price variations of ten times or more in reasonably recent history) you are out of your mind to not build the base demand capacity out of things that do not have that fluctuation and aren't dependent on those that do.

This isn't complicated.  Yellen famously said that inflation was "transitory" not all that long ago -- about a year back -- when she was arguing for, and implementing, the next round of wild money-printing after Trump did it too and I remind you that she has now been proved to be completely full of crap.

Now she's doing it again and if you let her and this Administration get away with it I hope you are ok with the wild price spikes and shortages, up to and including black-outs, that these policies will lead to.

View this entry with comments (opens new window)
 

2022-06-16 07:00 by Karl Denninger
in Energy , 1207 references
[Comments enabled]  

I spat my espresso when I read this...... 

"No more subsidies for the fossil fuel industry. No more drilling on federal land. No more drilling including offshore. No ability for the oil industry to continue to drill.  Period.  End."

That's what candidate Biden said, and he made good on his promise as soon as he was inaugurated.

Such a position also means nobody will invest in refining capacity, particularly when you have states such as California which have banned the sale of passenger vehicles using petroleum-based fuels starting in 2035 and all trucks (medium and heavy duty), where possible, in ten more years.

Why does that shut down refining now?

That's simple: Capital cost for improvements and new construction have to be recovered over decades of time and the service life of equipment like that is typically 30, 40 or more years.  If you tell me there will be no demand for the product in 10 years you have quadrupled the capital cost recovery required each and every year from now until then and that in turn means the price will wildly escalate and nobody may buy.  There is no reason for a private concern to take that risk and you cannot compel them to do so.

If you think this is some "unexpected" result you're nuts.  Tell me how many nuclear fuel reprocessing plants are online today in the United States.  In 1977 this was banned by Jimmy Carter and while Reagan reversed that E/O when he took office it did not matter as the former investments that had been made were destroyed by Carter's action and nobody in their right mind would do it again, given that Carter ruined their investment by executive fiat.

There is basically zero fabrication and development on the nuclear fuel front today compared with requirements; we only produce about 5% of what we need.  This isn't because we don't have it -- we do have it.  It's because Carter screwed industry out of billions of dollars and nobody in their right mind is going to let that happen to them twice.  The entire kerfluffle over waste disposal is of our making; the safest and best thing to do with high-level nuclear waste from reactors is to put it back into a new fuel pin (the fissile portion in commercial power reactors is only 5%, so you have 95% of the fuel pin contents available for such waste) and burn it up.  Over time this process reduces the high-level waste that is dangerous for 100,000 years into lower-level waste that is dangerous for a hundred or two years which we can reasonably expect to be able to keep out of the environment using existing technology.

The same is true when it comes to petroleum, coal and natural gas.  The latter, I remind you, is essential to make fertilizer, without which crop yields will be half or less of what we produce today.  The far left, along with those who go along with it on the right, either do not understand any of this or don't care and they both ignore the history including what happened in the 1970s and the impact that persists forty years later when it comes to civilian energy production.

If you want to see energy development resume here in the United States there is only one way to do it: Pass into law that (1) it will and may continue and expand, (2) Executive Action cannot curtail, impair or stop it again and (3) a serious supermajority of both houses of Congress will be required to change said law.

Since Biden would never sign such a bill and it will take 2-3 years once it is signed before the investment can bear fruit if you think the insanity in energy prices and availability is going to end before 2026 or thereabouts you're crazy.  The one thing we could do now is to bar the export of refined products; we are currently exporting about 25% of refined petroleum product we produce .vs. 5% a couple of years ago and that could be done today -- and would have an immediate and real impact on gasoline and diesel price.

Further, let's go here and solve the problem for the next 500 years.  That we can't do in a day but we can do it in a decade.

Biden can threaten all he wants but he cannot force private capital investment to take place and nobody in their right mind will make such investments when mere executive whim can turn said investments into dust as happened as soon as Biden took office, exactly as was the case in 1977 with Carter.

Behind every unit of economic output is a unit of energy.  This is not a matter of debate or "public policy"; it is hard, material fact that has stood since the beginning of economic time and no amount of feelings or desires can change it.

Would you like to eat?

Would you like the food to show up at the grocery store?

Would you like your A/C and heat to work?

Would you like to be able to get to work?

The above are your choices and, so far, you've answered all of the above with "No!"

