Credit deflation and the reflation cycle to come (part 2)

[DurhamBorn]

25 minutes ago, jamtomorrow said:

Existing gas and nuclear will certainly need to generate more, but there's no need for much - if any - new *capacity* to service cars. Even if the entire UK car fleet magically switched to EV overnight, we'd need an extra 6GW of generation, most of that overnight - that's well within the existing day/night variation for UK grid.

Transports are a different matter, but still not 100% clear whether they'll go battery or hydrogen.

Hydrogen on transports i think,when i left Cummins most of the focus was on hydrogen and joint projects with Hyundai.

The problem isnt going to be capacity,its base load.I think gas has a very strong future.The UK is also blessed with good wind potential,other parts of the world arent and the spike in gas prices are going to be epic.I think mid 23 is the point where gas enters a massive structural bull market.There will be some 20+ baggers in the gas space i expect,though at my point in time il be happy with the trebles coming in the big players.

Those windfarms as a group have very long periods of producing nothing.The Irish sea is the only area with a less correlated production.I think thats why BP bid more for those leases.

Of course the main drivers of the gas price will be Asia.Im more concerned with how many Indians get a fridge etc than if the UK goes EV in 10 years or 20.

My roadmap says renewables only ever reach max 50% of needs by 2050 and the pulling of coal and growth makes up for that.Gas use will be higher by 2050,unless the price gets so high (10x rather than 4x) that it speeds a lot more investment in nuclear etc.Nuclear is the gas hedge for me.

[Bobthebuilder]

8 minutes ago, DurhamBorn said:

My roadmap says renewables only ever reach max 50% of needs by 2050 and the pulling of coal and growth makes up for that.

I don't have the chart to hand, but that's what the gas industry regulator has said, in line with government projections. The chart was in the gas safe engineers' magazine a few months ago.

All new demand to be made up by renewables, extra nuclear, etc. Current gas use to remain at current levels until 2050 (projected, of course).

The powers that be, seem to agree with your roadmap.

[arrow]

2 hours ago, jamtomorrow said:

Existing gas and nuclear will certainly need to generate more, but there's no need for much - if any - new *capacity* to service cars. Even if the entire UK car fleet magically switched to EV overnight, we'd need an extra 6GW of generation, most of that overnight - that's well within the existing day/night variation for UK grid.

Transports are a different matter, but still not 100% clear whether they'll go battery or hydrogen.

From what I can recall, the 6gw is an estimate from about 5 years ago and comes with the condition of "smart" chargers. ie. if electricity demand increases past a certain point then your car will charge at a reduced rate, or not at all, until demand decreases.

You might be right about estimated demand. I don't know. The only studies, from when I was looking years ago, were by vested interests, including national grid.

Nuclear plants can take years to plan and build. There's no appetite for nuclear in much of the west. Five plus years for planning/building a nuclear plant won't be able to cope with possible policy mistakes

At the moment 40% of grid power is being supplied by fossil fuels, 15% nuclear. The greens/government/establishment are not happy about that and want it ended. My view is that there''s going to be an almighty screwup as the easiest option is to just pile into renewables,

If/when there won't be enough reliable supply, a dash for gas just as the east have increased their demand. But, as Durhamborn has said, our bets on gas aren't to do with the uk, but asia demand

[arrow]

This made me laugh and underlines the importance of gas. Ukrainians and US are not happy about Nordstream 2. It bypasses Ukraine and so stops it from its rent from the old Russia to europe gas pipeline. Ukraine and the US are so upset that they want Ukraine "compensated" for Russia choosing a different route for its gas. Apparently, if Russia chooses a different route, Ukraine must still receive "rent". Just like the Sopranos. These two posts from Seeking alpha and the FT summed things up, I thought.

