Transition Show Interview and Podcast

I was very pleased to have an opportunity to share my current market views on the Transition Show Podcast, this past week. Energy transition is of course the primary focus of my publication, TerraJoule.us, and it appears that changes in how the world economy uses energy has finally caught up to oil. Now that prices of all energy sources have travelled backwards to multi-decade lows, the global economy should derive some stimulus from these dramatic changes. But those effects may take until 2017 to be fully realized.

–Gregor Macdonald

Volatility Will Eventually Descend on US Natural Gas Prices

A natural gas adoption cycle is underway in the United States, as the country increasingly sources and consumes its own very cheap production. That natural gas (NG) prices have remained weak in the face of so much supply is no surprise. Rather, it’s the expansionary integration of natural gas into the US economy, and in particular the advent of LNG exports, that continues to amaze with an absence of any effect on price.

Natural gas has been rising steadily in the total US energy mix. And oil’s share—as in the rest of the world—has been declining. Just a decade ago oil held a commanding 40% share of US energy consumption. Today that share has nearly fallen to 35%. Given the share gains in natural gas, now pushing towards a 29% share, it’s reasonable to foresee a time when NG, not oil, becomes the primary energy source of the US economy. | see: Share of Oil vs NG in US Total Energy Consumption 2004-2015.

There is little doubt the continuing downward pressure on North American NG prices are due to the rate of production growth. Dry production has leapt by 12% in just the past 24 months alone, from 66.3 to 74.4 bcf/day (billion cubic feet per day). Some producing regions like the Marcellus have actually managed to grow production by an order of magnitude: output is up ten-fold, since 2009. That’s just crazy.

But how about demand? Exports by pipeline to Mexico are also up strongly, and will continue to grow. And US demand, driven by cheap supply and fresh deployment of NG-fired power generation, is on track to have now advanced 14% over 2010 levels. US demand will keep rising.

Most important of all, the really big new demand-pull on supply—LNG exports—is just now starting to hit. The US has now approved over 12 bcf/day of LNG exports, which is to be fully realized on a rolling basis between now and the year 2021. In a market that’s currently producing around 75 bcf/day, that is a significant volume of energy to be exporting. At TerraJoule.us, I’ve discussed more fully how this will play into the energy trade balance of the United States. The question remains: when will prices finally move?

It’s becoming exceedingly difficult, given the supply response already underway in North American oil production to low prices, to envision how the same supply response will not also get underway in NG production. Indeed, 2016 year-over-year NG production is likely to be zero. So again, the question: when will natural gas prices makes a move?

The only answer that’s possible now, given such low visibility currently into overall energy demand in the global economy, is that natural gas prices can’t possibly stay both low, and stable, over the next five years. Too many users, from the US to Mexico to Asia have started to catch on to the value proposition of exceedingly cheap North American NG. The unusual equilibrium in supply and demand is precisely the kind of stability that will inevitably generate instability. Volatility will come to the price of natural gas.

–Gregor Macdonald

The Peak in OECD Emissions is Starting to Look More Secure

There’s a pattern of energy usage, wind and solar deployment, and economic growth that’s started to show up more consistently across domains in the OECD. Essentially, over the past decade, a long period of fossil fuel based economic growth has increasingly converted to fossil fuel demand stagnation. Wherever new growth has been able to gain traction–whether in new infrastructure, new transportation, or new energy demand–these needs have largely been served by a re-drawing of live-work patterns, public rail transit, and new electricity from wind and solar. And in select cities, we’ve also seen the rollout of bikes, electric vehicles, and new behavior around cars.

I saw this for myself in Los Angeles, in the research I conducted for my case study of that city, published last year in Talking Points Memo. It just so happens I know Los Angeles quite well, having lived there when the advent of LA Metro’s subway lines was just an idea, and a point of contention. No city more perfectly illustrates the dependency on oil-based transport that came to infect the West over the 20th century. Yet, equally, Los Angeles also mirrors the new condition now guiding fossil-fuel based emissions in the OECD, because in effect the growth of LA’s auto complex has essentially been halted.

It’s common to see confusion over this point. Dependency, to the casual observer, looks alot like growth. But it’s not. The US oil adoption phase ended over a decade ago. Today, US oil consumption remains below levels seen in the year 2000 (in fact it’s barely above 1995 levels). In Japan and Europe, the classic cycle of economic growth begetting more oil consumption terminated even further back in time. But as you fly into London or Paris, you will still see strong evidence of the terrible dependency on oil the West has never fully shaken off, as the great motorway circulars pulse with vehicle lights.

