jhm
Well-Known Member
Why natural gas and oil are doomed
Why the Price of Oil is Doomed for Longer than Expected | Wolf Street
Below is my comment to this interesting and well reasoned piece. Many who are trying to make sense of the collapse of the oil and natural gas markets are failling to think seriously abould the role of renewable. They fail to see that wind, solar and batteries are the black hole of the energy markets. Happy Thanksgiving!
There is no sustainable hope for natural gas above $2/MMBTU, and this will continue to be a drain on oil demand as oil and gas compete in chemical feedstock, heating and other markets.
In a combustion turbine, natural gas at $2/MMBTU is a fuel cost of about $23.5/MWh. This means that as wind and solar approach all-in PPA rates of $23.5/MWh, they beat natural gas on fuel price alone and leave no additional revenue to cover NG generator capex or other marginal costs. This is a price point at which even fully depreciated plants can no longer compete with brand new wind and solar capacity. Thus, we will see massive destruction of demand for natural gas as PPAs descend to this level and go even lower.
How long will this take? Recent solar PPAs have been in range of $40 to $50 per MWh within the US. The cost of solar should continue to decline 10% to 15% per year. So solar could reach $23/MWh by 2020. Wind PPAs are already in ranger of $25 to $40 per MWh in the US and can continue to fall 5% or more per year. Thus, wind at $23/MWh is imminent. The cintinuing decline in the cost of solar and wind is based on advancing technology and manufacturing and supply chain efficiencies that come with doubling production ever couple of years.
Moreover, Tesla now prices their Powerpack 100kWh battery at $250/kWh. This is sufficient for SolarCity to price a utility scale dispatchable solar facitity capable of storing all its energy to be dispatched after dark at $145/MWh. This beats a new gas peaking plant with $160/MWh LCOE with natural gas at $2/MMBTU. Battery costs should fall just as fast as solar. So fully dispatchable solar should fall below $70/MWh. Thus, dispatachable solar and other applications of battery will out compete gas peakers very soon. This deprives natural gas pretty much any longterm market in stabilizing the grid except perhaps to address seasonal demand. The presence of sufficient batteries in the grid will impose an arbitrage bound on the daily spread between high and low electricity prices. That arbitrage bound shrinks with the price of batteries and other storage technology. So longrun any grid stabilization demand for natural gas shrinks with each passing year. It will be cheaper to stabilize the grid with batteries.
The problem with natural gas prices above $2/MMBTU is that it simply hasten the rate at which wind, solar and batteries are brought into the grid. Once installed, these assets will permanently destroy demand for natural gas. For example, this year the US will install about 5 GW of solar, and that is enough to displace demand for 82 trillion BTU per year for the next 30 years. And in 2016, the US will another 7 to 9 GW of solar. If gas prices were to recover to $3/MMBTU or higher next year, that would only boost solar and wind installations even higher in 2017.
Any investor who is looking for a floor for natural gas, coal or oil will need to give serious attention to where floors might exist for wind, solar and batteries. As far as I can see there are none, and these new technologies will continue to exert deflationary pressure on all energy markets for decades to come. Wind, solar and batteries are the black hole of the energy markets permanently sucking demand away from coal, gas and oil. The only thing in question is the pace at which demand is destroyed, and this is why the Saudis had to allow prices to fall.
Why the Price of Oil is Doomed for Longer than Expected | Wolf Street
Below is my comment to this interesting and well reasoned piece. Many who are trying to make sense of the collapse of the oil and natural gas markets are failling to think seriously abould the role of renewable. They fail to see that wind, solar and batteries are the black hole of the energy markets. Happy Thanksgiving!
There is no sustainable hope for natural gas above $2/MMBTU, and this will continue to be a drain on oil demand as oil and gas compete in chemical feedstock, heating and other markets.
In a combustion turbine, natural gas at $2/MMBTU is a fuel cost of about $23.5/MWh. This means that as wind and solar approach all-in PPA rates of $23.5/MWh, they beat natural gas on fuel price alone and leave no additional revenue to cover NG generator capex or other marginal costs. This is a price point at which even fully depreciated plants can no longer compete with brand new wind and solar capacity. Thus, we will see massive destruction of demand for natural gas as PPAs descend to this level and go even lower.
How long will this take? Recent solar PPAs have been in range of $40 to $50 per MWh within the US. The cost of solar should continue to decline 10% to 15% per year. So solar could reach $23/MWh by 2020. Wind PPAs are already in ranger of $25 to $40 per MWh in the US and can continue to fall 5% or more per year. Thus, wind at $23/MWh is imminent. The cintinuing decline in the cost of solar and wind is based on advancing technology and manufacturing and supply chain efficiencies that come with doubling production ever couple of years.
Moreover, Tesla now prices their Powerpack 100kWh battery at $250/kWh. This is sufficient for SolarCity to price a utility scale dispatchable solar facitity capable of storing all its energy to be dispatched after dark at $145/MWh. This beats a new gas peaking plant with $160/MWh LCOE with natural gas at $2/MMBTU. Battery costs should fall just as fast as solar. So fully dispatchable solar should fall below $70/MWh. Thus, dispatachable solar and other applications of battery will out compete gas peakers very soon. This deprives natural gas pretty much any longterm market in stabilizing the grid except perhaps to address seasonal demand. The presence of sufficient batteries in the grid will impose an arbitrage bound on the daily spread between high and low electricity prices. That arbitrage bound shrinks with the price of batteries and other storage technology. So longrun any grid stabilization demand for natural gas shrinks with each passing year. It will be cheaper to stabilize the grid with batteries.
The problem with natural gas prices above $2/MMBTU is that it simply hasten the rate at which wind, solar and batteries are brought into the grid. Once installed, these assets will permanently destroy demand for natural gas. For example, this year the US will install about 5 GW of solar, and that is enough to displace demand for 82 trillion BTU per year for the next 30 years. And in 2016, the US will another 7 to 9 GW of solar. If gas prices were to recover to $3/MMBTU or higher next year, that would only boost solar and wind installations even higher in 2017.
Any investor who is looking for a floor for natural gas, coal or oil will need to give serious attention to where floors might exist for wind, solar and batteries. As far as I can see there are none, and these new technologies will continue to exert deflationary pressure on all energy markets for decades to come. Wind, solar and batteries are the black hole of the energy markets permanently sucking demand away from coal, gas and oil. The only thing in question is the pace at which demand is destroyed, and this is why the Saudis had to allow prices to fall.
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. While I appreciate you think your doing people a great service explaining how scty is a big sham your logic is very slanted due to your assessment that management is made up of a bunch of liars and scty is on a one way trip to bankruptcy :/ 
