Plateau Problems

Monday 10 February 2020

A commodity demand shock is spreading out from China. But it’s unclear whether this will be a short lived air-pocket, or a major dent in this year’s global growth. Copper, liquified natural gas, and oil markets have been hit pretty hard. Bond markets too, which had a big run last year, have responded with a second round of price strength taking the yield on the US 10 Year treasury bond from 1.93% around Christmas to 1.57% this week. Thus, one could argue the bulk of the shock has already been discounted.

The risk to this benign view is that China’s economy was already in a weakened state when the virus outbreak began. At present, large portions of China are functionally shut down, and the first reports of demand-gaps are starting to appear. As we were reminded last year, the transmission of fluctuations in China growth show up first in Europe’s economy, with a residual effect on the US economy, especially in commodity producing regions. The Gregor Letter last year took a brief look, for example, at how a second oil crash could affect employment in states like Texas. Were oil to fall further, settling in the $40’s, employment in US oil and gas could wind up joining the manufacturing and farming slump currently spreading throughout the upper midwest. Indeed, now that the US is a price maker rather than a price taker, cheaper oil may still deliver a moderate boost to the consumer, yet a larger hit to all the industries that serve the sector. The 2014 oil crash didn’t just affect Houston.

Perhaps the US economy does indeed have supertanker-like qualities, and must suffer multiple blows and shocks before sustainably reversing course. Though employment growth under the Trump administration has been lower than during the previous administration, the starting point for such growth is quite advanced. Thus, we continue to push deeper into the available workforce, taking the unemployment rate ever lower. And, in an era where workers automatically invest in index funds through retirement plans, broadening employment—regardless of wage levels—acts as constant marginal support for the stock market.

One helpful framing for these questions is to remember that while the short-run oil price is still a proxy for the global economy, the ability of price to suppress or stimulate is more muted, compared to the historical past. Oil demand growth was less than 1.00% last year, for example, and many regions have long since entered a phase of oil dependency, rather than oil growth. Accordingly, the oil price may still act as a barometer of marginal changes in the global economy, but conversely, no longer acts as the kind of powerful stimulant when falling. Here’s why: oil has spent the last twenty years rapidly losing market share to every other energy source. Oil once provided a full half of global energy (and as much as 40% at the end of the century). Today, it provides just a third. Because electrification will be the supertrend of the century, oil’s market share will continue to decline this decade, as we electrify further.

The premature heralding of autonomous vehicles has to stand as one of tech journalism’s most enduring failures. For years we’ve been treated to sweeping claims about AV’s imminent arrival, even as stubborn problems and barriers were evident at every instance. When I covered the rollout of May Mobility’s AV minibus in Detroit, over two years ago, my interviews with engineers in the field indicated something far slower, far more modest would be achieved in the intermediate term. Full autonomy will happen eventually of course, but simple AV vehicles on groomed and predictable routes turns out to describe quite well the more realistic pace of the technology. So I took some notice last week when the US federal government granted its first driverless exemption to an AV delivery vehicle from Nuro. If you seek to locate AV’s true and current position of development, this is it. And there’s plenty of adoption that can occur from this position, at airports, universities, retirement communities, and in certain districts and neighborhoods. Moreover, along with e-bikes, super-mini EV, and other micro-mobility devices, limited-route AV at this stage are ready to become part of the rise of electrics.

The end of growth in gasoline consumption means the end of growth in gasoline tax revenues. As the latest federal budget proposal is released, it appears the US Department of Transportation (USDOT) is projecting a shortfall of over $250 billion in the coming decade due to anticipated declines in gasoline tax revenues. The observation was made by Reuters journalist, David Shepardson. We should not be surprised. California modeled future declines in gas tax revenues over two years ago, when it raised its gasoline taxes and increased incentives for EV adoption. USDOT forecasts are therefore directionally sound: consumption of gasoline just put in a third year of no growth in the US, and is not expected to grow this year or next.

