Want to know about why investing into Nuclear is the best thing this side of Tuesday. Check out this pitch to 1,000 Chinese investors.
Category: Energy
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The End of Oil? Oil Pricing for 2015 and the Rise of Solar Energy
I wrote this article for the Al Jarida newspaper and it was published on Saturday 24 January 2015.
It’s a further development of my previous blog on how technology is changing the way the energy market operates and how the oil price may never rise again.
It is published here:
Al Jarida Article 24 Jan 2015 (Go to Page 16)
The End of Oil? Oil Pricing for 2015 and the Rise of Solar Energy
For oil prices, it’s a possible flat line in my opinion. Sideways. In fact with recent dramatic changes in the cost of energy we may be witnessing the end of oil. If oil stays low for long enough it may never rise again.
Said in June 2000, by Sheikh Zaki Yamani, former Oil Minister of Saudi Arabia (1962–86), “Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the Oil Age will come to an end not because we have a lack of oil.”
How so? I hear you ask. How have we reached the end of our modern “Stone Age”?
I say yes. Let’s have a look at why.
Economically, world energy has hit and passed a price equilibrium point between two competing mediums: fossil fuels, and solar energy. This means that how we do busy will change. And it will change rapidly now. For instance, mobile phones took out the land line market in a matter of years once mobile phones became cheap and available enough to do so. They were the better option technically and economically.
Energy from fossil fuels has historically been cheap and this enabled the great economic boom of the past 100 years: a population explosion from 1.7 billion people in 1900 to over 7 billion now, and GDP from $2.7 trillion (adjusted) to over $75 Trillion in roughly the same time period (per capita moving from $1,600 adj. to $10,000). The Green revolution (food production). The Technology revolution (computer development). The Connectivity Revolution (mobile phone & internet) and now the Knowledge revolution (P2P and social networking). All fuelled by cheap energy. And now this low cost energy has engineered it’s own replacement: Solar energy.
Looking closely at Illustration 1 below we see these low fossil energy prices. We also see the rise in crude oil prices to between $10 and $20 per mmbtu that caused the oil shocks of the 1970s. Renewable energy, particularly wind and solar, attempted to rise in this time, but their high technology cost was so great that when oil prices dropped again in the mid 1980’s so did interest in alternative means of keeping us warm, cooking our food and illuminating our homes. Just keep burning fossil fuels was the acceptable, economic solution. That is until now. Solar technology costs have plummeted, especially in the last 6 years, coming from an astronomical $220/mmbtu to now being at the same level as Brent crude and LNG at around $15 per mmbtu. And it’s still falling.
As far as economics go, fossil fuel prices are going the wrong way (up) and solar pricing is going the right way (down).
So what is really happening with the tumbling price of oil? Is Saudi Arabia attempting to displace US supply by shutting down high priced tight oil investments? Are there moves afoot to destabilise the Middle Eastern power base by cutting revenues of Iran for their support of the Syrian regime and other related matters? Are there plans to destroy the asset side of the Russian balance sheet and topple their eastern European hegemony?
Yes, it may be all, or some of these things. For now.
But these are still small compared to the impending impact of economics and the immutable power of the sun. I don’t think that solar prices are having any direct effect on oil demand right now, but I believe that very soon they will. We may find that the price of oil does not rise again, or if it does, not for very long before demand falls for the final time. Remember that more than 40% of crude oil consumption is by passenger vehicles and that’s an important fact when considering the low cost of generating power from the sun.
Led by their wallets, consumers will migrate towards solutions that are supported by lower cost energy and they will seek them out as manufactures support their demands. So it’s just a matter of availability of options. And what is the option for reducing energy costs: locally generated electricity for domestic consumption and electric vehicles or EVs for transport. EVs are 90 percent cheaper to fuel and maintain than gasoline cars (Rocky Mountain Institute).
Those options appear to ready now. Today, EVs can be purchased from many of the major vehicle manufactures from around the world. For instance BMW, Chevrolet, Citroen, Fiat, Ford, General Motors, Honda, Kia, Mahindra, Mercedes Benz, Mitsubishi, Nissan, Renault and Tesla to name a few. In fact BMW are expected to phase out internal combustion engines within 10 years (Baron Funds, September 14, 2014). So that means within the very close and near future, almost half of the demand for crude oil will evaporate. The Sheik’s prediction will come true. And about the image of electric cars, in 2013 the fully electric Tesla Model S won the Car of the Year (Motor Trend) for all car types, not just EVs, and was quoted as being the best car ever tested. Ever!
