May 23, 2019
Hello readers! In the interest of Smart Brevity and transparency, I'm adding a word count to every newsletter. Today: 1217 words/< 5 min. read.
We're just a couple days past the 1971 release date of the late Marvin Gaye's album "What's Going On," so he'll provide today's intro tune...
1 big thing: The shale boom's market influence
The array of producers in the U.S. oil patch is pretty much the opposite of a cartel, but a new report distills a key reason why companies' individual decisions have together become such a powerful market force.
Driving the news: "The emergence of U.S. shale production seems to be playing a large role in anchoring long-term oil prices," notes the Dallas Fed analysis.
- A big takeaway is that shale now acts as a check on long-term volatility.
- Shale producers "represent strong forces that should keep long-dated futures prices from rising too high or falling too low," per the report.
Why it matters: The trajectory and range of oil prices is important for many reasons, like: consumer costs at the pump, planning decisions for crude oil buyers, and analyses of future energy demand and emissions.
What they did: The report explores the reduction in the price point for drilling profitable new wells in recent years, called breakeven prices, and their link to oil futures' markets.
- It looks at breakevens in the Kansas City Fed and Dallas Fed regions, which together include Texas, Oklahoma, New Mexico and other producing areas.
What they found: Shale and other U.S. production can sand down the market's volatile edges over time because pretty small price increases spur a lot of new production, even at modest prices.
Why? Shale wells can be drilled and brought online really fast compared to conventional projects.
- "[S]hale production means there is a much larger amount of supply that can be called into action given a much smaller price increase than in the past," the report notes.
- “There’s a significant number of projects that can be called upon in this $50-$60 [per barrel] range,” economist and co-author Kunal Patel tells me.
By the numbers: The average breakeven price in the Dallas Fed region, which includes the surging Permian Basin, has come down 4% over the past year to $50-per-barrel, although there's lots of variation.
- Costs have been falling for offshore and non-shale onshore wells too.
The big picture: The U.S. is now the world's largest oil producer at over 12 million barrels per day, and the shale boom is a big reason why, with roughly a third of that production coming from the Permian Basin alone.
What's next: Look for U.S. shale to keep influencing the market even as OPEC and Russia collaborate on production levels.
- The International Energy Agency projects that the U.S. will account for the largest share of global production increases over the next 5 years.
2. Report: Coal’s revival is in high tech
A new report commissioned by the DOE recommends promoting coal for use in other, higher tech ways than electricity, Axios' Amy Harder reports.
Why it matters: The report, authored by coal executives, is an implicit acknowledgment that despite President Trump’s so far empty promises to help economically struggling coal plants, coal’s past as America’s dominant power source is no reflection on its future.
The big picture: Coal’s share of the U.S. electricity mix has plummeted from nearly 50% to below 30% in the past decade, fueled by growth in cheap natural gas and tougher regulations.
Where it stands: The report was written by the National Coal Council, a federal advisory committee to Energy Secretary Rick Perry made up of executives across the coal industry.
It finds that coal can be refined into a vast array of products, but the ones with the most growth potential include:
- Carbon fiber as a lighter and stronger replacement for steel and aluminum in products like cars and wind turbines.
- Rare earth minerals, used in a wide variety of renewable energy technologies.
- Graphene, deployed in medical devices.
What’s next: The report, which is being sent to Perry today, recommends the DOE create an R&D program to bring down technology costs and to find ways to encourage private investment.
Go deeper: Coal seeks new life in high tech
3. Catch up fast: Congress, Tesla, Amazon
Congress: The Washington Examiner reports on new bipartisan Senate legislation backed by several Republicans that aims to bolster energy storage deployment.
- "The focus on energy storage fits squarely into Republicans' 'innovation agenda' for combating climate change, promoting private sector innovation, with federal government help, as an alternative to regulation, taxes, or mandates."
- Several Republicans backing the proposal "face tough reelection fights in purple states in 2020, with environmental issues expected to play a prominent role."
Big Tech: Via BuzzFeed News, "Amazon shareholders rejected a proposal to develop a plan to respond to climate change during the company's annual meeting on Wednesday. The proposal had gathered the support of nearly 7,700 employees across the company."
Tesla: CNN reports that Tesla's stock price slide shows that it's no longer the "darling" of Wall Street. "The automaker's stock has plunged nearly 40% since the start of 2019, erasing most of the gains it made over the past several years. This week, Tesla (TSLA) shares fell below the $200 mark for the first time since 2016."
4. Bullish EV views but partisan gap
A newly released poll shows partisan differences over electric vehicles but nonetheless has bullish data if you're excited about rapid expansion of what's still a niche market.
By the numbers: Check out the chart above. It shows 44% of voters planning to replace their wheels in the next 5 years, including over half of Democrats, will consider going electric.
Why it matters: EVs are growing fast, but cars with a plug are still in the low single digits of total U.S. car sales.
- We'll have to wait and see how many of those "likely" answers actually translate into actual new sales, but it's still a sign of strong consumer interest.
The intrigue: Another big takeaway is that incentives matter. Strong majorities, including 71% of Republicans, say a $7,500 tax credit would increase their likelihood of going electric.
- That's a hot topic now because both Tesla and GM have reached the 200,000 vehicles per manufacturer cap on the $7,500 credit.
- Bipartisan bills in both chambers would expand the program, but the White House is not pro-EV.
Who they are: The survey was conducted by the communications group Climate Nexus and climate programs at Yale and George Mason universities.
But, but, but: Separate polling released yesterday by Morning Consult highlights barriers to EV adoption...
- "The key roadblocks to potential increased sales include concern over the potential unavailability of or distance to charging stations (62 percent said this would make them less likely to consider an electric vehicle) and high upfront costs (60 percent)."
5. The future of fake meat
A new report from Barclays' analysts sizes up fake meat's potential market size and makes an interesting comparison to EVs (h/t to Amy for spotting).
The big picture: "Our work suggests a potential market size of $140 [billion] by 2029 from less than $14bn today," the report states.
- "In fact, we believe that there is a bigger market opportunity for plant-based (and maybe even lab-based) protein than perhaps was argued for electric vehicles ten years ago — with an increasingly mainstream appeal compared with electric vehicles’ high-end, niche clientele."
Why it matters: Fake meat is a real climate variable, due to large emissions from the meat industry, especially beef and cattle milk.