A supertheme of my publication, TerraJoule.us, is that the next unit of global GDP is far likelier to be built on the back of the powergrid–electricity–rather than liquid fossil fuels. This concept may also sound confusing until you are introduced to the facts: oil has lost market share to all other energy sources for 15 straight years, and will do so again this year. Meanwhile, coal growth too has essentially gone quiet in the global powergrid as wind and solar storm into the gap, dominating marginal additions to new power supply. In domains like the US, however, the utter collapse of coal-fired generation is even more severe–and still underway. That’s why the TerraJoule.us Global Grid DeCarb Monitor is forecasting that an incredible 34% of all new generation globally this year will come from combined wind and solar.

While data is not available yet for 2015’s emissions in the OECD, it’s a certainty they will have fallen once again–possibly to 2009’s levels. For wonks who carefully inspect the future power capacity addition plans of Japan, Europe, and the US, the near future is pretty clear as well. Now that oil-based growth has halted in the OECD, and given that renewables now dominate marginal additions, you really have to ask yourself: how will the trend of declining OECD emissions be reversed? Indeed, the 2007 peak in OECD emissions is starting to look increasingly secure. | see: OECD CO2 Emissions in Million Tonnes 1994-2014.

OECD CO2 Emissions in Million Tonnes 1994-2014

–Gregor Macdonald

After Great Pain, a Formal Feeling Comes for Coal

The Gregor.us blog, highly active from 2008-2013, has largely been dormant during the time over the past few years as I’ve pursued other opportunities in journalism. However, in 2016 postings will appear again several times per month as addressable issues arise in our ongoing energy transition. My monthly publication TerraJoule.us–expanded with new writers and features in 2016–will be also sounding out similar themes.  More specifically, the rate at which the global energy system is suppressing, or failing to suppress, the growth of fossil fuel consumption: that is the question now in need of constant monitoring.

To understand coal’s unusual position in the global energy system today it is necessary to hold two seemingly incompatible views in the mind, at the same time. The first is that coal is now fully resurrected as the equal of crude oil, in the energy content it provides to the industrial economy. That this happened so quickly, and that it it was doubted so consistently, is itself astonishing. But just as with the Emily Dickinson poem, from which this post robs its title, the effects of coal’s return are indeed those of a sudden collision. Only now, and stunned, have we started to process the scale of coal’s second coming.

Which leads us to the second, difficult-to-accept notion: global coal growth on a net basis has now mostly halted. No longer advancing, but as important, not declining much either, the world is now stuck with a newly embedded coal dependency. This great lump of coal consumption will not easily be dislodged. Combined wind and solar deployment globally and cheap natural gas likely ensure the lump will not grow. However,  the new set of coal capacity additions slated for India, and sprinkled across the rest of the Non-OECD, equally ensure that even great coal-retirement waves, seen currently in the United States, will largely be negated.

Let’s briefly review the past decade, in which 19th Century coal rose once again to compete for the title of master commodity, against oil. In the chart below, we record the production of coal and the production of crude oil using an energy content unit known as Mtoe (million tonnes oil equivalent). Per the latest data (and yes, the revisions you may have heard so much about) the global production of oil and coal have equalled each other several times in the past several years, each dancing around 3900 Mtoe. At least as amazing, however, is that coal production nearly doubled from the start of the new millenium. |see: Global Oil Production vs Coal Production – Mtoe 2000-2014.

Crude Oil Production vs Coal Production - Mtoe 2000-2014

One might reasonably conclude the global coal industry was in decent shape, based on the above chart. But alas, the great leap forward and now the sudden stop have been devastating for the industry. Like the oil market, the coal market is almost tragically sensitive at the margin. Having now rapidly converted to zero growth, there’s absolutely no pricing pressure whatsoever. And none of the coming coal-fired capacity additions, or even the prospect of stabilization in the market, will lend much help to producers–many of which will be bankrupt by the time any (small) relief appears.

In truth, the global coal situation offers little good news for anyone. Not for those concerned with climate; not for those involved in coal production, or coal combustion. Much of the capacity in Asia, especially China, is quite young and will be steadily augmented, rather than supplanted, by deployment of wind and solar power. Indeed, it is now possible to be wildly bullish on the global growth of wind and solar power (and you should be) while still having to face up to the intractable problem of existing coal capacity. You can try to console yourself that capacity is in outright decline in the OECD. But you won’t get very far before realizing that across Asia, and in India, capacity expansions are coming. India offers a uniquely grim equation for further carbon output from coal, and, the dire fortunes of coal exporters, because India’s current production upswing will not only increase domestic coal combustion, but will lower the call on the global seaborne market.

For these reasons, the TerraJoule.us forecast is that after a four year decline–with 2015 being the steepest–global coal production is slated to stabilize again starting in 2018. New production, like new capacity, is at the ready to counter production and capacity declines elsewhere. | see: Annual Global Coal Production in Mtoe 2010-2014 | 2015-2020 Forecast.