What continues to drive down the cost of solar energy is mega solar projects and continued large scale PV installations. For example the Indian government has made its intentions clear to have 100 GW of installed generating capacity by 2022 and China are planning 100 GW by 2020. That’s the equivalent of 200 nuclear power stations. And pricing will be around $0.06 per kWh – on a par when levelled with present energy costs (nuclear, coal & LNG).
Is the fall in oil price here to stay. Perhaps not just yet. It depends the uptake of EVs, and that is a matter of their availability. But soon low oil prices will be here to stay.
Our choice in this energy shift is to be leaders or let others lead.
Author Deck
Mr. Jeremiah Josey is an Australian who has been living in the Middle East for 7 years. Knowledgeable in the technology and energy markets, he is the Chairman of Swiss based Meci Group, a business and investment consultancy that operates across the Middle East, Central Asia and Russia.
See www.JeremiahJosey.com and www.Meci-Group.com for more.
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2015: The Year For the Downside of Solar Energy and the Upside of Banking
Photographer: Chris Sattlberger/Getty Images
Downside of Solar? Yes, downside. The side where you slide down and things get easier and more efficient, and lower priced, and better, and people want more of it. That’s what is happening with solar power. Look at this slope for US energy pricing:
Source: EIA, CIA, World Bank, Bernstein analysis
(Henry Hug, is natural gas, Brent is crude oil, LNG is liquefied natural gas)
This solar slope is definitely a diamond double black run. (Yes I love skiing).
Notice how the other energy sources are climbing. That’s cross country skiing and really, a lot of work. The scenery is great though.
So what’s been happening in solar that is different in the other energy sectors: technical advances are improving output, reducing costs. As more people want it, they leave established alternatives and make it main stream.
I’m saying that that is what has happened to solar recently. I’m just choosing the start of 2015, since, well, its the start of 2015. I’m also suggesting that oil prices may not return to previous highs. Has the down side been seen yet, no I don’t think so, but it is getting close.
Oil prices may rise again, but not for very long.
Demand for electric vehicles is expected to rise rapidly from 2017.
Nafeez Ahmed and Tony Seba explain why here How Solar Power Could Slay the Fossil Fuel Empire by 2030.
Said in June 2000, by Sheikh Zaki Yamani, former Oil Minister of Saudi Arabia (1962–86), “Thirty years from now there will be a huge amount of oil—and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the Oil Age will come to an end not because we have a lack of oil.”
Are we are getting to about that time the Sheikh mentioned?
See that 44.1% blue pie piece below? That’s all burnt in passenger cars.
From Renewable Energy World.
The falling solar prices will lead to distributed energy generation and this will break the hegemony of centralized energy production and reticulation. This the heart of the world financial system presently. A good example is Africa. It cannot be tamed primarily because it doesn’t have centralized energy infrastructure. This may appear a little complicated, but stay with me.
This is what I mean by the upside of banking.
The financial system is having it’s own problems and seems on the brink of collapse, as James Quiin, Executive Business Editor of the Telegraph elegantly put it two days ago.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11321497/Why-2015-could-spell-the-end-for-the-hegemony-of-the-big-banks.html
He covers it well, though I would add that fractional reserve banking is the core of profit generation for the modern banking system, coupled with excessive derivative trading. These two systems are under heavy strain presently.
Changing direction a little further to discuss the upside of banking, I see that the people of China and Russia have a great deal of contiguous history, both recent and ancient: Russia, 1,000 years and China, 5,000 years. This means lots of lessons learnt from the mistakes of their ancestors. For instance in the early 1,000’s and for 500 years China tried and failed with paper money systems 5 times before the people ignored the government and switched to silver for their medium of exchange. Each successive Chinese government had tried to print their way out of debt. China also has recent living memory failures, similar to Russia. So I see that they are acting as a group of interested people, as a collective, rather then the haves and havenots system of a monarchical, plutocratic system common in the west presently. For instance, China has a history of executing bankers caught defrauding customers and investors and Vladimir Putin has an approval rating of almost 90%. So, ostensibly Russia and China are for working for their people and will adopt technologies and social systems that benefit everyone. So I foresee solar and new financial systems quickly being adopted in these countries.