Battery pack prices have fallen 87% the past decade, according to presentations at the BNEF Summit in San Francisco earlier this month. Declining from $1,183 per kWh in 2010 to $156 per kWh in 2019, BNEF, along with other forecasters, sees battery prices falling further, though at a slower rate. Separately, Cairn Energy Research Advisors of Boulder believes Tesla is harvesting learning rate advantages in battery pack production, as it scales up volumes in its various gigafactories.

The efficiency of electricity will be a key factor in safeguarding economic growth, as we migrate away from combustion. In a just released report on the European power sector from, GDP was shown to grow steadily this decade while electricity consumption was flat, to down. The harvesting of efficiency occurs in one step as work and services are electrified. But the second step of efficiency gains occurs when the powergrid itself is cleaned up, as it too sheds combustion. Wind and solar account for roughly 16% of EU electricity, and this should rise to 17% this year. While there is surely some sluggish EU28 economic growth more generally captured in the chart below, the thesis stands.

The ETF covering independent oil and gas producers here in the United States fell to another lifetime low this week. XOP, the ETF from State Street Advisors, is now down 80% from its high of $80.30 in 2014, to $18.73 on February 10, 2020. Meanwhile, the ETF covering oil and gas services, OIH from Van Eck, is also skimming along near lifetime lows. The price lows come as wider recognition takes hold that the oil industry has few if any growth prospects. The central thesis of Oil Fall, that the oil industry will be damaged early—when oil demand growth falls to zero, long before outright declines set in—has started to come true.

But Oil Fall also contains a warning. While halting the growth of coal consumption, and soon enough, oil consumption, is encouraging it is another task entirely to push fossil fuel demand into steady decline. In domain after domain we have seen over the past twenty years various forms of oil consumption peak, only to then oscillate along a plateau. And those plateaus are still very much intact. As Oil Fall explains, near term developments in the world of fossil fuels could create a worst-of-both-worlds outcome: falling employment in fossil fuel companies and fresh rounds of bankruptcies, while at the same time a pace of decarbonization that is far too slow.

Indeed, one argument from energy and climate observers asserts that even as we grant that wind, solar, storage, and electrification is moving along beautifully, these are still largely (though not entirely) additions to the existing system rather than forceful replacements. This argument has weak spots: decarbonization in the UK grid has essentially eliminated coal; EV adoption in northern Europe really has begun to displace ICE vehicles; and coal is collapsing in many other domains too, replaced by wind, solar, and (oops) natural gas. But the argument finds its strength on the global level. We are still growing emissions globally. Even as we add titanic volumes of renewables—which do of course pinch off growth opportunities for fossil fuels—industrialization, urbanization, and consumption of resources continue to expand.

The plateau problem, therefore, is going to confound analysis for some time to come. The pictures which emanate from that problem will seemingly change too, depending on the observer. If you take the view as I do, however, that we now have both the technology and the affordability required to go faster, then there are indeed areas where we could go faster. In my January podcast with Bloomberg I did point out that cities need to immediately embrace congestion pricing, something which London adopted two decades ago. The tipping points for cars are so near, in fact, it would be a shame not to give them a solid push, a well deserved kick, if you will. ICE sales have peaked globally. Road fuel demand growth is over in some domains, and going soft in others. Electrics are storming the market. And, getting cars out of cities more generally is now a trend. Politically unpopular as they are, more petrol taxes, but in particular road-demand pricing schemes, would take cars—especially in the OECD—over the edge and with them, oil demand.

Gregor Macdonald, editor of The Gregor Letter, and

The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.

Clean It Up

Monday 27 January 2020

Mass timber, an emerging construction method, could potentially restrain demand for architectural steelmaking. In 2018 a new condominium in Portland, Carbon 12, became the tallest building in the US to be completed using such methods. Portland is also host of the annual Mass Timber Conference, an indicator that advances in cross-laminated timber engineering are creating new possibilities in building efficiency and design. (pictured below: mass timber bridge, from Nordic Structures).

