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02 April 2016

Press review 02-04-2016 - Markets in torpor

The "Friday afternoon smack-down" is a common feature to various commodities markets, sudden and deep drops in price during low volume hours that are not justifiable by any changes in fundamentals or unexpected news. It is a rare event with petroleum, but it happened this week, with the Brent index falling about 2 $/b throughout Friday. This kind of event points to a "dead" market, with prices moving sideways for weeks and relatively low volumes. Everyone seems to be keeping something on the side, waiting for the market to wake up.

This torpor was visible in the lack of relevant news throughout the week, the quietest in a very long time. The mainstream media continues running regular pieces on the bust of the "shale industry" in the US, without adding much to a worn story that endures without a proper epilogue. Little attention is given by the press to what these imply outside the US, which long term is far more relevant for our energy predicament. A number countries linger in this market, and even if they survive this period, their petroleum exporting capacity will be impacted for years to come.

The article below is a rare dive into this issue, even if with a good deal of naiveness in the mix. Libya has long dropped from the precipice and some of the marginal prices quoted seem inflated. However, it correctly leads the point home that social instability is about in these and other countries alike.
Financial Post
‘Fragile five’: These OPEC producers are on the verge of collapse if oil prices don’t stabilize soon
Yadullah Hussain, 30-03-2016

The global oil price rout has left many oil producers reeling across the world. From Canada to Norway, Saudi Arabia to Russia, none of the world’s largest oil exporters have been spared from oil prices that declined 45 per cent last year alone.

While some of the biggest producers will stumble along, five oil-producing economies are on the verge of collapse if oil prices do not stabilize soon, according to RBC Capital Markets.

“There are five sovereign producers that are on the precipice of a major crisis amid the current low oil price environment,” Helima Croft, global head of commodity strategy, said in a report.

These countries face a mix of social, political and terrorism-related upheavals that could either lead to a regime change or create great instability that could knock out their oil production, leading to an oil-supply shock.

“Our ‘fragile five’ states…were already facing severe political and security challenges when oil prices were above $100/bbl and the situation has grown far more grim as these countries have struggled to fund their state apparatuses and provide essential services,” Croft wrote.

In this regard, the only relevant petroleum news come out late Friday, with the confirmation of a public offering on Aramco's shares. However, it is news much more for the limited number of shares that will be made available to private investors, contrary to expectations.
Finantial Times
Saudi Arabia to sell ‘less than 5%’ of state oil company
Anjli Raval, 01-04-2016

Saudi Arabia plans to sell “less than 5 per cent” of its state oil company in a public offering that could come as soon as next year, according to the kingdom’s deputy crown prince.

Riyadh will offer shares in all of Saudi Aramco and not just in its subsidiaries, Prince Mohammed bin Salman told Bloomberg. The listing on the domestic Tadawul stock exchange would take place no later than 2018.

The world’s largest oil-exporting nation is struggling to contain a burgeoning deficit following a near 70 per cent collapse in the crude price since mid-2014. The Saudi government recently unveiled spending cuts, subsidy reforms and called for privatisations.
Another country that already jumped (or was pushed) off the precipice is Syria. While the war seems to have definitely turned in favour of the Shiites, Kurds and Catholics, no one would dare to extrapolate a finish to hostilities at this time. On the Sunni side there are still remarkable news to go around. Once more little facts like these show the so called Free Syrian Army to be complete fiction; the only Sunni organisations operating like armies in Syria are Al Qaeda and Daesh.
Chicago Tribune
CIA-armed militias are shooting at Pentagon-armed ones in Syria
Nabih Bulos, W.J. Hennigan and Brian Bennett, 26-03-2016

Syrian militias armed by different parts of the U.S. war machine have begun to fight each other on the plains between the besieged city of Aleppo and the Turkish border, highlighting how little control U.S. intelligence officers and military planners have over the groups they have financed and trained in the bitter 5-year-old civil war.

The fighting has intensified over the past two months, as CIA-armed units and Pentagon-armed ones have repeatedly shot at each other as they have maneuvered through contested territory on the northern outskirts of Aleppo, U.S. officials and rebel leaders have confirmed.

In mid-February, a CIA-armed militia called Fursan al Haq, or Knights of Righteousness, was run out of the town of Marea, about 20 miles north of Aleppo, by Pentagon-backed Syrian Democratic Forces moving in from Kurdish-controlled areas to the east.
Finally, there are figures on the impact fossil fuels - coal in particular - are having on public health in China. While the government seems unwilling to act, these figures put one other serious constraint on fossil fuels consumption in the Middle Empire.
China's cancer rates exploding, more than 4 million people diagnosed in 2015, study says
Matthew Carney, 23-03-2016

In China, cancer rates are exploding and for the first time the extent has been revealed.

Last year, more than four million people were diagnosed with the disease and nearly three million died from it, research from the American Cancer Journal of Clinicians showed.

In some of the industrial provinces, lung cancer rates have increased a staggering four-fold, but authorities seem reluctant to acknowledge — let alone deal with — the epidemic.

[...] Cancer has been the leading cause of death in China since 2010, with lung cancer causing the most deaths.
Here is an interesting take on the decline in electricity consumption seen in many OECD countries. With the heavy industry out sourced and ever more efficient home appliances it is certainly not surprising. But is this a lasting trend?
Electricity Sales Have Dropped— Why Is This News?
Leonard Hyman and William Tilles, 26-03-2016

You’ve seen the stories, electricity sales in 2015 dropped 1.1 percent from the previous year. The energy experts explain, sincerely, that the state of the economy, the weather, energy efficiency, children living at home rather than going out into the world, industry moving to Mexico, etc. caused the fall off in sales.

