'We Are Entering A New Oil Normal"

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From Jawad Mian of Outside the Box

Investment Observations

The precipitous decline in the price of oil is perhaps one of the most bearish macro developments this year. We believe we are entering a “new oil normal,” where oil prices stay lower for longer. While we highlighted the risk of a near-term decline in the oil price in our July newsletter, we failed to adjust our portfolio sufficiently to reflect such a scenario. This month we identify the major implications of our revised energy thesis.

The reason oil prices started sliding in June can be explained by record growth in US production, sputtering demand from Europe and China, and an unwind of the Middle East geopolitical risk premium. The world oil market, which consumes 92 million barrels a day, currently has one million barrels more than it needs. US pumped 8.97 million barrels a day by the end of October (the highest since 1985) thanks partly to increases in shale-oil output which accounts for 5 million barrels per day. Libya’s production has recovered from 200,000 barrels a day in April to 900,000 barrels a day, while war hasn’t stopped production in Iraq and output there has risen to an all-time high level of 3.3 million barrels per day. The IMF, meanwhile, has cut its projection for global growth in 2014 for the third time this year to 3.3%. Next year, it still expects growth to pick up again, but only slightly.

Everyone believes that the oil-price decline is temporary. It is assumed that once oil prices plummet, the process is much more likely to be self-stabilizing than destabilizing. As the theory goes, once demand drops, price follows, and leveraged high-cost producers shut production. Eventually, supply falls to match demand and price stabilizes. When demand recovers, so does price, and marginal production returns to meet rising demand. Prices then stabilize at a higher level as supply and demand become more balanced. It has been well-said that: “In theory, there is no difference between theory and practice. But, in practice, there is.” For the classic model to hold true in oil’s case, the market must correctly anticipate the equilibrating role of price in the presence of supply/demand imbalances.

By 2020, we see oil demand realistically rising to no more than 96 million barrels a day. North American oil consumption has been in a structural decline, whereas the European economy is expected to remain lacklustre. Risks to the Chinese economy are tilted to the downside and we find no reason to anticipate a positive growth surprise. This limits the potential for growth in oil demand and leads us to believe global oil prices will struggle to rebound to their previous levels. The International Energy Agency says we could soon hit “peak oil demand”, due to cheaper fuel alternatives, environmental concerns, and improving oil efficiency.

The oil market will remain well supplied, even at lower prices. We believe incremental oil demand through 2020 can be met with rising output in Libya, Iraq and Iran. We expect production in Libya to return to the level prior to the civil war, adding at least 600,000 barrels a day to world supply. Big investments in Iraq’s oil industry should pay-off too with production rising an extra 1.5-2 million barrels a day over the next five years. We also believe the American-Iranian détente is serious, and that sooner or later both parties will agree to terms and reach a definitive agreement. This will eventually lead to more oil supply coming to the market from Iran, further depressing prices in the “new oil normal”. Iranian oil production has fallen from 4 million barrels a day in 2008 to 2.8 million today, which we would expect to fully recover once international relations normalize. In sum, we see the potential for supply to increase by nearly 4 million barrels a day at the lowest marginal cost, which should be enough to offset output cuts from marginal players in a sluggish world economy.

Our analysis leads us to conclude that the price of oil is unlikely to average $100 again for the remaining decade. We will use an oil rebound to gradually adjust our portfolio to reflect this new reality.

From 1976 to 2000, oil consolidated in a wide price range between $12 and $40. We think the next five years will see a similar trading range develop in oil with prices oscillating between $55 and $85. If the US dollar embarks on a mega uptrend (not our central view), then we can even see oil sustain a drop below $60 eventually.