There’s a broader claim being made however, by some mass timber advocates, that stepped up use of lumber could act as a meaningful contribution to carbon capture. The idea here is a kind of double bottom-line effect: that increased use of wood not only starts to displace steel, but accelerates reforestation thus growing the size of earth’s carbon sink. That possibility, at least in the near term, seems more dubious. Put differently, the notion is right but the scale and timing is wrong. Use of mass timber would have to increase not just a little, but a lot, to start a new demand pull on the lumber market. And it would take a decade or more to really harvest those benefits. Overall, this highlights the harder work decarbonization faces in the domain of construction, and industrial processes. Heating, steelmaking, and cement in particular remain tough nuts to crack.

Cleaning up the global electricity system is starting to move quickly, because doing so is affordable. That’s the main message in my interview last week with Joe Weisenthal and Tracy Alloway on the Odd Lots podcast from Bloomberg.

Arizona Public Services is the latest US utility to shock the power market with a sudden retirement schedule for existing coal assets. APS is the same utility that announced last year it would build storage instead of new natural gas generation, realizing it could arbitrage cheap surplus solar coming off the grid in neighboring California. Now, APS joins NIPSCO of Indiana, PacificCorp of Portland, Xcel of Minnesota, and Tri-State of Colorado in plans to shut down loss-making coal power. As I mentioned in the Bloomberg podcast, these utilities are running Monte Carlo simulations and discovering that, because new wind and solar are so cheap, they can now amortize the losses of shuttered coal and thereby deliver savings to customers. If readers are familiar with the final collapse path that coal took in the UK, it now appears the US is set to follow a similar trajectory.

Combined wind+solar generation will start to overtake nuclear power globally, late next year. The imminent crossover is a testament to wind and solar power’s deployment speed, and affordability. But, this is not entirely good news for decarbonization as whole. Many domains around the world will still need some nuclear power, especially where populations are dense and land is expensive. In the chart below, retirements of existing nuclear largely offset new construction (mostly in Asia) which at least gives the world a flat nuclear generation outlook.

Here’s what’s bad: every terawatt hour of new generation from wind and solar is fated to lose traction each time we subtract a terawatt hour from nuclear. If you adhere to the view that climate actions taken now are multiplied through future effects, then you should at least want to hold the line on existing nuclear capacity—when possible. Here is what I wrote on this subject last year:

Ironically, it may be the very real success of wind and solar deployment that opens up a better argument for nuclear: as marginal amplifier, to make current progress move even faster. Here, we see that the cost argument has two sides. Yes, nuclear is now the most expensive new generation out there, and its ROI is second-rate, given its long construction timelines. But so what? As estimates of future climate-change damage ratchet upward, we should care less about up front price tags and more about outcomes that bear heavy losses. Moreover, although combined wind and solar are now moving very rapidly, and even with storage solutions also now emerging, in many domains the gaps in needed supply are being furnished by new natural gas. And natural gas, while far better than coal, will stand as a new emissions barrier in the years ahead.

IEA Paris, EIA Washington, and OPEC are still on the back foot, scrambling to fit 2019’s far weaker oil demand into their previously high forecasts. Projecting that 2019 oil demand would be far weaker than expectations, however, did not require any special insight. All you really needed to know was that China’s car market was getting worse, the trade war was still a problem for global growth (especially in Europe), and that OECD demand was on a well established, stagnant pathway.

The most recent estimates from EIA Washington and OPEC have finally come closer to reality. But IEA Paris continues to stubbornly cling to the view that 2019 growth will end up near 1 million barrels per day (mbpd). That’s not going to happen and others are noticing. Allyson Cutright at Rapidan Energy Group in DC flagged the same ongoing problem also cited by the Gregor Letter more than once last year: each month that IEA refuses to lower its demand forecast, it then must rely on a higher demand rebound in the remaining months to make their target. Now it’s too late.

Why does 2019 still matter? Because 2019’s final level will form the baseline for 2020 estimates. As Cutright noted in her group’s report, hopes for a more balanced market in 2020 are already fading as a result. (And this was before markets began to react to the risk of economic disruption due to the Coronavirus, in China). To conclude, The Gregor Letter estimates that 2019 oil demand finishes up just 0.75 mbpd, the weakest in several years. 2020 doesn’t look much better.