 

"YCS186
Today, 3:29 AM
Comments (572)
|
Wow, just wow. We are truly living in times of peak stupidity. Germany, where euros naturally grow on trees, voluntarily agrees to subsidize a foreign nation of 45 million people. It gets better - being the green energy leaders, they are going to buy syngas produced and piped in from Ukraine. Syngas is a lovely mixture of hydrogen, carbon monoxide, and carbon dioxide, made from coal via a process that requires energy, to be obtained by burning more coal. That does not deter the green warriors because the nasty coal is going to be gasified in a country far, far away (Ukraine) and CO2 emissions from burning syngas are not going to count, because they will be for the greater good (restraining Russia). The contributions from US are going to be as usual, sanctions and weapons sales. Here is what I suspect will actually happen:
(1) Russia stops transit of gas though Ukraine and tells it to pay the same price as the EU.
(2) Ukraine cannot afford the new price and attempts to substitute via internal resources, switching to coal supplemented by syngas, but finds that it does not have the infrastructure for that.
(3) Germany and US promise to help with building the necessary infrastructure, but quickly realize that the task is too time consuming and expensive.
(3) Germany starts providing NG for all of the Ukraine’s needs, taken from NS2, for free, in perpetuity, because it was their fault NS2 was built.
(4) Putin cannot stop laughing at this stupidity and develops a stroke, fulfilling the ultimate goal of Biden’s and Merkel’s genius plan."

 

"Well,  Russia has so far not allowed Turkmen Gas to flow to Western Europe . Russia has not ratified the ECT (Energy Charter Treaty) which would mandate non-discriminatory access for Central Asian Gas to Gazproms pipeline network and sell it to customers in Western Europe.

Turkmenistan could build pipelines across the Caspian Sea then through Azerbaijan and Georgia and then again across the Black Sea to connect to the Ukrainian Gas network, bypassing Russia. 
1. Azerbaijan wants to sell its own Gas to Western Europe and is unlikely to provide much support for any competition.
2. It would cost several billion US$ to plan & build and with the current anti fossil fuel fuel sentiment it will be hard to find financing for such a project.
3. even if they could finance it, it would take at least 15 years to plan, permit and build a multi-country gas transmission system of that magnitude. By then no one will need that gas anymore.

That’s the cold and real predicament of landlocked gas producers such as Turkmen, Kazakh and other Stans.

Ukraine has only itself to blame for putting themselves into the Position they are currently find themselves in.

Did Ukraine really think they can get away with years of illegal siphoning off Russian transit gas and reselling it domestically and export it to Poland. 

I am no friend of Russia but what Ukraine and it’s corrupt politicians did for over a decade does not go unpunished."

[dnb24]

6 hours ago, Barnsey said:

 

This is what I fear, the consensus in the young seems to follow this thought process- i really think we’ve got to think economic communism is a very real threat to individual freedoms over the next decade or so.

[Hancock]

5 minutes ago, dnb24 said:

This is what I fear, the consensus in the young seems to follow this thought process- i really think we’ve got to think economic communism is a very real threat to individual freedoms over the next decade or so.

Cant blame the young, when its the old who started economic communism in the 00s to bail out their bad investments, and continuation of their nonjobs.

[Harley]

We need to be looking at things in the round.  Join up the dots.  No loose ends.  The big picture.  An integrated view.

Cars on the street with no charging points?  You will own nothing and be happy.  You will live in one of those new mega smart cities with integrated transport.  You will rent a vehicle if needed and your status allows.

Personal transport will be one of the first shoes to fall.  An easy one for a pincer movement of fake green, affordability, and legislation.  We're already currently going through a bahavioural change program to facilitate this and the rest.

Macro is macro.  Political economics is economics.  And denial is a river in Egypt.

[DurhamBorn]

3 hours ago, Bobthebuilder said:

I don't have the chart to hand, but that's what the gas industry regulator has said, in line with government projections. The chart was in the gas safe engineers' magazine a few months ago.

All new demand to be made up by renewables, extra nuclear, etc. Current gas use to remain at current levels until 2050 (projected, of course).

The powers that be, seem to agree with your roadmap.

Thats just UK as well,in Asia,including India etc it keeps growing by a lot.

[reformed nice guy]

1 hour ago, dnb24 said:

This is what I fear, the consensus in the young seems to follow this thought process- i really think we’ve got to think economic communism is a very real threat to individual freedoms over the next decade or so.