Annual Global Coal Production in Mtoe 2010-2014 | 2015-2020 Forecast

The crucial question to ask: how far away precisely is the time when marginal additions to global power generation from renewables, combined with efficiency gains, will become so overwhelming that we actually start to eat away at existing coal capacity? In this framing, the news is slightly better than one might have expected just 24-36 months ago. With the global coal complex now halted earlier, the prospect for outright declines has come into sharper focus in the period between 2020 and 2025. But there’s a catch. And that comes from another player in the energy system, not yet discussed: natural gas. Will the coming age of ample seaborne LNG, from Australia and the US, mean that future coal retirements in the Non-OECD will be supplanted by natural gas, combined wind+solar, or both? If today’s changing energy mix in the US is a model, then combined wind+solar, working in tandem with natural gas, is the force that will begin to replace existing Non-OECD coal. In the future, that is.

Coming back to the present, coal-fired generation in the US is in the midst of a spectacular decline, and by TerraJoule.us estimates, coal’s share of US power generation will eventually fall by 50% from the highs of last decade. The signals in global coal production from Australia and Indonesia are crystal clear as well, as are the bankruptcies and liquidations. The world has permanently lost the US as a source of coal demand; and China’s demand growth too is headed towards zero. However, a good portion of this demand collapse has already expressed itself. The end of coal is not a moment, but a process. Or, as Emily Dickinson wrote: First – Chill – then Stupor – then the letting go –

–Gregor Macdonald

Further Reading:

China to Halt New Coal Mine Approvals Amid Pollution Fight, December 2015.

Inside the War on Coal, Michael Grunwald, Politico, May 2015.

Remaking the Map of US Energy Production – Part II of a V Part Series, Gregor Macdonald, Talking Points Memo, April 2015.

Further Listening: Bonnie Prince Billy, selection from his album The Letting Go.

Transition Rates: November Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is open only to subscribers and purchasers of the issue.

Model Portfolio: There are no changes to the model portfolio this month.

“TerraJoule.us eBook – Transition Rates – November 2015” by by Gregor Macdonald – Editor on Ganxy

Solar the Dangerous: October Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is open to the public. Listen freely here at SoundCloud.

Model Portfolio: There are no changes to the model portfolio this month.

“TerraJoule.us eBook – Solar the Dangerous – October 2015” by Gregor Macdonald – Editor on Ganxy

Slow Globe: September Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is for readers only.

Model Portfolio: There are no changes to the model portfolio this month.

From this month’s issue:

We know that GDP is a less than perfect measure of a country’s economic performance. We also know that GDP transforms over time, moving from capital intensive manufacturing to intellectual and digital goods. This is why energy consumption can both instruct, but also mislead, when hunting for clues in the economy. That said, global oil consumption in 2014 according to IEA Paris rose just 710 thousand barrels per day, or about 0.77%. BP Statistical Review Data concurs: global oil consumption grew just 0.76% last year. (It should be noted these growth rates are much lower than agency forecasts produced throughout 2014). Closer inspection reveals that US oil demand has never recovered—but has stabilized at lower levels—since the high consumption years of last decade. Despite this, the US has grown GDP roughly from 13 to 17 trillion over the past decade. It’s the position of TerraJoule.us that the best framework to understand this achievement is through the lens of energy transition. The US is using 1) less total energy, and 2) shifting to the powergrid, as part of a large and new pursuit of natural gas and wind and solar. And there’s at least some evidence that the US is being paid dividends for this transition. While the US will once again not come anywhere close to achieving the FED’s inflation target of 2%, job gains run at a steady pace, and there’s some early indication the labor market is starting to tighten. This may sound underwhelming, but vs. the world the US truly stands out.

“TerraJoule.us eBook – Slow Globe – September 2015” by by Gregor Macdonald – Editor on Ganxy

Never Nine Billion: August Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is for readers only.

Model Portfolio: There are changes to the model portfolio this month. Please see this month’s issue for details.

From this month’s issue:

Since the late 1990’s, Andrew Revkin of the New York Times has been helming a column (now a blog, really), called Dot.Earth. The premise of the blog has long been that world population will surpass nine billion. For sure, global population will continue to grow form its present 7.4 billion in absolute terms. And, the associated problems that will come with that expansion—everything from carbon output to the decline of available arable land and water—will worsen before a gentle improvement (in absolute terms) takes hold.

