Not a day goes by without electric cars or autonomous vehicles on the front page of a major newspaper. However, analysts are less clear on when, where and at what price the lithium needed for this major transformation would come from. Even reputed industry research firms like SNL Metals & Mining (owned by S&P) lack data on this niche chemical, leaving open an opportunity for diligent stock picking.
External capital has enabled shale operators to keep drilling, sustaining the oil market in oversupply. Despite continued overspend, U.S. oil production has struggled to reach April 2015 peak production rates, let alone grow at the meteoric rates exhibited between end-2011 to early-2015. The declining well productivity in the major shale basins may help slow the flow of external capital.
Three nascent transformations taking place in passenger transportation – on-demand ride sharing, electric vehicles and autonomous automobiles. These will have profound implications on commodities like oil and specialty chemicals like lithium. Here we dig into the fundamentals to quantify and envision the impacts.
Parsing the innards of OPEC's World Oil Outlook shows how the landscape for electric vehicles is fast changing.
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In the religion of climate environmentalism, carbon is the new ‘Original Sin.’ While solutions that enable equitable energy access while decarbonizing the energy mix already exist, the debate on who should pay has stymied global accords. In the first Republican acknowledgement of the problem, the Climate Leadership Council proposes each nation tax CO2 when emitting resources enter the economy – at mines, refineries and ports – and all proceeds returned to its citizens. A market-based tax-and-dividend program ticks the Trump boxes of promoting high-paying American jobs, is pro-business, includes a border tax and limits government.
Since December, uranium has recovered 46% from 12-year lows. We recently got the pulse of the industry at the Platts S&P Nuclear Energy Conference in Washington, D.C. Supply cuts by ~40% producer Kazakhstan and demand stabilization in key U.S. states seem to have started the upward march towards sustainability of this emission-free energy source.
Growth in portable electronic devices, electric vehicles and renewable electricity generation has elevated lithium from a niche industrial chemical to an element vital to the future of energy. Supply shortfalls have driven prices up, but like 'salt on a salad,' lithium accounts for only 3–8% of battery cost. An increasing portion of world supply comes from high-cost hard-rock mines, rather than the brine reservoirs of Latin America.
Oil prices incorporate no geopolitical risk premium today. This is an anomaly. From mid-2000s through 2014 (excluding the Global Financial Crisis), oil traded $10–30/bbl above the cost of production, partially as insurance against supply disruptions. Today, low oil prices have accelerated the dysfunction in petrostates, increasing the frequency of supply disruption. In this report we explore three countries with elevated risk: Venezuela, Nigeria and Iraq. Together these produces account for ¼ of OPEC supply.
Nuclear power hit a hard reset with the Fukushima Daiichi disaster in March 2011. The downturn in nuclear has been deeper and longer than that of oil and gas, allowing for more supply destruction to play out (See Part 1 of this series). However, more nuclear reactors are presently in the development pipeline than ever before. Investments to address the greenhouse gas effects of the world’s growing energy needs are accelerating. Steady and zero-emission nuclear power will be a key part of the solution.
Present uranium prices are materially below the marginal cost of production. Enduring low prices have set in motion a future supply deficit for uranium. A similar crunch occurred in the 2000s following a 20-year bear market. Spot uranium prices bottomed at $7/lb in 1997 when production costs were $20/lb. As prices rose, supply security concerns drove utilities to compete for contracts. Prices skyrocketed to $138/lb by 2007. During this period, companies that owned quality resources, permits and production, operated by value-creating management, had their shares multiply ten- to thousand-fold from forgotten ‘penny stock’ levels.
Unlike most of the petroleum age, oil markets presently lack a regulator with spare capacity. Supply destruction from unprecedented capital expenditure cuts is well underway. As demand growth accelerates, oil prices look to reach much higher by the end of the decade.
The consensus view is that the oil oversupply will persist for many years. However, the underlying cause of oversupply was over-investment, which is quickly reversing. North American shale, where external capital seems to have stopped propping up production; OPEC/petrostate producers are running massive budget deficits. In the rest of the world, present major capital expenditure cuts will lead to semi-permanent production declines 2016 onwards.