View this entry with comments (opens new window)
 

2022-06-07 07:00 by Karl Denninger
in Energy , 1823 references
[Comments enabled]  

Folks, right here:

To meet the nation's clean energy goals, the US must develop a robust manufacturing capability to produce solar energy panels and components. It can do that by providing financial incentives to US manufacturers to help offset higher domestic production costs, which have been estimated to be 30% to 40% more than imports.

That is the problem.

Congress handing out money will not solve it; forcing Americans to pay that 30-40% more simply bankrupts Americans but through a different way.

There are many things we can do but they don't make any sense to do.

The only reason someone does it is that there's a boot on someone's neck (they're a slave), the environment is destroyed without care (remediation costs money) and similar.

That's the beginning and end of it, when you get down to facts.

This is not just limited to solar panels.  Its also true for EVs; you have to dig half a million pounds of earth up to make just one battery, and there is no economically viable means of recycling them either.  Yes, technically they can be recycled, but then you get to pay even more.

If the industry will collapse if the 30-40% has to be paid by the end consumer of the product then whatever you're proposing does not work.

Why would you pay 30 cents/kwh for power you can have for 10?  Do you understand that this is exactly what we're talking about here?  At 30-40% more the panels are non-economic to put in and use; they're simply not competitive.  At 300% more than what you pay now for electric power you can't heat or cool your house and eat at the same time.

Understand this folks -- I love technological advancement.  I believe we should have invested in LFTRs a long time ago, and we should do so today.  Not just directly for electrical power, but because we have several hundred years of known fuel for them, and what we get while digging it up we can use to turn into synfuel at the same time with some of the produced energy.  The latter is not fanciful nonsense; Nazi Germany used it close to eighty years ago.  We know it works.  Yes, there are engineering challenges remaining.  But those are engineering problems and thus can be solved.  They are not attempts to claim that which is thermodynamically impossible will work.

Physics, chemistry and thermodynamics (which are functionally a subset of physics, when you get down to it) are not suggestions.  Irrespective of how you feel these are facts you cannot evade.  Shoving off the damage somewhere else, whether to people or planet doesn't change the math.

It only changes who gets screwed, and if Congress subsidizes this the person who gets screwed is you.

Food prices, rent and similar are high enough already -- right?

You don't want any more of that -- right??

That's what I thought.

Now tell me why we allow (and yes, we are allowing it) the current Congress and Executive to remain in office.

View this entry with comments (opens new window)
 

2022-05-25 07:25 by Karl Denninger
in Energy , 724 references
[Comments enabled]  

So our President thinks that praise is in order for high fuel prices?

"Here’s the situation.  And when it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels when this is over," Biden said, seeming to justify or praise those sky-high prices Americans face at the pump.

Is that so?

Mind telling me exactly how you think the economy will survive that?  I do note that we have a "tiny" little deficit problem which our government has serially made worse -- on purpose.  I might remind you that we're shipping oil and other fuel resources overseas so as to blunt the impact of voluntary choices made by other nations and imposing the costs of those choices on our nation's citizens by force.

And I might note that, as I did back in Leverage when I wrote it, that every unit of GDP has a unit of energy behind it and no, you can't change this no matter what political winds blow.

Or I might remind folks like, for instance our local County Commission that I expected exactly this sort of thing out of our Administration, and in fact gave such a (short, because they like it that way and mandate you only get your couple of minutes) speech in front of them because with tourism a major part of our economy here, and in many other places in the US, these sorts of policies, which are a choice, will utterly destroy said tourism across the United States.

It's not just tourism, of course.  Unlike Europe, for example, our landmass is huge by comparison and every product moves by truck or rail, with the last mile being truck in virtually every case.  If you wildly escalate the cost of fuels you wildly raise the price of....... everything.  This of course means the "E" in your public company P/E goes down (a lot) and that in turn means stock prices go down -- a lot.

Never mind states that have warned that even with the current set of demand and supply on electricity there may be blackouts this summer.  How do you expect to multiply said demand by adding electric cars to the mix, which are approximately equal to running an electric clothes dryer for eight hours a night straight in size when we don't have the capacity for demanded electrical power now without them?  I remind you as well that we did have it before we started shutting everything down that wasn't windy or sunny including nuclear and coal plants which provide stable, base electrical power.

Biden has admitted he meant what we said during the campaign -- he intended to cripple "legacy-style" energy production and all the wokesters bought into it.  The problem is that all these "greener" solutions are not answers; they are unreliable because you can neither control the wind or cloud cover and what's worse is that constructing them requires energy which you haven't generated yet and materials that are in fact made from oil and various things we dig out of the ground -- which also requires oil.