What is significant now, however, is that the world’s five most populous nations (previously mentioned) which represent nearly 50% of total global population, have a weighted average fertility rate that has fallen below 2.0. Compiling fertility data from myriad sources, TerraJoule.us finds the weighted average fertility rate for China, India, US, Indonesia, and Brazil has fallen to 1.92. Whether or not the data you, or others, may choose shows slightly different rates for these top five countries, the fact remains that the trends in the two most populous countries—China and India—are clear.

Interestingly, however, some still make the case that high fertility rates in Africa—especially in countries like Nigeria —pose a continuing risk that global population will begin a new rate of advance. That is just wrong. Africa’s population stands at 1.1 billion, and is characterized by very high fertility rates. What we’ve learned is that high fertility rates are at risk of falling, not rising. Indeed, a core thesis of The Gates Foundation is that upgrading health and access to electricity is the trigger for high fertility rates to decline. As the foundation correctly points out, it is a myth that saving lives leads to overpopulation. In fact, the opposite is true. And as electricity, technology, mobile communications, and health care are more broadly distributed in Africa, the final remaining set of high fertility rates will fall.

Accordingly, it is the position of TerraJoule.us, that the trajectory of global population growth to the year 2050 indicates a peak that never quite reaches 9 billion. If this is the case, the slow growth documented by TerraJoule.us will become entrenched for decades to come.

“TerraJoule.us eBook – Never Nine Billion – August 2015” by Gregor Macdonald – Editor on Ganxy

China’s Not Done: July Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is open to all readers, and can be heard at SoundCloud.

Model Portfolio: There are no changes to the model portfolio this month.

From this month’s issue:

Global energy consumption grew at an amazingly small 0.946% in 2014—a confirmation of last year’s weak macro growth signals, and surely the cause of price declines in coal, iron ore, copper, natural gas, and of course, oil. (TerraJoule.us remains baffled how IEA.org could have continued to claim such large oil demand increases in Q3 and Q4 of 2014, given macro conditions). In the EU, some of the energy demand declines were severe—as nearly as large as declines in stagnant Japan, or civil-war ravaged Ukraine. From an energy standpoint, the EU remains in a long recession (and recent developments in Greece will not help.). Meanwhile, former Non-OECD fast grower Brazil also remains mired in a sluggish forward path, with total energy consumption growing only 7.11 Mtoe. That said, despite last year’s slow global growth (and slow carbon emissions output as well) which country once again led the world in energy demand? China. Net global energy demand growth was recorded at 121.5 Mtoe in 2014 according to the latest data from BP. But China accounted for the largest segment of that advance, with 73.98 Mtoe of energy consumption growth. Close behind was of course India, which is now successfully hitting higher GDP levels under Modi. (see: India Unleashed, June 2014 issue of TerraJoule.us). As China continues to lead the world in absolute levels of energy consumption growth, we should take a look at the composition of that growth. How is China faring in its efforts, for example, to reduce coal?

“TerraJoule.us eBook – China’s Not Done – July 2015” by Gregor Macdonald – Editor on Ganxy

Coal Dread: June Issue of TerraJoule.us

Each issue of TerraJoule.us contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Ganxy.com: Purchase.

Or, readers may also take a 12 month subscription through Gumroad.com: TerraJoule.us Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is open only to purchasers and subscribers.

Model Portfolio: There are changes to the model portfolio this month. See this month’s issue for details.

From this month’s issue:

Over the past three years the global production of coal has come achingly close, in energy terms, to matching the global production of oil. These two energy sources have crossed paths once before: starting in the 1940’s, during WW2, oil began to make rapid market share gains on coal. By the early 1960’s, oil would overtake coal to claim the crown as master energy commodity. But as you can see in the chart below, coal’s steady production today above 3800 million tonnes oil equivalent (Mtoe) has nearly caught oil’s production levels around 4000 Mtoe. Part of coal’s gain has come from oil’s stagnation: oil has lost market share every years for the past 15 years… And yet, one rarely hears talk of the Death of Oil. Nor, have we seen the kind of crushing market sector shrinkage in the global oil sector that’s been sustained in the global coal sector. The Death of Coal is either a premature thesis, or one that is wrongly scaled to the actual, true size of the problem…That said, global coal forecasts from IEA Paris and EIA Washington need to change, and should model two cases going forward. In the current case, slow global growth allows renewables and natural gas to exploit small demand growth for new energy capacity. In a second case, global growth revives, and despite continued fast growth rates in renewables, energy demand rebounds to existing capacity—much of which is still served by coal. Indeed, one of the ironies of a world transitioning to the powergrid is that it offers a great opportunity for renewables to enter the existing platform, but alas, provides continual opportunity for coal to serve as the backbone for global electricity.

“TerraJoule.us eBook – Coal Dread – June 2015” by Gregor Macdonald – Editor on Ganxy