Totalitarianism came from a barrel of a gun in China and Russia, the ballot box in Venezuela and by economic means in Saudi and Qatar (those who had control of the oil, had the power)

I find it funny that in the UK the boomers keep on pointing out that the Tories have won and Labour don't have a chance as if it makes us safe. The sage committee is chocked full of commies, the major institutions are all children of '68 types and the local level is stuffed with useful idiots. There were leaked documents saying Whitehall civil servants were going to ignore orders from the government if they felt they knew better - think what is happening that is not being written down. The rot is at the core

[BurntBread]

33 minutes ago, reformed nice guy said:

There were leaked documents saying Whitehall civil servants were going to ignore orders from the government if they felt they knew better

Interesting; do you have a link? That's essentially the definition of "deep state".

[jamtomorrow]

2 hours ago, arrow said:

From what I can recall, the 6gw is an estimate from about 5 years ago and comes with the condition of "smart" chargers. ie. if electricity demand increases past a certain point then your car will charge at a reduced rate, or not at all, until demand decreases.

You might be right about estimated demand. I don't know. The only studies, from when I was looking years ago, were by vested interests, including national grid.

My estimate is 6GW *ammortized* (it's based on total annual UK passenger car miles and typical EV efficiency - so not many assumptions needed at all).

How that 6GW actually shows up in demand is the devil in the detail, like you say. Existing overnight excess capacity would take care of 4 to 5GW of it (e.g. 9GW for 11h).

Leaves something like 1GW to 2GW to find in the daytime, which probably dovetails pretty well with how people are likely to use rapids once 350kW setups are widespread.

1GW to 2GW sounds like a lot (and it *is* a lot), but it's not a huge amount in terms of national energy policy. UK demand has drifted down by 6GW or so just in the last decade.

[Hancock]

1 hour ago, dnb24 said:

This is what I fear, the consensus in the young seems to follow this thought process- i really think we’ve got to think economic communism is a very real threat to individual freedoms over the next decade or so.

This is why the young are voting for economic communism.
https://www.telegraph.co.uk/property/house-prices/now-hardest-time-history-get-property-ladder/

Read the article if you wish, but the first comment tells the mindset of a generation.

I wish David Michael would also share with us what his wage inflation was in the run up to the spike in interest rates, and what this wage inflation done to his borrowing. What a thick f'en wanker!

[Bobthebuilder]

19 minutes ago, jamtomorrow said:

1GW to 2GW sounds like a lot (and it *is* a lot), but it's not a huge amount in terms of national energy policy. UK demand has drifted down by 6GW or so just in the last decade.

"Marty, I'm sorry, but the only power source capable of generating 1.21 gigawatts of electricity is a bolt of lightning. "

[Harley]

Wind and solar farm equipment has a relatively short working life.  About 25 years for solar and then declining efficiency?  Wind?  Decomissioning and re-installation costs?  How well has all this been factored into valuations, discounted cash flows, etc?  You can depreciate but that's not at replacement cost.  Will the current players last?

[reformed nice guy]

1 hour ago, BurntBread said:

Interesting; do you have a link? That's essentially the definition of "deep state".

https://www.express.co.uk/news/politics/1441611/brexit-news-boris-johnson-eu-withdrawal-agreement-civil-service-coup-dominic-cummings

[Bilbo]

1 hour ago, jamtomorrow said:

My estimate is 6GW *ammortized* (it's based on total annual UK passenger car miles and typical EV efficiency - so not many assumptions needed at all).

How that 6GW actually shows up in demand is the devil in the detail, like you say. Existing overnight excess capacity would take care of 4 to 5GW of it (e.g. 9GW for 11h).

Leaves something like 1GW to 2GW to find in the daytime, which probably dovetails pretty well with how people are likely to use rapids once 350kW setups are widespread.

1GW to 2GW sounds like a lot (and it *is* a lot), but it's not a huge amount in terms of national energy policy. UK demand has drifted down by 6GW or so just in the last decade.

I'm having problems with these mathematics!

RAC foundation says 360 Billion miles driven each year (not last year due to pandemic).

Average 4 miles per kWh for electric car.

So 25,000GW needed each year.

Extra 78GW per day?

 

[JMD]

More 'deep macro' from Gavekal. Ok it is confirmation bias for many of us here on this thread, however Gaveka are money managers and stake their reputation by advising their clients to invest using their themes and analysis. So have real skin in the game. I think they provide source data whereas many/most podcasters simply piggyback/plagueris - and hype - the data. I'm also a fan because they provide interesting insights - significantly from a European perspective, not the tired American one we usually hear.                        https://blog.evergreengavekal.com/china-is-for-bonds-the-us-is-for-stocks-the-new-60-40/

[invalid]

1 hour ago, Bilbo said:

I'm having problems with these mathematics!