Of note: while EIA Washington is quite bad at estimating global demand, it’s US forecasts are pretty good. In the most recent Short Term Energy Outlook report, US gasoline demand is expected to be flat again for the next two years, after failing to grow the past three years.

California’s solar mandate has now come into effect, requiring all new homes to be topped off with solar panels. My prediction is the policy will spur prefab and modular construction methods, in which the roof area itself is increasingly optimized for panel size. An early example of this approach can be seen at the Grow development on Bainbridge Island. In Europe of course, integrated solar design is already being standardized, and innovated. (Below is an example from Sweden). From a systemic change view, it’s not so much that large volumes of power will be produced from domestic rooftop solar. Rather, the effects will be felt in two other ways: through the suppression of demand growth for electricity, and more importantly, through the uptake of small scale storage either through neighborhood microgrids, or EV charging at home. Always remember that EV will be part of the storage solution.

Oil Fall, published early last year, will receive a major supplemental update this Spring. Most global data series on EV sales, electricity, oil consumption, and deployment of renewables will finalize in the next month or two. Accordingly, I’m preparing an update that will not only incorporate this data, but will address other developments. To name a few: the rise of global electrics as led by e-bikes, the woeful signal about future oil demand coming from the oil and gas services sector, the tipping point between the peak of ICE vehicle sales and road fuel demand, the mixed growth story of electric vehicles in major domains, the coming second-wave of utility scale wind and solar, and, the potential for new hits to oil demand growth from climate policy edicts, like a ban on plastic bags.

Single-use plastics (SUP) may seem like a trivial component of global oil demand, but not when a country the size of China bans them. As readers know, the oil industry is counting on growth in petrochemicals and plastics to keep oil demand steady. BP’s current long-term outlook for example indicates that 90% of the demand growth they expect to the year 2040 is over and done by 2025. In truth, the industry is holding out hope not for growth, but that other petroleum applications will prevent outright oil demand declines.

The Chinese ban on SUP, therefore, represents a significant threat to the petrochem-demand pillar, especially if copied across the Non-OECD. Interestingly, BP—in the same outlook cited above—understandably broke out a case analysis on SUP, and projected the hit to oil demand should bans get underway. BP’s conclusion? That a broad CPU ban could remove 4 million barrels a day of future demand (year 2040) from the entire oil market, after ripping the heart out of sectoral demand growth in petrochemicals.

There will be more analysis coming on the impact from the SUP ban. We should retain some skepticism before we get actual data from China (later in the year) on the scale at which the ban is actually adopted. In the meantime, please see this excellent analysis from Liam Denning at Bloomberg. A juicy tidbit: the Bank for International Settlements has written a report that coins a handy phrase—green swan—to describe the looming risk that sudden policy shifts, driven by climate concerns, could present ongoing challenges to incumbents in every sector from fossil fuels to transportation.

Gregor Macdonald, editor of The Gregor Letter, and

The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.


Monday 13 January 2020

E-bikes threaten to replace trips by cars, and are spreading so quickly they may impact oil demand growth. Over the past decade the spread of cycling more generally—in combination with fuel efficiency, the resurrection of transit, and now the rise of EV—has certainly impacted road fuel demand. 2019 for example will see a third straight year in which motor gasoline demand failed to make any progress in the US. But e-bikes are a new threat, a direct assault on a large, unexploited tranche of the market. Roughy 60% of the population has not yet hopped on a bike to run errands, or commute to work. The simple technology of an e-bike however, which smoothly maintains your cadence (think of an invisible hand firming its support as you head up inclines) may now persuade these potential buyers to come off the sidelines. Shock statistic: in 2018, European e-bikes sales were 10X EV sales.