Source: Bloomberg

Normally, falling oil prices would be expected to boost global growth. Ed Morse of Citigroup estimates lower oil prices provide a stimulus of as much as $1.1 trillion to global economies by lowering the cost of fuels and other commodities. Per-capita oil consumption in the US is among the highest in the world so the fall in energy prices raises purchasing power compared to most other major economies. The US consumer stands to benefit from cheaper heating oil and materially lower gasoline prices. It is estimated that the average household consumes 1,200 gallons of gasoline a year, which translates to annual savings of $120 for every 10-cent drop in the price of gasoline. According to Ethan Harris of Bank of America Merrill Lynch: “Consumers will likely respond quickly to the saving in energy costs. Many families live “hand to mouth”, spending whatever income is available. The Survey of Consumer Finances found that 47% of families had no savings in 2013, up from 44% in the more healthy 2004 economy. Over time, energy costs have become a much bigger part of budgets for low income families. In 2012, families with income below $50,000 spent an average of 21.4% of their income on energy. This is almost double the share in 2001, and it is almost triple the share for families with income above $50,000.” The “new oil normal” will see a wealth transfer from Middle East sovereigns (savers) to leveraged US consumers (spenders).

The consumer windfall from lower oil prices is more than offset by the loss to oil producers in our view. Even though the price of oil has plummeted, the cost of finding it has certainly not. The oil industry has moved into a higher-cost paradigm and continues to spend significantly more money every year without any meaningful growth in total production. Global crude-only output seems to have plateaud in the mid-70 million barrels a day range. The production capacity of 75% of the world’s oilfields is declining by around 6% per year, so the industry requires up to 4 million barrels per day of new capacity just to hold production steady. This has proven to be very difficult. Analysts at consulting firm EY estimate that out of the 163 upstream megaprojects currently being bankrolled (worth a combined $1.1 trillion), a majority are over budget and behind schedule.

Large energy companies are sitting on a great deal of cash which cushions the blow from a weak pricing environment in the short-term. It is still important to keep in mind, however, that most big oil projects have been planned around the notion that oil would stay above $100, which no longer seems likely. The Economist reports that: “The industry is cutting back on some megaprojects, particularly those in the Arctic region, deepwater prospects and others that present technical challenges. Shell recently said it would again delay its Alaska exploration project, thanks to a combination of regulatory hurdles and technological challenges. The $10 billion Rosebank project in Britain’s North Sea, a joint venture between Chevron of the United States and OMV of Austria, is on hold and set to stay that way unless prices recover. And BP says it is “reviewing” its plans for Mad Dog Phase 2, a deepwater exploration project in the Gulf of Mexico.  Statoil’s vast Johan Castberg project in the Barents Sea is in limbo as the Norwegian firm and its partners try to rein in spiralling costs; Statoil is expected to cut up to 1,500 jobs this year. And then there is Kazakhstan’s giant Kashagan project, which thanks to huge cost overruns, lengthy delays and weak oil prices may not be viable for years. Even before the latest fall in oil prices, Shell said its capital spending would be about 20% lower this year than last; Hess will spend about 15% less; and Exxon Mobil and Chevron are making cuts of 5-6%.”

About 1/3rd of the S&P500 capex is done by the energy sector. Based on analysis by Steven Kopits of Douglas-Westwood: “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programs. Nearly half of the industry needs more than $120. The 4th quartile, where most US E&Ps cluster, needs $130 or more.”

As energy companies have gotten used to Brent averaging $110 for the last three years, we believe management teams will be very slow to adjust to the “new oil normal”. They will start by cutting capital spending (the quickest and easiest decision to take), then divesting non-core assets (as access to cheap financing becomes more difficult), and eventually, be forced to take write-downs on assets and projects that are no longer feasible. The whole adjustment process could take two years or longer, and will accelerate only once CEOs stop thinking the price of oil is going to go back up. A similar phenomenon happened in North America’s natural gas market a couple of years ago.

This has vast implications for America’s shale industry. The past five years have seen the budding energy renaissance attract billions of dollars in fixed investment and generate tens of thousands of high-paying jobs. The success of shale has been a major tailwind for the US economy, and its output has been a significant contributor to the improvement in the trade deficit. We believe a sustained drop in the price of oil will slow US shale investment and production growth rates. As much as 50% of shale oil is uneconomic at current prices, and the big unknown factor is the amount of debt that has been incurred by cashflow negative companies to develop resources which will soon become unprofitable at much lower prices (or once their hedges run out). Energy bonds make up nearly 16% of the $1.3 trillion junk bond market and the total debt of the US independent E&P sector is estimated at over $200 billion.

Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia "will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.