Moving on…
2015 is also good year to start on the down slope of oil demand, so a new currency won’t be petrodollars. It will be remain commodity based, however more likely onto gold and silver. Meanwhile, Russia, Iran and China are active in forging closer ties. It’s not about competing with the USA business model. These alliances form natural blocks for US companies accessing resources. For instance Afghanistan has over $1T in gold and lithium deposits… This is part of the reason why Russia was interested back in the 80’s.
Tom Randle over at Bloomberg made this interesting article about 8 weeks ago:
Every time fossil fuels get cheaper, people lose interest in solar deployment. That may be about to change.
After years of struggling against cheap natural gas prices and variable subsidies, solar electricity is on track to be as cheap or cheaper than average electricity-bill prices in 47 U.S. states — in 2016, according to a Deutsche Bank report published this week. That’s assuming the U.S. maintains its 30 percent tax credit on system costs, which is set to expire that same year.
Even if the tax credit drops to 10 percent, solar will soon reach price parity with conventional electricity in well over half the nation: 36 states. Gone are the days when solar panels were an exotic plaything of Earth-loving rich people. Solar is becoming mainstream, and prices will continue to drop as the technology improves and financing becomes more affordable, according to the report.
The chart below shows how far solar will come out ahead in each state in 2016, assuming a worst-case scenario of lower tax credits. The blue bars show the anticipated cost of solar energy (assuming a conservative 20-year lifespan for the panels) minus average electricity prices. Positive numbers indicate the savings for every kilowatt hour of electricity.
Grid Parity to Reach 36 States in 2016
Solar has already reached grid parity in 10 states that are responsible for 90 percent of U.S. solar electricity production. In those states alone, installed capacity growth will increase as much as sixfold over the next three to four years, Deutsche Bank analyst Vishal Shah wrote in the Oct. 26 report.
The reason solar-power generation will increasingly dominate: it’s a technology, not a fuel. As such, efficiency increases and prices fall as time goes on. The price of Earth’s limited fossil fuels tends to go the other direction. Michael Park, an analyst at Sanford Bernstein, has a term for the staggering price relationship between solar and fossil fuels: the Terrordome. I’m not sure exactly what that means, but it doesn’t sound very forgiving.
The price of solar will soon undercut even the cheapest fossil fuels in many regions of the planet, including poorer nations where billion-dollar coal plants aren’t always practical.
Solar will be the world’s biggest single source of electricity by 2050, according to a recent estimate by the International Energy Agency. Currently, it’s responsible for just a fraction of one percent.
Because of solar’s small market share today, no matter how quickly capacity expands, it won’t have much immediate impact on the price of other forms of energy. But soon, for the first time, the reverse may also be true: Gas and coal prices will lose their sway over the solar industry.
So, there you have a few changes on the world stage, conveniently coming together at about the same time: the fall of oil, the rise of solar, and the shakeup of the financial system. A good time to plan new investment and business strategies for yourself and your family.
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Is the US Oil Sector in Denial?
I came across an interesting article in my email the other morning about how higher energy taxes threaten US shale boom, and I was intrigued not really by the message, but by how the message was being delivered. Being close to the oil sector myself I know that it’s a high-profile industry and so it attracts many bright minds. What Nathan Randazzo did with the article was sensationalize it, and he used a great deal of statistics. It is clearly, and unfortunately, a sponsored point of view. Bright minds are attracted to statistics, and can be distracted by articles like this one.
The key point he pivoted his article upon was the need to keep low-cost (i.e. subsidised energy production going because of the “rapidly expanding population in the U.S.” But this is not quite correct: slowest growth predicted in U.S. over the next 10 years since the 1930’s Great Depression. Only 7.3% growth predicted over this decade we are in now. It was only 7.25% between 1930 and 1940. In addition to this the USA has the lowest vehicle fuel efficiency profile of any country in the world (courtesy of studies produced by the Rocky Mountain Institute of Snowmass, Colorado). Hence there is scope to reduce oil demand in the USA by making vehicles more fuel efficient. Thus the price will come down. Even less need for subsidies. Also the USA is the second largest producer of global greenhouse gases, whilst having only 4% of the world’s population, hence placing great emphasis on “green” energy production methods. These are “high tech” industries, driving entrepreneurship, smart thinking and advanced technologies. That can only be a good thing for people. My point is there is ample scope for redirecting skills, talent and resources towards better ways of producing energy without employee funded tax reductions and subsidies. Said in June 2000, by Sheikh Zaki Yamani, former Oil Minister of Saudi Arabia (1962–86), “Thirty years from now there will be a huge amount of oil—and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the Oil Age will come to an end not because we have a lack of oil.” The present Saudi Oil Minister Sheikh Ali Al-Naimi recently said “We know that pumping oil out of the ground does not create many jobs. It does not foster an entrepreneurial spirit, nor does it sharpen critical faculties.” Jeremiah Josey -
Wireless Power
Recent studies into the prehistoric structures in Egypt and Central and Southern Americas reveal vast spread of knowledge far beyond our own: ancient power stations and wireless power. Tesla in the 1890’s may have rediscovered what was known – and in common use – more than 12,000 years ago.