For Atlantic Media’s Route Fifty, I reported on the e-bike story in late December. Here’s what you should know. A full half of all car trips are quite short, less than 15 miles. As it happens, your average e-bike easily covers that distance on one charge. If you are a fit rider already, your light-call on the e-bike battery will further extend the range. More important is the value proposition of an e-bike, that for $1500 to $3500 a single e-bike could replace many car trips. The longer term investment is worth considering also: according to my industry sources, most e-bike motors are designed to achieve 10,000 maintenance free miles. Finally, e-bikes require no license or registration. Anecdotally, here in Portland, we increasingly see parents putting teenagers on e-bikes to help them swiftly complete their rounds of after-school sports and other activities. Of course, Portland has very good safety infrastructure for bikes—and that’s a crucial issue for broader adoption.

The e-bike story has recently burst onto the scene for two reasons. First, sales are taking off. In my Route Fifty story a key retailer here in Portland explains why: the market, in his view, just exited from the early-adopter phase as technology, price, and choice are all aligned now to push into the fatter part of market diffusion. Second, Deloitte published a blockbuster report saying that global e-bike sales could reach 40 million units per year by 2023. Andy Hawkins over at The Verge found that prospect gobsmacking, and rightfully so. As I noted in my own piece, 40 million e-bikes sales per year would put them at nearly 1 e-bike for every 2 cars sold (of any type) globally. Meanwhile, the CBC in Toronto caught up with me last week, and you can read that interview here on the CBC’s What On Earth. Finally, while my piece was the usual macro view, I highly recommend Rachel Swan’s piece at the San Francisco Chronicle. Swan really captures the details of what it’s like for a family to load up an e-bike, like you would a pack-horse, and head up into the hills.

Siemens announced through a twitter message from the CEO that it would go forth with the Adani coal mine development, in Australia. In my opinion, and regardless of the terms, that’s going to be a mistake. Global coal consumption peaked in 2013, and has been on a bumpy plateau ever since. The decline therefore is ever nearer in time, and, when it arrives, could be rather steep. The underpinnings to the current condition of flat demand are eroding steadily too, pillar after pillar falling in domains from Europe to the US and, yes, even China. Perhaps Siemens will be paid up front as a supplier of services and equipment, but the damage to the brand could be substantial. For a preview of how corporate parsing often hurts more than it helps, do read the Siemens press release.

Sales growth of EV in China slumped hard in the second half of 2019, partly due to broad based subsidy cuts that came into effect last July. The results appear to have unsettled policy-makers, however. Over the weekend of January 11-12, the Ministry for Industry and Information Technology announced that no similar subsidy cuts will occur this year. The announcement appears to be a genuine surprise, and, will probably boost market performance of EV manufacturers, at least in the near term. There are more details to come on the Chinese market, further down in this letter, as a disappointing year for EV everywhere now comes to a close.

Sales of ICE vehicles fell again in the UK last year, as EV once again took market share. Following the global trend, the UK’s entire car market has been falling since a 2016 peak, in which 2.692 million units were sold, to a total of 2.311 million last year. That alone represents a decline of over 14%. But it’s ICE vehicles that are shouldering the losses. Combining regular petrol-engine sales with diesel-engine sales, ICE vehicles fell by 85,000 units, from 2.225 million to 2.140 million last year—a gentler decline than seen in 2018 and 2017. That said, since the 2016 peak, UK sales of ICE vehicles have fallen more steeply than the total market by 463,000 units, or 17.8%.

(Electric black cab from LEVC, the London EV Company)

UK sales of plug-ins however, while encouraging, are not exactly spectacular. If you include, for example, non plug-in hybrids to the plug-in pure electrics and plug-in hybrids, that all-in group took an impressive 7.37% share of the total market last year. That share level is important because, across various domains, reaching a 5% share tends to mark a tipping point for faster adoption of new technologies. But when we take the non plug-in hybrids out, all plug-ins—the category we really care about—tumbles back to 3.14%. Observers could console themselves with the fact that pure 100% electrics had a great growth year in 2019, advancing 144%. But, until plug-ins cross the key 5% level, the UK car market like the US car market is a story of declining sales overall with the stronger phase of EV adoption yet to come.