In the current cycle, though, prices will have to decline much further from current levels to curb new investment and discourage US production of shale oil. Most of the growth in shale is in lower-cost plays (Eagle Ford, Permian and the Bakken) and the breakeven point has been falling as productivity per well is improving and companies have refined their fracking techniques. The median North American shale development needs an oil price of $57 to breakeven today, compared to $70 last year according to research firm IHS


Source: WoodMackenzie, Barclays Research

While we don’t believe Saudi Arabia engineered the latest swoon in oil prices, it would be foolish not to expect them to take advantage of the new market reality. If we are entering a “new oil normal” where the oil price range may move structurally lower in the coming years, wouldn’t you want to maximise your profits today, when prices are still elevated? If, at the same time, you can drive out fringe production sources from the market, and tip the balance in MENA geopolitics (by hurting Russia and Iran), wouldn’t it be worth it? The Kingdom has a long history of using oil to meet political and economic ends.

We don’t see any signs of meaningful OPEC restraint at the group’s 166th meeting on November 27th in Vienna. The cartel has agreed to cut crude production only a handful of times in the past decade, with December 2008 being the most recent instance. Based on our assessment, the only members with enough flexibility to reduce oil output voluntarily are the United Arab Emirates, Kuwait and Saudi Arabia. OPEC countries have constructed their domestic policy based on the assumption that oil prices will remain perpetually high and most members are not in a strong enough financial position to take production offline. Once all the costs of subsidies and social programs are factored-in, most OPEC countries require oil above $100 to balance their budgets. This raises longer-run issues on the sustainability of the fiscal stance in a low-oil price environment. On the one hand, you have rising domestic oil consumption because there is no price discipline, which leaves less oil for the lucrative export market, and on the other hand, you require more money now than ever before to support generous budgetary spending.

How will this be resolved?

And with a much slower rate of petrodollar accumulation, what will be the implication for global financial markets, given the non-negligible retraction in liquidity?

The current oil decline has potentially cost OPEC $250 billion of its recent earnings of $1 trillion. Thus, it is not surprising to see OPEC production – relative to its 30 million barrels a day quota – rising from virtual compliance to one where the cartel is producing above its agreed production allocation. Output rose to 30.974 million barrels per day in October, a 14-month high led by gains in Iraq, Saudi Arabia and Libya. So, it can be grasped that the lower the price of oil falls, the greater the need to compensate for lower revenues with higher production, which paradoxically pushes oil prices even lower.

We believe the “new oil normal” will alter relative economic and political fortunes of most countries, with income redistributing from oil exporters (GCC, Russia) to oil importers (India, Turkey). We therefore exited our long position in the WisdomTree Middle East Dividend Fund (GULF) at a 14.4% gain.

Those nations with abundant oil tend to suffer from the “resource curse”. With no other ready sources of income, the non-oil economy atrophies due to the extraordinary wealth produced by the oil sector. OPEC countries are some of the least diversified economies in the world.

In an article titled “When The Petrodollars Run Out”, economist Daniel Altman wrote for the Foreign Policy magazine as follows: “Twenty countries depend on petroleum for at least half of their government revenue, and another 10 are between half and a quarter. These countries are clearly vulnerable to big changes in the price and quantity of oil and gas that they might sell…So what can these countries do to bolster themselves for the future? For one thing, they might try to use their petroleum revenues to diversify their economies. Yet there's little precedent for that actually happening. In the three decades from 1983 to 2012, no country that ever got 20 percent of its GDP from oil and gas – according to the World Bank's figures – substantially reduced those resources' share of its economy. The shares typically rose and fell with prices; there were no long-term reductions.”


Source: Foreign Policy

Saudi Arabia appears to be comfortable with much lower oil prices for an extended period of time. The House of Saud is equipped with sufficient government assets to easily withstand three years at the current oil price by dipping into their $750 billion of net foreign assets. Saudi Arabia bolstered output by 100,000 barrels a day recently to 9.75 million, and cut its prices for Asian delivery for November – the fourth month in a row that it has cut official selling prices to shore up its global market share. With American imports from OPEC almost cut by half and given weak European demand, most oil-producing countries are now engaged in a price war in Asia. The Kingdom generates over 80% of its total revenue from oil sales so it may not remain immune in the “new oil normal” for long. According to HSBC research, Saudi Arabia would face a budget shortfall approaching 10% of GDP at $70 oil and at $50, the deficit could exceed 15% of GDP.

