Thanks Claude. I just wanted to highlight the growing conflict between utilities and their customers but caution at projecting an acceleration in grid defections in the short term. Residential battery solutions are still too expensive except for all but the most expensive delivered electricity markets (think islands). I would focus on the marginal impact from rooftop solar on utility revenues. This will have far greater impact in the short and medium term. Solar is economic today without subsidy while this is not the case for storage.
Thanks James. Link is now up.
Great call John.
On Oil market update -
Hi Alex. Great observations. The electrification of the drivetrain is indeed happening. I would only add that while full electrification is the likely endpoint, you will probably see many intermediate steps in other sections of the engine before we get there. We already see that with superchargers and gasoline direct injection. Also mild hybridization (stop-start engines) are taking off as well. Just reminds me how technology agnostic energy policy is the best way to deal with real world problems.
Renewable energy is growing because it is becoming increasing economic without subsidy even when operating intermittently. While renewables generally cannot deliver highly dispatchable power, their increasing affordability clearly points to a future grid that is less emissions intensive and more dynamic. The corollary to this story is the importance of getting the compensation to grid operators correct as they will serve the critical function of balancing all this dynamic generation.
Tell your friends! We can make a material contribution to reducing the emissions intensity of this country and save money at the same time. It starts with one rooftop at a time :)
Hi Rod. I had to break my response into several parts to fit the 150 word limit at Livewire. PART 1/3 We will be the first to say that industry has to do better. Best practice drilling methods like green completions, seal monitoring/replacement, and proactive monitoring of pumps and other equipment are crucial to limiting fugitive emissions. We note that the US now mandates green completions (http://www.epa.gov/airquality/oilandgas/pdfs/20141219fs.pdf). Dealing with fugitive emissions from drilling also just makes economic sense as the captured gas represents revenue that was previously lost. I believe the 17% figure you are referring to was from a study that took air samples from an airplane near active fields as opposed to taking readings right from the wellhead. While I am not disagreeing with the results of the study, it did not control for naturally occurring seeps which also can be significant.
Do you have any thoughts on Japan? The PMI has clearly bottomed post the sales tax increase last year, employment remains a bright spot and the weak yen is helping exporters. While I probably wouldn't want to increase exposure to the inward facing part of the economy, exporters/industrial Japan looks interesting as well.
PART 3/3. We also direct your attention to a recent study from the CSIRO that took readings from wellheads and other equipment in Australia (http://www.environment.gov.au/system/files/resources/57e4a9fd-56ea-428b-b995-f27c25822643/files/csg-fugitive-emissions-2014.pdf). Although we don't invest in CSG, the report did provide some encouragement that appropriate regulation and practices can control emissions i.e. by mandating equipment leakage elimination or capture. Ultimately, our view is grounded on the idea that conventional natural gas remains a transition fuel and a means to accelerate our energy complex towards being lower emissions intensive and more sustainable. Coal to natural gas switching would cause an immediate reduction in emissions (of all types) and create a highly dispatchable network of generators that could support the rapid and pervasive roll out of renewable sources like wind and solar.
PART 2/3. The IPCC have considered a wide range of fugitive emissions studies and in their 2014 reports have assessed that central emission estimates of recent analyses are 2%-3%.However the IPCC points out that more research is needed to better understand the variability of fugitive gas emissions. There is also much greater variability reported for unconventional gas compared to conventional gas. Conventional gas extraction does not create the same uncertainties about levels of leakage as is involved with unconventional gas, because conventional gas extraction typically does not involve hydraulic fracturing and does not require the large numbers of well heads needed for unconventional gas. This is one of the reasons that we see conventional gas as a transitional fuel, but not unconventional gas.
Do you have any thoughts on how long OPEC can sustain this war given the view that the Gulf States need a high oil price to balance their budgets.
Over the past few months we have been winding back our overweight Europe call as data was pointing to a slowdown. At this point, we are underweight Europe against our benchmark but this is more a trading decision as the markets look poised to fall further in the immediate term i.e. we are building our cash position. We are keening awaiting September data because we want to get a read of the economy when it is not on holidays. Recall that our German survey was taken very late in September and is the source of our optimism that conditions in Europe could have stabilised.
Thanks James. You are making me blush :)
Got two years so far and believe me when I say I am 100% focused on the task ahead!!
Agree the economy is in good shape but where is the corporate earnings growth to support current valuations?
People have gotten so fed up with the pollution and corruption that I'm thinking China has crossed the Rubicon and we will start to see real change in coming years.
I'll call you later today.
Financing for more mature technologies like solar and wind is much less of a problem as evidenced in European and US markets. Australia suffers from a very unstable policy environment that's makes long term commitments an impossibility. In this context, early stage technologies face even higher hurdles regardless of the availability of resources.
Hi James. Glad you liked it. I would only add that while these are front of mind for us, the underlying strategy remains focused on pursuing energy efficiency opportunities. Efficiency makes these challenges just that much easier to overcome and in the end an easy choice for businesses and consumers alike.