As just one example you must dig up 500,000 lbs of earth in order to get the raw material for just one electric car battery.  The energy required to do this, of course, is never charged off to the electric car's "green profile", nor is the ecological damage.  And that's just for the battery; then there are the rare earth metals required for the motor(s).  Further, that's just to make the battery, you then must also come up with the energy to charge it, of course, every time you wish to use it.

I hope you enjoy what's happening because no matter the promises made by politicians thermodynamics is not a set of suggestions and, during the 2020 campaign, you were told precisely what Biden's administration was going to do if elected and they have now done exactly that.

In short Biden promised to wildly raise the cost of fuels of all types and, because fuels of all types are in fact behind every single thing produced, made, sold and consumed by you -- whether you like it or not -- he also promised to crash the stock market and saddle you with raging inflation.

For once a politician in fact kept his promise.

View this entry with comments (opens new window)
 

2022-01-03 10:00 by Karl Denninger
in Energy , 1180 references
[Comments enabled]  

If you have read Leverage one of the key points made fairly early on, and one I've made repeatedly in this column, is this:

Behind every unit of GDP there is a unit of energy.

It has always been thus and always will be thus.  It is akin to the laws of thermodynamics, which you cannot do anything about and it does not matter if you like them or not.  Attempting to go "beyond them" will not only always fail it will hurt in some regard since it will at best be a less-than-optimal experience and at worst will be a death-causing one.

Fracking was considered a "miracle."  It was no such thing.  I noted many years ago during its "heyday" that it was nothing more than a parlor trick: Yes, you get hydrocarbons out of the ground in places where they were formerly uneconomic to attack, but the problem with doing so is that you haven't changed the amount in the ground -- only the speed of extraction.  Therefore if you double the speed of extraction you also double the rate of depletion!

One of the common chestnuts is that we're "running out of oil."  We are not.  There is a crap-ton of oil.  The problem is the cost of extracting it.  We've run out of cheap to get to oil.

Indeed, we have more than 500 years of reasonably-recoverable and consumable fuel that can be used as liquid hydrocarbons and, if you do not care about cost, we actually have an infinite amount!

What, you say?  That's impossible!

My riposte is that you failed high school chemistry class.

Hydrocarbons are simply chains of hydrogen and carbon, when you get down to it.  Natural gas is a simple one; CH4, or one carbon and four hydrogen atoms.  It has much more energy than coal (which is basically just Carbon) because hydrogen has much more electronegative potential, and thus when burned you get much more energy released for each unit of fuel you use.  This has been the primary reason the United States has in fact dropped its per-BTU CO2 emissions dramatically over the last 30 or so years; natural gas has been cheaper than coal.

We don't use hydrocarbons for energy because we're pigs that hate the Earth, in short.  We do so because they are the only reasonable means to get the energy required for modern life in a package form that works.  All the screaming about EVs and similar is nothing more than a bunch of ignorant jackasses who think they can violate the laws of thermodynamics..

You can't.

The person who figures out how to do it, if it can be done, creates a world that is wildly beyond the dreams of Lucas and Roddenberry.  Even in the Star Wars and Star Trek fictional universes they follow the laws of thermodynamics -- in Star Trek they use dilithium as an energy medium, and in Star Wars it is Kyber crystals -- both of which have to be mined, in other words, both of which were created as a result of the formation of planets and stars and both of which are finite resources.

Let's take a simple example: An electric car.  It's "more efficient" than burning gasoline, right?

Uh, nope.

A modern gasoline engine is about 35% efficient in terms of taking the BTUs in the gasoline and turning it into movement.  That's horrible, you'd think -- electric motors can reach 90% efficiency with modern controls (and the motors in electric cars typically are near that range.)

Electric wins, right?

WRONG.

Every transfer or transformation of energy involves loss.

The best combined-cycle natural gas generating plant has roughly 60% energy efficiency.  These are the most-modern; everything else is worse.  Nuclear is a lot worse, typically, about half that (that is, for every watt that comes out of a nuclear plant as electricity about two more wind up dumped, typically into a body of water.)  So we'll use the best.

The natural gas plant is 60% efficient making the electricity.

The transmission of the power from the generating plant to your house is 95% efficient (5% is lost, roughly.)