Russia and Saudi Arabia have opposing agendas in the Middle East. We believe Russia would like to see Middle East burn. This would shore up the cost of oil and keep America from geopolitically deleveraging from the region, thus allowing more room for Putin to outmaneuver his opponents in Europe. It was reported last year that the Saudis offered Russia a deal to carve up global oil and gas markets, but only if Russia stopped support of Syria’s Assad regime. No agreement was reached. It now seems the Saudis are turning to the oil market to affect an outcome.

With global energy prices at multi-year lows, Russia is facing a persistent low growth environment and an endemic outflow of capital. The $30 drop in the Brent price translates into an annual loss in crude oil revenues of over $100 billion. According to Lubomir Mitov, Russia’s financing gap has reached 3% of GDP, and they have to repay $150 billion in principal to foreign creditors over the next 12 months. Even with $400 billion in foreign currency reserves and the Russian central bank raising its official interest rate by 150 basis points to 9.5% last month, the ruble is down 38% from its June high making foreign liabilities a lot more onerous. As per Faisal Islam, political editor of Sky News, “financial markets have punished Russia far quicker than Western governments.”

“It took two years for crumbling oil prices to bring the Soviet Union to its knees in the mid-1980s, and another two years of stagnation to break the Bolshevik empire altogether…” writes Ambrose Evans-Pritchard in The Daily Telegraph. “…Russian ex-premier Yegor Gaidar famously dated the moment to September 1985, when Saudi Arabia stopped trying to defend the crude market, cranking up output instead.” It is estimated the Soviet Union lost $20 billion per year, money without which the country simply could not survive.

Could we see a repeat of events?

In the past, higher resource prices increased the occasions for military conflicts as nations would scramble to secure necessary supplies. Going forward, however, we firmly believe lower oil prices pose a greater risk of escalating current geopolitical challenges.

Putin is a determined and ambitious leader who wants to expand Russia’s power and influence. Since he rose to dominance in 1999, he advocated development of Russia’s resource sector to resurrect Russian wealth. In his doctoral thesis, he equated economic strength with geopolitical influence. Today, Russia needs an oil price in excess of $100 a barrel to support the state and preserve its national security. Consequently, there is no question Putin will try to resist lower oil prices either through outright warfare or more covert economic sabotage.

Russia is the world’s 8th-largest economy, but its military spending trails only the US and China. Putin increased the military budget 31% from 2008 to 2013, overtaking UK and Saudi Arabia, as reported by the International Institute of Strategic Studies. Russia also has plans to become the world’s largest arms exporter by more than tripling military exports by 2020 to $50 billion annually. We are convinced Putin would like to see a bull-market in international tensions. This is the biggest threat to our “new oil normal” theme.


Source: Cagle Cartoons

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Sun, 11/30/2014 - 14:30 | 5501808 JustObserving
JustObserving's picture

Putin is a determined and ambitious leader who wants to expand Russia’s power and influence

Yet it was the Nobel Prize Winner who spent $5 billion destabilizing Ukraine.  Obama has bombed seven Muslim countries and almost lied his way to a major war with Syria with fairy tales about Assad's use of sarin gas.

Pulitzer Prize-winning investigative journalist Seymour Hersh has published an article demonstrating that the US government and President Barack Obama knowingly lied when they claimed that the Syrian government had carried out a sarin gas attack on insurgent-held areas last August.

http://www.wsws.org/en/articles/2013/12/10/pers-d10.html

Putin will try to resist lower oil prices either through outright warfare

Pure, puerile propaganda which ignores relentless bombing by the Nobel Prize Winner.  To call this article worthlesss would be to compliment it.

Sun, 11/30/2014 - 14:31 | 5501847 Publicus
Publicus's picture

What goes up, must come down. Oil is worth no more than $20 a barrel.

Sun, 11/30/2014 - 14:37 | 5501865 MalteseFalcon
MalteseFalcon's picture

"The precipitous decline in the price of oil is perhaps one of the most bearish macro developments this year."

Yes.  Cheap oil absolutely will kill the real economy.