You know the reasons. You have heard them before. But here is our question: why is this still news? Electricity sales have declined in five of the last eight years. From 2008 to 2015, the economy produced one of its longest sustained recoveries. Real GDP rose 12.7 percent but electric retail sales declined 0.3 percent.

We would argue that the decline of the past few years just represents a continuation of trends that began three to four decades ago. Our economy started to learn how to operate with decreasing amounts of electricity per dollar of output in the 1970s, before industry began to move to China. Per capita growth of electricity sales peaked roughly 15 years ago.
If electricity consumption is flat or declining in what traditional forms of consumption is concerned, in other sectors things could be about to change, particularly if the mass electrification of transport succeeds. There is however a big question hanging on this trend: Lithium. The following article is a compilation of assorted extracts from peer-reviewed literature with some insight on the future extraction of this increasingly valuable resource.
Energy Skeptic
Not enough lithium for electric car batteries

Although there are quite a few uncertainties with the projected production of lithium and demand for lithium for electric vehicles, this study indicates that the possible lithium production could be a limiting factor for the number of electric vehicles that can be produced, and how fast they can be produced. If large parts of the car fleet will run on electricity and rely on lithium based batteries in the coming decades, it is possible, and maybe even likely, that lithium availability will be a limiting factor.

To decrease the impact of this, as much lithium as possible must be recycled and possibly other battery technologies not relying on lithium needs to be developed. It is not certain how big the recoverable reserves of lithium are in the world and estimations in different studies differ significantly. Especially the estimations for brine need to be further investigated. Some estimates include production from seawater, making the reserves more or less infinitely large. We suggest that it is very unlikely that seawater or lakes will become a practical and economic source of lithium, mainly due to the high Mg/Li ratio and low concentrations if lithium, meaning that large quantities of water would have to be processed. Until otherwise is proved lithium reserves from seawater and lakes should not be included in the reserve estimations. Although the reserve estimates differ, this appears to have marginal impact on resulting projections of production, especially in a shorter time perspective. What are limiting are not the estimated reserves, but likely maximum annual production, which is often missed in similar studies.
Interesting news regarding renewable electricity in the UK, a country that lacks the solar power resource found elsewhere in Europe. Most relevant is the decline in household rates, that even if modest, confirms the benefits of adopting technologies that do not rely on fuel imports.
UK Renewables Break New Records As Electricity Bills Drop
Joshua S Hill, 31-03-2016

New figures published by the UK Government have highlighted the record performance of the country’s renewable energy industry during 2015.

According to new figures published (PDF) by the UK’s Department of Energy and Climate Change (DECC), 2015 saw renewable energy generate a record 24.7% of the country’s electricity, an increase of 5.6% on 2014 numbers. As a result, electricity bills across the country are falling.

Specifically, wind energy saw its contribution grow 26%, so that wind energy is now powering 9.8 million households in the UK. Solar output increased even more, growing 86%, while bioenergy grew a modest 28%. In total, renewable electricity generation in 2015 was 83.3 TWh, an increase of 29% over 2014’s 64.7 TWh.
On sunnier geographies the decline in PV costs keeps fossil fuel friendly policies at check. Before 2020 the cost of PV electricity will sink under 0.05 €/kWh throughout the south of Europe. By then it should be under 0.07 €/kWh in Germany, meaning it will be cheaper than gas or coal even in that country. Having 15% to 20% of the electricity generation from PV and lower household rates in these countries is just a matter of will.
7th Edition Of ITRPV Released, Solar PV Manufacturers Still On Historic 21% Curve
HLindon, 26-03-2016

Solar photovoltaic (PV) manufacturers are still tracking along the historic 21% learning curve, going by the recently released 7th edition of the International Roadmap for Photovoltaics. The implication is that a number of solar PV cell, module, and wafer production technologies will lead to multicrystalline solar PV modules being produced with efficiencies allowing for 60-cell configurations at 310 W by the year 2026.
This review ends with a note on technology that is much relevant to me professionally, but has profound implications for society as a whole. A new way of doing business has emerged that is far more profitable to everyone. There is perhaps much to learn from this story in the energy transition we are living.
IEEE Spectrum
Linux at 25: Why It Flourished While Others Fizzled
Christopher Tozzi, 29-03-2016

Yet, in another corner of Europe, a revolution of a different sort was stirring. No one—not even its chief instigator—recognized its significance. Nonetheless, the code that an irreverent Finnish college student named Linus Torvalds quietly unveiled in August 1991 has ended up touching at least as many lives as did the political upheavals of the late 20th century. I’m talking, of course, about Linux.

Torvalds did not plan any of this. He was merely an “accidental revolutionary,” as he described himself in his autobiography, Just for Fun (2001, HarperBusiness). Almost unwittingly, he kick-started the free-software revolution—a movement that much more prominent programmers had been trying to get off the ground for years.

It’s all the more remarkable, then, that Linux, which celebrates its 25th birthday later this year, has so profoundly challenged the norms of software development. It showed programmers everywhere that a different world was possible—a world where they could share code openly, collaborate informally, and make a decent living, even if they gave away the chief product of their labor for free. The advantages of working this way have since become obvious to even the most hard-headed of business leaders, with most large software-development companies now sharing at least some of the fruits of their programmers’ efforts openly.

How did Linux end up producing such radical change? And why did other free-software activists’ attempts to build bigger and seemingly better systems than Linux fail to achieve as much momentum? With the insight that comes from retrospection, it’s now possible to answer those questions.

Have a good weekend.

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