RAC foundation says 360 Billion miles driven each year (not last year due to pandemic).

Average 4 miles per kWh for electric car.

So 25,000GW needed each year.

Extra 78GW per day?

 

360 Billion div by 4 = 90 billion kWh per year

div by 365 = 246 million kWh per day

div by 24 = 10.2GW

Not a million miles from the 6GW and if you allow for not being 100% EVs then I think 6GW is in the ballpark.

[jamtomorrow]

1 hour ago, Bilbo said:

I'm having problems with these mathematics!

RAC foundation says 360 Billion miles driven each year (not last year due to pandemic).

Average 4 miles per kWh for electric car.

So 25,000GW needed each year.

Extra 78GW per day?

 

~ 31m cars registered in UK. RAC Foundation says average miles per car 7400 (source: https://www.racfoundation.org/motoring-faqs/mobility#a26)

Makes 220bn miles per annum for passenger cars. 4 miles per kwh -> 55bn kwh per annum -> 6.3m kwh per hour, also known as 6.3GW.

So where did you get 360bn miles from?

Edit to add: ah, maybe the 360bn includes transports and other non-passenger-car miles?

Further edit to add: ha, Q28 on the same page! So yeah, the higher figure does include lorry miles and such-like.

[Bilbo]

I'm sure you know this website,;

"National Grid: Live Status" https://grid.iamkate.com

6GW is a lot to find especially as it's an average. Remember gas boilers are being phased out from 2025. How much will that add to the electrical infrastructure.

Was surprised how much we get from France ( nuclear) and a bit from Netherlands (coal).

[ThoughtCriminal]

12 hours ago, MvR said:

I wonder how cars parked on the road will charge?  Most residential streets without drives are chock full of parked cars. There would need to be a charging point for every space...

Come now, dont be spoiling his fantasies by injecting facts into the arena. 

 

He thinks theres capacity for over 40 million EVs in the UK. Comedy gold. 

[Bobthebuilder]

1 hour ago, Bilbo said:

Remember gas boilers are being phased out from 2025

That is going to be really funny, can't wait.

[sancho panza]

On 23/06/2021 at 12:07, Cattle Prod said:

Secular bull market in oil and gas in one chart:

In other words, capex has not responded to price since 2016. I saw the gap widening in 2018 which is I think when I started posting about it on here. It is simply staggering that not along did capex not respond, it actually took another leg down due to Covid. As we've said, supply problems are now baked in. We have now used up the last of the projects invested in the pre-2015 period (e.g. Guyana and Johan Sverdrup), and if we suddenly started investing tomorrow, and found some new ones, it would take 4-7 years to get them up and running. OPEC knows this of course, they have been playing the long game fairly patiently (MbS hissy fits aside), while large listed oil companies have set about castrating themselves. 

Enjoy the run.

I know this chart is a few days old on us now,but each time I head up or down the M1 and I see the traffic comingtheother way,it's potency grows.

14 hours ago, jamtomorrow said:

Generation and distribution infrastructure for overnight charging is already there, in the form of excess overnight capacity. *Almost* a no-brainer to take advantage of that - some structural changes to the generating market, some changes to the maintenance and duty-cycle assumptions for gas generation, more nuclear in the long term (perfect for steadier demand with smaller night/day cycles).

It's the last 100 yards where the problems are today. There simply aren't enough qualified chargepoint installers. 2 close friends recently got their first EVs, and have now been waiting months for a home chargepoint (one has already melted the plug on their granny cable).

Ordinarily, you'd expect Mr. Market to work his magic and drag a generation of school leavers into the game through price signals. But these are not ordinary times.

The situation with rapids is definitely improving in fits and starts, although it's patchy. There are now several rapids within 5 minutes of the sleepy Midlands village where I live. Morrisons have got one. You can even get a rapid charge on up at the driving range.