Sun, 11/30/2014 - 14:39 | 5501873 MalteseFalcon
MalteseFalcon's picture

2015 will be known as the year of the electric car as several Japanese and Korean car makers will be introducing fully electric models.

Add that to this article and the age of oil is over.

Sun, 11/30/2014 - 15:04 | 5501924 FieldingMellish
FieldingMellish's picture

Right... because electric cars can substitute: jet fuel, diesel, ashphalt, fertilizer, heating oil, feedstock, plastics, polyurethanes and .... electric power generation to power those electric cars. Good plan.

Sun, 11/30/2014 - 15:39 | 5502022 MalteseFalcon
MalteseFalcon's picture

LOL!!  Take all ground transportation out of the equation and oil is finished.  Heating oil? LOL!!  Natty gas!!

Sun, 11/30/2014 - 16:22 | 5502141 Matt
Matt's picture

Electricty is not a SOURCE of energy. You have to burn fossil fuels, use nuclear power or renewables to generate the electricty. Nuclear power and renewables need fossil fuels to build and maintain. Every step of conversion, you lose energy.

Sun, 11/30/2014 - 16:35 | 5502174 MalteseFalcon
MalteseFalcon's picture

Matt, if you are going to quote from "Our Friend Electricity", you'll need to use quotation marks.

BTW my solar panels crank out electricity.  The excess goes to the grid right now.  Soon it will go straight into my car!!

Sun, 11/30/2014 - 16:55 | 5502235 zerozulu
zerozulu's picture

Few drops of OIL is all I need to lubricate my bicycle chain.

Sun, 11/30/2014 - 16:56 | 5502236 stacking12321
stacking12321's picture

"Our analysis leads us to conclude that the price of oil is unlikely to average $100 again for the remaining decade."

fail!

the problem with this assumption is that it prices the oil in dollars, and it assumes that the dollar will continue its grandiose valuation in a stable manner. not likely, especially as the federal reserve has specifically stated that it is working to maintain positive inflation rate (i.e., devaluaing the dollar / wealth transfer to the 0.001%). petrodollar hegemony is coming to an end quickly.

a more interesting speculation would be to talk about what oil is worth in real money (gold) - historically 1oz per 16 barrels.

Sun, 11/30/2014 - 17:29 | 5502324 Serfs Up
Serfs Up's picture

Stupid article is stupid.

He lost me in a lot of places, but permanently when he cited "per well" productivity gains.

In fact the wells are about as productive as ever with practically no gains at all in recent years.  Instead what we've got is "per rig" productivity gains mainly becasue of multi-well pad drilling.

These are entirely different concepts because the main cost of the well is in the well itself, by FAR, not in the rig movement and set-up costs.

Seems like an analyst should know these things.

Sun, 11/30/2014 - 19:38 | 5502688 IREN Colorado
IREN Colorado's picture

The value of the dollar against comodities is a whole different discussion. The value of oil is going to drop because of slower economic activity and the development of new technologies to explore and extract oil. The value of the dollar, against all types of comodities, is going to drop because it is being hyper printed, digitally. That will be an offset. 

Net net. US consumers are screwed. 

Sun, 11/30/2014 - 19:30 | 5502689 IREN Colorado
IREN Colorado's picture

The US Gov is all in to destroy the US energy industry. That can't be good long term since solar panels need taxes and digitally created revenues to make them sort of "economical" (but not really).

 

Mon, 12/01/2014 - 00:53 | 5503587 Matt
Matt's picture

"BTW my solar panels crank out electricity.  The excess goes to the grid right now.  Soon it will go straight into my car!!"

How much energy is embedded in the panels? How much energy will they produce over their lifetimes, and what is the mean time between failure?

Are you on net metering or a subsidy payout program? It sure is great when other people's money pays for your stuff, right?  

Sun, 11/30/2014 - 16:33 | 5502173 FieldingMellish
FieldingMellish's picture

Personal ground transport accounts for only 45% of all oil used in the US. Best estimates put electric vehicles at 10% of total production by 2020 so that takes out 5% of oil consumption... a real revolution. Forget the Western world and look to China and India for the future of cars. They don't exactly have a decent electrical infrastructure for recharging. End of oil era is hyperbolic for at least another 20-30 years.

