All the projections that you are going to hear about falling oil demand will have to be adjusted now that the odds are high we are on a path to a COVID-19 vaccine. Already the oil market is making the adjustment from a world in terminal lockdown to a world that might actually see a balanced or undersupplied global oil market. Short sellers are getting squeezed and are getting more pressure from a bullish American Petroleum Institute (API) report.
The API reported that crude oil supply fell by 5.137 million barrels, which was two million barrels more than my projection and much more than the average guesses. That included a 1.17 million barrel draw in Cushing, Oklahoma, making the drop in oil products even more bullish. The API reported a substantial 3.397 million barrel drop in gasoline supply and an even more spectacular 5.619 million barrel drop in distillate supply. Now, as we head into the strongest part of the global demand season, the market looks a lot tighter as global rig counts have fallen by over 50% from a year ago, and refineries shut down, and the U.S. will process much less oil.
Challenges to U.S. energy production will rise as a potential Joe Biden administration will mean more regulations. Joe Biden’s policies will lead to much higher prices over the next few years. Mr. Biden is expected to go on an executive orders binge, many that will be very bullish for prices. His pledge to rejoin the Paris Climate accord is a slap to the U.S. energy Industry that has done a better job reducing greenhouse gas emissions than any of the other signers of the accord. It will also give China a huge advantage over U.S. producers. If you want to build a pipeline, well, you had better forget about it or at least look to spend millions of dollars to get it approved over and above your other costs. Biden has promised that he will use an “unprecedented reach that goes well beyond the Obama-Biden administration platform and put us on the right track” on day one of his potential presidency.
A President Biden is going to retreat from the policies that have made the U.S. energy independent and gamble on green energy and alternative fuels that are not scalable and will put our economy and national security at risk. By abandoning the U.S. natural gas miracle, it is ignoring the only bridge fuel that has a chance to get the world to its lower carbon future.
Many in the energy industry are fearing the damage that these rules will do. As reported on “Making Money” with Charles Payne on the Fox Business Network, truckers have formed a group called “Stop The Tires 2020” and have planned a shut-down of all deliveries except medical across the United States starting at 2:00 am on Wednesday, Nov. 11 for 24 hours. The group says that:
“President Trump has worked diligently for four long years to protect the rights and freedoms of all Americans and very importantly the blue-collar workers of this country. The blue-collar workers are literally the ones that make the wheels turn! Without truck drivers, this country could not survive for long. “We will stop all tires for 24 hours on Veteran’s Day 11/11/20. If this is not effective and our leaders do not respect that blue-collar truck drivers have to face domestic terrorism, primarily in Democrat cities all over the United States, and that we do not support the banning of fracking in any way, then we will have our second Stop the Tires for four full days 11/26/20- 11/29/20.”
Of course, voters should not be surprised. Vice President Biden made it very clear that a vote for him was a vote for higher tax and higher energy prices. He said a vote for him was a vote for a foreign policy that reflected the tone of President Obama’s administration. Not America first but the globe first, America second. We will see a more consolatory tone with Iran that may add more Iranian oil at the expense of U.S. energy and energy jobs. Green energy jobs will be created in China because of the potential for higher corporate tax rates in the U.S.
Joe Biden has yet to talk about a plan to deal with proposed green energy waste. What does he plan to do with toxic solar panels and wind turbines, not to mention the blight on the land? Wind turbines will create 43 million tons of waste by 2050, according to studies by Bloomberg.
The costs of these transitions will be paid by higher prices. Bloomberg says that $15 trillion will have to be invested in new power capacity globally over the next three decades. Most of this—80 percent—will be poured into renewables. This certainly makes the energy transition far from cheap, but no one – at least no one reputable – ever said going green would be cheap. Yet the number of investments to be directed towards expanding wind, solar, and associated systems will not be the only costs to be borne during the transition. There may well be steep environmental costs as well. Bloomberg, which conducted the analysis that resulted in the investment estimate for the next 30 years in energy, also said that between 2020 and 2050, another $14 trillion would be invested in the grid, likely to adapt it for a surge in solar and renewable power deployments, which, according to the analysis, will constitute 56 percent of total global generation capacity by 2050. And it will have spurred a mini golden age in mining.
Wind power, like solar power, requires a lot of metals and other minerals to produce essential components for the installations. Therefore, as the demand for wind turbines and blades jumps, so will the demand for the metals they are made of. It’s the same with the metals and minerals necessary for the production of a solar panel. Here’s just one example that could perhaps illustrate the trend: according to a 2017 report by the World Bank, demand for silver could soar from the then-current 24,000 tons annually to more than 400,000 tons. And that’s under a best-case scenario that features a greater penetration of silver-free thin-film P.V. panels in the energy mix, at the expense of crystalline silicon panels that use silver. Under a worst-case scenario, demand for silver could top 700,000 tons. This is quite an increase that will require a major expansion in mining, and mining is an energy-intensive, not particularly environmentally friendly way of getting finite resources out of the ground, as investor Sam Kovacs writes in an article for Seeking Alpha addressing the challenges of the energy transition from fossil fuels to renewables. Now add to silver a host of other metals used in renewable energy installations, and the mining expansion becomes even more substantial, adding economic, social, and environmental costs to the transition.
Then there is energy storage. Without it, the transition will simply not happen. In fact, some are questioning whether it could happen given the current stage of development of energy storage technology. Two years ago, an article by James Temple for the Massachusetts Technology Review questioned the viability of the energy transition precisely because of energy storage, which, Temple argued, was still prohibitively expensive in light of the scale, to which such storage would need to be developed.
The World Bank estimated in 2017 that grid-scale storage capacity would need to rise from 100 GW in 2015 to up to 305 GW. A 2014 IEA report made an even higher estimate for up to 500 GW in storage to be necessary by 2050. As of 2015, almost all—99.3 percent—of the available grid-scale storage is pumped-hydro. The percentage cannot keep, however, because pumped-hydro has limitations. Batteries appear to be the alternative, at a cost.
The weather has changed, and so has the momentum on natural gas. Andrew Weissman of EBW Analytics says that the December natural gas contract plunged 49.5¢ in six sessions as extremely mild weather eviscerated space heating demand and sent spot prices spiraling. Signs of stabilizing emerged on Tuesday, with 10 Bcf/d of space heating demand expected by Saturday. While the weather outlook remains bleak, weather-driven demand may gain 100 Bcf/week over the next two weeks. November 2020 is now on pace as the second-warmest since 2005. Nevertheless, the 198 Bcf of bearish November weather vs. normal is effectively canceled out by a bullish weather-adjusted supply/demand balance running 5.7 Bcf/d tighter than the five-year average. If the weather turns colder, steep gains are likely for natural gas. Further bullish tailwinds may come from LNG exports or space heating demand that exceeds expectations.