Watch the video: The secrets hidden in the pyramids of Egypt (Harun Yahya)
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No need to be afraid of a tax on carbon
http://www.smh.com.au/opinion/politics/no-need-to-be-afraid-of-a-tax-on-carbon-20100903-14tqh.html
Love it, love it, love it!
Before the Australian election climate change was relegated to a distant nowhere in the election work up of each major party. Now it’s topic to swing a government of some 20 odd million people.
Here’s a speech by someone who has a very REAL concern for climate change: Maldives President Mohamed Nasheed (average country height above sea level 1.5 meters – 5 feet) . Mohamed states his country’s commitment to being carbon neutral by 2020. He’s not doing it to make a difference – they simple won’t – Maldives contributes 250,000 MT of CO2 per year, Australia produces 100,000,000 MT, the USA 1,600,000,000 MT (See here for the data) – the Maldives won’t even make a dent.
They are doing to make a point: that giving up is not an option.
And with a little bit of politicking and “power” mongering, maybe Australia will commit to the same goal too??
Maybe.
Fingers crossed.
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How to get a 1 hour suntan in 5 minutes
I was sitting by the pool today (as I often do), thinking about stuff (as I often do)…
I was thinking about a movie called Sunshine released in 2007. An excellent Si-Fi movie set 50 years into the future when the sun is dying. (Worth a watch by the way. It’s a straight forward and complex concept.)
I was thinking about the “sun room” on the space ship. The crew often go there, and after requesting the computer to open the screen only 2% or 3% they watch the sun from close up. They learn a lot about themselves by doing this – watch it, you’ll understand what I mean.
That got me thinking, how close would the earth be to get a suntan in 5 minutes that now takes 1 hour? Crazy thought, but I was lying in the sun pondering it?
So I decided to do a mind exercise to work it out:
Let’s assume that the atmosphere remains as it is. It just makes it easier.
Now for some straight physics and geometry: The surface of a sphere is calculated by 4 time Pi times Radius squared – 4 x pi x r^2.
I.e. Surface Area of a sphere is proportional to the square of its radius.
When the sun emits energy in any given second (all across the frequency range: gamma rays, ultraviolet, light, infrared, and a heap of photons all charged up and going somewhere fast), that particular unit of energy spreads out around an ever-growing sphere as it moves away from the sun, i.e. it decreases directly in proportion to the square of the distance away from the sun. I.e. Energy is proportional to Radius^0.5
To get a 1 hour sun tan in 5 minutes we need to cram in 12 times as much energy in 5 minutes as we would have done in 60 minutes.
What is the square root of 12? It’s only 3.46, about 4.
That means we need to move the Earth only a 107 million miles closer to the sun and you’ll only need 5 minutes to get a tan! And 10 minutes to burn, and 1 hour, hmmm… probably a cinder?? !!
There you go. Stuff you really need to know.
Some interesting facts on the sun and the Earth’s relationship to it.
- It’s ‘only’ 150 million kilometers from the Earth to the sun (That’s the distance it takes to go around the earth 3,750 times) (So to tan in 5 minutes we need to move the earth to an orbit of 43 million kilometers, inside the orbit of Mercury).
- It takes the light from the sun about 8 minutes to reach us.
- The estimated temperature in the center of the sun is 15,000,000 °C.
- Diameter of the sun is 1.39 million kilometers (That’s 34 times the earth’s circumference)
- Surface temperature of the sun is 6,000 degrees celsius.
Puts our home into perspective a little doesn’t it.