Sun, 11/30/2014 - 16:43 | 5502196 MalteseFalcon
MalteseFalcon's picture

Add in commercial transportation. 

I'm not forgetting China or India.  Neither country has oil, so the impetus will be even greater there.  I think we've seen what happens when the Chinese focus.  When they want to have the best electric infrastructure they'll have it in short order.  They didn't build the Three Gorges dam for chuckles.

It all happens on the margin.  As soon as it becomes obvious that oil demand will only shrink, it's over.  Most current investors thought oil was going to $120 by 12/31/14.

Paradigm shift!!

Sun, 11/30/2014 - 16:48 | 5502215 MalteseFalcon
MalteseFalcon's picture

The fuel cost for an electric car is 1/3 of that for a gas-powered car.  Throw in almost no maintainence cost and electric is a no brainer.

Mon, 12/01/2014 - 00:56 | 5503592 Matt
Matt's picture

Oh, so the batteries last forever? Good to know.

Sun, 11/30/2014 - 16:51 | 5502224 FieldingMellish
FieldingMellish's picture

Commercial transport won't be ready for electric motors for another 20 years, minimum. Too heavy, too big. You just don't dump a whole new way of doing things and POOF!. It takes many years to move things over. If you have ever been to India, you know there is little chance of EV taking off there in the foreseeable future. Oil will be with us for a while yet.

Sun, 11/30/2014 - 18:32 | 5502523 tvdog
tvdog's picture

Commercial transport can run quite well on natural gas or propane. And trains could still (hypothetically) run on coal.

Sun, 11/30/2014 - 19:31 | 5502711 Bangin7GramRocks
Bangin7GramRocks's picture

Does cheap oil mean our Generals can resume killing brown people with tanks again?

Sun, 11/30/2014 - 15:04 | 5501931 Winston Churchill
Winston Churchill's picture

Because that electricity just spontaneously creates itself of course.

Coal being phased out in power generation, so are they going to use, firewood ?

Electric vehicles will work when the commute is short, avoiding deep discharge cycling,

but here in the US ?

The only reason Tesla is still here is because their cars are showboats, not really used like real

cars.I still have good sources in the battery industry who assure that there has not been any real

leap foward in technology, just incremental steps.The same problems that have plagued batteries

for 120 years have not been solved,nor has insight been made into the causes.

 

Sun, 11/30/2014 - 15:48 | 5502046 MalteseFalcon
MalteseFalcon's picture

So electricity is going away?  Good one!!

The Nissan Leaf is already out there.  Yeah, even Americans are buying it.  It's affordable and reliable.  I've seen ads for KIA and Volkswagen models as well.  Just because Ford, GM and Dodge cannot build it doesn't mean squat.

If you want to whistle past the graveyard, be sure to whistle a happy tune!!  And sell any TX RE!!!!

Electric cars!  No gasoline!!  Little maintenance!!  Few replacement parts!!  Game Over!!

Sun, 11/30/2014 - 19:40 | 5502743 IREN Colorado
IREN Colorado's picture

If the electric car market had to compete without subsidies it would not exist at all. They are not economical without first taxing everyone and sending that tax money to the manufacturers. That is criminal.

When the technology is mature and can directly compete with conventional power sources, without help from the tax code. I'm all for it.

 

Sun, 11/30/2014 - 21:03 | 5503026 MalteseFalcon
MalteseFalcon's picture

The subsidies are necessary to get production up to critical mass, then the electric car will compete and win easily.

We subsidize so much garbage like sugar and tobacco.  I WANT subsidies for electric cars.

Is it criminal?  Call the cops!!

Mon, 12/01/2014 - 10:40 | 5504310 IREN Colorado
IREN Colorado's picture

Did Henry Ford need his neighbor's and children's money to reach "critical mass"? How about Steve Jobs? Did Apple need to take money from uncle sugar to reach "critical mass" for the IPhone or IPad? Certainly not. Those products were economically viable when they reached the market. 

If you want an electric car go buy one. Don't send all of US a bill for your car though.