Still patchy nationally. Mid-Wales is a complete dead loss. But gaps are being filled all the time e.g. https://www.autocar.co.uk/car-news/industry-news-environment/electric-highways-opens-uk’s-largest-ev-motorway-charging-station

350kW is incredible - that'll charge in excess of 1000mph for most EVs, which is getting *much* closer to ballpark of dinofuelling rates.

All this to say: to my mind the generation and distribution infrastructure is a non-issue (edit to add: although I do agree the existing infrastructure will have to generate more leccy overall, mostly from gas initially). And the local infrastructure looks like it's tracking the adoption curve, more or less. Except for this installer shortage, which is *definitely* "different".

Even if the UK could manage  the transition to EV's,the reality is that 95% of the world will tkae a lot,lot longer.

This theme has come up before in our collective discsuiions in terms of too many people are loking West not East.India hasn't got a hope in hell of this infrastruture being in place by 2035/40 and the bulk of marginal demand growth is coming from non Western countires.

Add in some supply side issues and the biiggest issue economically will still be oil prices rather than charge times.

Decl:oil bull.

11 hours ago, DurhamBorn said:

Those windfarms as a group have very long periods of producing nothing.The Irish sea is the only area with a less correlated production.I think thats why BP bid more for those leases.

Of course the main drivers of the gas price will be Asia.Im more concerned with how many Indians get a fridge etc than if the UK goes EV in 10 years or 20.

My roadmap says renewables only ever reach max 50% of needs by 2050 and the pulling of coal and growth makes up for that.Gas use will be higher by 2050,unless the price gets so high (10x rather than 4x) that it speeds a lot more investment in nuclear etc.Nuclear is the gas hedge for me.

nail on the head right there.

[sancho panza]

https://wolfstreet.com/2021/06/24/central-banks-did-it-wont-admit-it-top-oecd-housing-bubbles-are-1-new-zealand-2-canada-7-usa/

Five indicators go into the Bubble Ranking, according to Bloomberg Economics. In addition to two price growth measures (home price gains adjusted and not adjusted for inflation), it uses two measures (price-to-rent and price-to-income) to assess if these price gains are sustainable:

• Price-to-Rent Ratio
• Price-to-Income Ratio
• Real Price Growth (year-over-year price growth adjusted for inflation)
• Nominal Price Growth (year-over-year price growth not adjusted for inflation)
• Annual Credit Growth.

Based on this method, New Zealand and Canada occupy the top two spots of the “Bubble Ranking.” And there has long been no doubt about this.

The US is in 7th place, as the price-to-rent and price-to-income ratios are not as red-hot as in some of the other countries. But the US is #2 in real price growth, behind only New Zealand, and #3 in nominal price growth, behind New Zealand and Sweden, but ahead of Canada.

Here are the top 15 most splendid housing bubbles of the OECD, as per Bloomberg Economics Bubble Ranking. The red fields show the top three per indicator:

Some individual central bankers, including in the US, have now come out and referred to the housing market as a “bubble,” or have referred to it being called a bubble by others, and have stopped denying it.

[jamtomorrow]

8 hours ago, Bilbo said:

I'm sure you know this website,;

"National Grid: Live Status" https://grid.iamkate.com

6GW is a lot to find especially as it's an average. Remember gas boilers are being phased out from 2025. How much will that add to the electrical infrastructure.

Was surprised how much we get from France ( nuclear) and a bit from Netherlands (coal).

Cracking resource that.

Remenber the 6GW doesn't all need to (and won't) come in at the daily peak. There's typically 10GW of diurnal demand variation, so approx 4GW to 5GW of spare capacity averaged over the day (with fossils doing a lot of the up & down work) e.g. last 24h demand ...

But it's only generation and distribution *capacity* that's available - the extra energy will still need to be "found" (it'll be gas/nuclear in UK).

Same situation crops up the world over - anywhere there's a grid, there's a daily demand pattern and EVs slot in pretty neatly capacity-wise. If anything the UK is a mild example because of our temperate climate.

So if India build up their grid for fridges or TVs or air-con or whatever, they'll get a similar daily cycle and a similar opportunity for EVs to drop onto the spare capacity. And yes, they will also need a f***-load more energy, quite probably gas.

Edit to add: gas boiler 2025 policy in UK is indeed an altogether different level of nuts, makes no sense, and should be reversed at the earliest opportunity