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The Dark Side of Green
I posted a comment here about the real costs of burning hydrocarbons. It was in response to discussion on subsidies on green energy technologies, global warming and everything in between.
@Brian and @Brennan love the way you think. Clear, clean, concise. Brennan you’d never hit below the belt in a fight would you. A pity. In this game your opponents will do anything they can get away with. Wear protection!
@Leigh and @Sung… ? Hmmm. Yeah, go for it. You both have very interesting views on life.
The original comment was all about letting energy technologies compete fairly. Go for it. Green tech subsidies are paid by wage earners through their taxation so it’s just hiding the cost anyhow. However make sure that all inputs and outputs are considered, valued and costed appropriately.
Acid rain killed more than a few German trees thousands of kilometers from the factories producing the SO2. Did those factories “pay” for those trees? No. Was that taken into account in in final sale price of their product. No. The product price did not reflect the true cost of production.
Burning hydrocarbons is the same. Oxygen in. Who made it? CO2 out as waste? Who handles that? Is it really “free”? The trees in Brazil? CO2 in and O2 out. What happens when they are cut down? The ocean: warmer water: Less able dissolve CO2. There’s a cost there.
Hot, de-oxygenation water discharge from power stations. Aquatic flora and fauna loose their breeding ground. How does this affect the number of wild tuna in the ocean? Is the price of electricy include for the number of tuna that can’t breed because of that “use” of water? Not yet.
It’s a complicated equation, and we as a society have a hard time agreeing on where to hold the next World Cup let alone agreeing on managing the true cost of the earth’s natural resources.
I took a look at published data on what’s presently happening with the ice cap of Greenland. Not what might be happening, but what is happening. I extrapolated out a few years and came to the conclusion that now I ponder the building of houses on the oceans’ coast lines. I prefer the mountains myself – I like the challenge of the climb.
http://jeremiahjosey.wordpress.com/2009/08/14/an-inconvenient-truth-3-years-on/
PS, I advise the owners of the worlds’ second largest oil field on how to make the most with their money and their oil production. I see – and work – on both sides.
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The Mediocrity of Australian Politics
Recent public movements in Australian politics reveal the truth behind the talking: National interest, getting things done, change for the good of everyone? These are not on the agenda. Personal interest, personal gain and tepid caution: these are what drives the upcoming Australian election.
As pointed out by Leigh Ewbank in his recent blog, the major parties are playing very low key campaigns. Both parties have identified the marginal electorates where they need to win to win the election, and they are focusing their campaigns accordingly, minimizing any disruptive or controversial discussions that may upset the status quo of their stable – already won – electorates.
In her post, Fiona Armstrong cites that scientist believe we have 10 years to correct climate change. In my blog post from last year on the melting of Greenland’s ice cap, I demonstrate that the data already published shows that it is already too late: my recommendation is that adapting to change is the best solution – it is simply too late to do anything else.
However, is it the morally best solution? I think not.
100% carbon free energy production by 2020 for all of Australia? The plan already exists. The plan is robust, it is solid and it is achievable. Only those who work in the energy industry understand this. They know this. For everyone else it is debate, conjecture and point scoring, and certainly leaves them exposed to influence from special interest groups, namely the coal industry.
I worked with giants of the coal business for years in Australia – individuals that shaped Australia’s policy not by writing papers and debating bills, but by promoting and selling coal – billions of dollars of it. These people are not interested in doing anything that will disrupt this business.
Until these individuals shift, until the coal industry shifts, the Government – along with the Australian people – may as well piss into the wind.
We are not long term animals. We don’t think long term. We don’t act long term. Never have been, most likely never will be. This is just yet another disappointing example. It is the main failure of the great democratic experiment of the 20th century.
Hopefully 10 years is not so long term that we WILL act responsibly.
Links
My post on Greenland’s melting ice:
http://jeremiahjosey.wordpress.com/2009/08/14/an-inconvenient-truth-3-years-on/The plan for Green Australia by 2020:
http://media.beyondzeroemissions.org/preview-exec-sum14.pdfFiona Armstrong’s post
http://cpd.org.au/2010/07/are-you-fair-dinkum-julia/Leigh Ewbank’s blog
http://therealewbank.com/2010/07/30/dealing-with-the-electoral-unimportance-of-climate-change/Recent Summit on Australia by 2020
http://www.australia2020.gov.au/docs/2020_Summit_initial_report.pdf