Sun, 11/30/2014 - 16:24 | 5502151 Matt
Matt's picture

What do you think about Aluminum batteries as backup? Supposedly 3000 kilometers range, so you use your 50 Km battery to commute, then dip into the aluminum battery for extended driving. Once it is used up, you send it back to the smelter to be refined again. Alcan and and Israeli company are partnering for North American trials. Of course, there is not a lot of potential left for adding more hydro power for aluminum smelting.

Sun, 11/30/2014 - 15:18 | 5501975 MalteseFalcon
MalteseFalcon's picture

Down arrows or no, the age of the afforable, practical electric car is upon us.  USA gas demand has been shrinking since 2005 and will continue to shrink over the long term.

Toyota also will introduce a hydrogen powered model.  'W' said it couldn't be done.  Can you believe it?  'W' was wrong.

Look for a mid-80s replay in the oil patch, except there will not be any rebound.

Sun, 11/30/2014 - 15:22 | 5501987 Escrava Isaura
Escrava Isaura's picture

 

 

MalteseFalcon

You, more than anyone here, will appreciate the links below.

And I like this business; not that I share your enthusiasm…. Yet.

 

http://sf.france-science.org/2011/03/11/the-lithium-in-electric-cars-is-not-a-renewable-resource-part-1-2/

 

http://sf.france-science.org/2011/03/25/the-lithium-used-in-electric-cars-is-not-a-renewable-resource-part-2-2/

 

Sun, 11/30/2014 - 15:53 | 5502070 MalteseFalcon
MalteseFalcon's picture

LOL!! Peak Lithium!! You guys never give up!!

By the time the lithium runs out (LOL) the oil patch will just be another desert.

10 years.  Two car ownership cycles.  2025 and then it's over.

Sun, 11/30/2014 - 16:57 | 5502237 Escrava Isaura
Escrava Isaura's picture

 

 

It’s obvious that you didn’t read one of the best articles about car batteries.

 

And, that is a shame, because you were the one that brought this issue up.

 

By the way: The article never said anything about Peak Lithium. However, it did addressed the recyclability of the lithium of existing batteries; and that, as the article said: “….a start-up called Onto Technology (in the US) has developed an interesting method that recovers the materials of cathode and anode for reuse directly in batteries. 

 

This article assists your position about batteries. And that I find an interesting business concept; not that matters.

 

 

Sun, 11/30/2014 - 20:40 | 5502949 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

I find it "interesting" that none of the batteries considered for auto/home/business today don't consider the Edison battery, effectively used over 100 years ago.
These were of iron/nickel construction and used Potassium Hydroxide as the electrolyte. They were made in the US until the 1970's when Exide bought the factory and all developed technologies and promptly buried it.
These batteries were virtually maintenance-free, could be repeatedly discharged down to 5% of max rating, and were unaffected by overcharge at higher voltages. It's no wonder that this tech was buried by Exide!
I don't believe that anyone is making these for automotive use today, but they are being manufactured as backup batteries for solar & wind systems.

re:
http://ironedison.com/technical-info

Sun, 11/30/2014 - 18:37 | 5502536 tvdog
tvdog's picture

Bolivia has 50-70% of the world's lithium reserves, and very little of it has been exploited yet:

https://en.wikipedia.org/wiki/Bolivia#Economy

Sun, 11/30/2014 - 21:58 | 5503179 Bemused Observer
Bemused Observer's picture

You are mistaken. Cheap oil is not a cause, but an effect, of a deflating global economy.
What else can demand do but go down when people all over are tightening their budgets? How can it not decrease when most people's incomes are going down, and stifling demand for all those goods produced by those oil-consuming industries?
Cheap oil may indeed exacerbate the decline, but it was already happening before the 'cheapness' did.
Focusing on the PRICE alone of a commodity causes you to misinterpret the reasons for fluctuations. Those reasons are of far greater importance than the numerical prices on any given day.

Sun, 11/30/2014 - 14:36 | 5501869 Headbanger
Headbanger's picture

What the fuck did these idiots expect would happen to oil prices with all the shale oil here along with a global depression!?

And even pickup trucks are getting over 20 MPG now!

Oil is way way overpriced now just as the housing market is.

Next shoe to drop is health care costs cause nobody can afford it now!

Sun, 11/30/2014 - 14:48 | 5501892 So Close
So Close's picture

Everything rests on global demand.