The charging of the EV battery is about 75% efficient during normal (slow) charging but this drops wildly when "superchargers" or similar are used.  Such charging is unlikely to exceed 50% efficient due to the requirement to keep the batteries cool.  In short charging at more than "1C" for a lithium cell results in much lower charge efficiency because you are attempting to "overdrive" the chemical process that charges the cell, and doing so radically increases loss.  We'll use 75%.

Assuming you do not let the EV sit (all batteries self-discharge over time) and drive it the next day the loss from self-discharge is very small.  We'll ignore it, and give you the entire 90% "best of breed" efficiency between the battery and the wheels (the withdrawal of said energy, control electronics and motor turning the stored battery power into movement.)

So where are we thus far?

0.6 * 0.95 * 0.75 * 0.9 = 38.5% efficient for the EV assuming the best case, which of course is bullshit, but even if you assume such it is still nearly identical to that of the gas-powered car that cost far less money to buy!  Never mind that there is no economically-viable means to recycle a lithium battery pack in an EV; it is toxic waste when it wears out and inevitably, as with all such things, it does.  Nearly every part of a traditional car is recyclable; the metal the vehicle, including its engine and transmission all is, much of the plastic is, and the starting battery is almost 100% recyclable into a new starting battery.

But while you can't violate the laws of thermodynamics you can deliberately cripple yourself.  We can, for example, make all the liquid hydrocarbon we want out of atmospheric (or sea-sequestered carbonate) sources of carbon.  Indeed the CO2 bottle that is refilled at your local brewery or fast-food store that dispenses fountain drinks was almost-certainly condensed out of the air; that is the most-common means by which industrial CO2 is produced.  The reason we don't do this to make fuel is that you must put the energy back in you wish to liberate, plus something for the inevitable losses which you cannot eliminate.  In short what we're doing is using that which the sun put in via energy rather than doing it ourselves and the reason we do it is that it is cheaper.  That's all.

It does not matter if you like these facts or not; they are nonetheless facts.  No amount of braying at the moon nor complaining by the "green wokesters" will change it.  What you can do, however, is foolishly jack up the price to the point that nobody can afford it, at which point modern society as we know it ceases to exist.

Consider that while you may think it would be great to not have all those vehicles running around spewing CO2 into the air where the CO2 goes into the air doesn't change that it does so, and the "more refined" form energy takes the more loss and less efficient it is.  Electricity is a very highly-refined form of energy particularly when compared to, for example, a gallon of diesel fuel.

The premise that we can shift all our energy needs to "renewables" is pure folly.  We cannot at a price that can be paid by the common person, and whether we like it or not renewables are largely unreliable as well so you must add massive storage costs which makes them even more uneconomic.  While the ultra-rich do not care if their power bill at their mansion goes from $2,000 a month to $5,000, since they make north of a million a month anyway, the common person cannot pay a $500 electric bill that used to be $200.  That's roughly $3,500 a year of additional expense they do not have.  To cut that $500 bill back to something they can afford they cannot have either heat or air conditioning, and might not be able to have hot water!

Years ago I penned a column that was an expansion of part of what I wrote about on energy in Leverage called "Let's Talk About An ACTUAL Energy Policy" that, unlike the woke dreams and fairy tales does not violate the Laws of Thermodynamics nor does it require that we conquer something (e.g. fusion) we do not know how to do.  It does require engineering progress, but engineering is something that humans have always been good at, given the will.  Our landing on the moon is but one example; there were no actual breakthroughs required in terms of what we knew how to do, but engineering, the application and refinement of what we know, was required.  The same holds true here.

It is indeed easier to scream at people about them being pigs than to put your nose down and solve engineering problems, especially if you lack the intellectual firepower required to do the latter.  Those who fly all over the world yet scream about fossil fuel use are in that group -- to an individual.  So are those who live in mansions rather than 1,000 sq/ft hyper-insulated homes, have swimming pools and other personal accoutrements.  Fenestration (windows) are energy pigs; the person who claims to be a "green woke individual", if they're not lying, has no business living in a structure with floor-to-ceiling "natural light" that both gains energy in the summer and loses it in the winter, both of which must be reversed by artificial (and earth-damning, by their claims) means.

Perhaps as the self-imposed stupidity begins to bite we will force some of these people to live by their own standards.

I might also grow six heads, but somehow I suspect both are equally likely, and given the public's unwillingness to take the time to understand even the most-basic principles of both chemistry and physics I hold out little hope on a forward basis.

View this entry with comments (opens new window)