Sun, 11/30/2014 - 15:08 | 5501939 Escrava Isaura
Escrava Isaura's picture

 

 

Not really.

Anyway, low prices demand should pick up, right?

 

 

Sun, 11/30/2014 - 17:42 | 5502367 HardlyZero
HardlyZero's picture

US QE ending wipes out all the leveraged investments going forward.

Any previous cheap Oil development/drilling loans will be unserviceable.

Expect the Trillions in QE sponsored leverage to now pay for years of M&A as the future Oil source/well (deep, difficult, shale, etc.) close down and investors bankrupt.

This is all about control of Oil which 'backs' fiat and TBTF.  MasterBlaster survives by controlling the Oil/Energy flow.

Sun, 11/30/2014 - 15:03 | 5501905 Escrava Isaura
Escrava Isaura's picture

 

 

Headbanger

US needs constant inflation (growth, even if there’s none) not to have a financial meltdown thus depression.

So, if the US cannot inflate housing, healthcare, student loans, and so on….

 

War is the only thing we have left.

 

By the way: Where did the writer Jawad Mian got 5 million barrels of shale-oil a day?

 

Sun, 11/30/2014 - 14:58 | 5501909 Carpenter1
Carpenter1's picture

These fools couldn't even forecast the fall 3 months away and they want me to believe they can forecast to 2020?

Top it off with quoting IMF numbers and I laugh

Sun, 11/30/2014 - 17:02 | 5502252 Escrava Isaura
Escrava Isaura's picture

 

 

“I was in Washington for 18 years and never saw any projection of any of economist ever come true in 18 years. Their theories couldn’t even see the 2008 mess.” – Senator Alan Simpson


Sun, 11/30/2014 - 14:58 | 5501910 FieldingMellish
FieldingMellish's picture

and the dollar is now worth only 5 cents.

Sun, 11/30/2014 - 15:00 | 5501914 oddjob
oddjob's picture

The energy contained in barrel of oil is equal to no less than 2 years of human labour. $100 is a bargain.

Sun, 11/30/2014 - 16:13 | 5502121 Publicus
Publicus's picture

Human labour is priceless.

Sun, 11/30/2014 - 14:26 | 5501831 FieldingMellish
FieldingMellish's picture

Of course, "its different this time"

 

...and...

 

Putin is such a warmonger we must bomb him and anyone who tries to join him.

Sun, 11/30/2014 - 15:13 | 5501961 Al Huxley
Al Huxley's picture

No, REALLY this time. We're entering a new age where global growth (as ~2.5 billion Indians and Chinese gradually start to improve their income levels and lifestyle) drives a radical reduction in the use of energy, while supply enters a new age of abundance unseen since the Texas oilfields were first opened up.  Forget all that shit we said 10 years ago about declining conventional reserves, and forget all that shit about shale being expensive with a sharply declining production curve - we thought we knew what we were talking about but turns out that back THEN we didn't but NOW we REALLY DO.

 

And forget all that shit about OPEC production boosts being geopolitically motivated to pressure the Russians, that's obviously just bullshit conspiracy theory, up there with LIBOR manipulation, FX rate manipulation and gold rehypothecation.  Turns out you can make everybody (or everybody that counts) rich, just by printing money - no industry necessary, just pretending you have it is exactly the same!  Oh, and BUY (non energy and resource related) STOCKS!

Sun, 11/30/2014 - 17:17 | 5502302 filosofo
filosofo's picture

Yes, its funny how a sharp price drop creates instant bearish consensus.  And, who knows, they could even be right. But so much consensus about "new normal of cheap oil" is really consistent with 250 dollars oil in a couple of years, just for fun when we read our comments in this article. Well, we will see anyway...

Sun, 11/30/2014 - 14:26 | 5501832 ZippyBananaPants
ZippyBananaPants's picture

We lied to some folks

Sun, 11/30/2014 - 14:25 | 5501835 ekm1
ekm1's picture

When people do not understand the concept of money, analysis like this occurs

Sun, 11/30/2014 - 15:14 | 5501965 Al Huxley
Al Huxley's picture

Looks like happy times for the MIC - no need to whack the bankers now, they'll get everything they need for free soon.

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