New York State lifted its 2035 target for offshore wind by another 1000 MW, to 9000 MW. The ramp is an indication that other states along the Eastern Seaboard will continually increase their offshore capacity targets as the supply chain forms, and costs drop. Last year, I reported on the early preparations to scout for and invest in ports in Long Island Sound. With the recent announcement from New York State, the total target for states from Virginia to Massachusetts now stands at roughly 27,500 MW. If you would like to keep up with the running tally, please follow the twitter account of the Special Initiative on Offshore Wind, at the University of Delaware.

The largest utility scale solar plant in the United States has just been approved for construction. The 690 MW behemoth, which is to be paired with storage capacity, will arise in the Nevada Desert. Trend to watch: now that storage is coming down in price, look for nearly all new solar projects to include this capability.

China’s vehicle market plummeted in 2019, falling by 8.13% and managed to take down EV sales also, to a negative number. The damage done to EV sales both in the passenger vehicle segment and especially in the commercial segment was so rapid that a favorable EV outlook at both mid-year and after the third quarter was transformed into a 4.29% decline, compared to 2018. The main culprit: subsidy cutbacks which took effect in July. Policy makers won’t make this mistake again.

Crucially, this also took the overall EV share of the market from an anticipated 6% at mid-year down to 5% during Q4, and now to a final 4.68% share as the year completes. There is a silver lining here, however. Across a number of technologies, substitution curves tend to get going around the 4-6% market share level, which often acts as a take-off point. While 2019 is without question a setback for EV growth, as a 4.68% market share for EV sales is only a smidge above 2018’s 4.49% share, China’s EV market has clearly entered the zone, so to speak. Below is a plausible forecast for the next two years:

China automotive industry forecasts indicate another down year in 2020, though, at a far milder pace. The chart here sets a decline of about 1.5% next year for the total market, and an increase from 1.206 million to 1.8 million EV sales. Accordingly, the EV market share will surely get beyond 5% this year, even if the 7% mark is not reached. So, despite the turn for the worse in 2H 2019, the shape of China’s car market trajectory has not meaningfully changed.

Supremely important in this regard is the decline in ICE vehicles. From a high of 28.102 million in 2017, ICE sales fell to 24.563 million this year. According to the forecast, they will fall by another million next year to 23.6 million and by 700,000 next year to 22.9 million as I expect the market to stabilize in 2021 and attempt its first rebound from the current multi-year decline. But, regardless of how the final market share percentages work out, what’s now clear is that ICE sales have peaked for good in China. That’s why a year ago I kicked off this twitter thread with the assertion that China just killed the future of the internal combustion engine. Note the wording. China didn’t kill ICE. It killed the future of ICE. Like coal and oil, ICE will be with us for many decades to come. But, without any growth. And eventual declines.

Forecasts are hard (and long term forecasts are harder) but some forecasts are just plain bad on the day they’re made. Currently, the worst-in-class projections seem to coalesce around global growth in primary energy demand. The latest example comes from the EIA, offering up the view that over the next 30 years, world energy demand will rise by 50%. For that projection to come true, the growth would have to be almost entirely driven by fossil fuels. The EIA’s model therefore couldn’t possibly reflect the massive deflation in front-end demand that naturally occurs as we move away from combustion. The majority of growth in energy supply over the next 30 years will come not from combustion, with its extraordinary waste-heat, but from efficient renewables.

Apparently, there is still insufficient understanding that at least 30% of the energy the world consumes is lost to the atmosphere, if not more. Much more. Last year, the world consumed 13,865 million tonnes oil equivalent of energy. (the Mtoe is a unit of heat, not volume or weight). According to a range of studies and analysis, however, at least 30% and as much as 60% of that energy never made it to the user. That is the nature of combustion, in everything from thousands of power plants to billions of engines. Steadily remove combustion, and you will steadily remove the excess consumption of energy required to run the world.

In Part III of Oil Fall, Waste Crash, I conducted a quick review of various agencies and the percentage share they place on lost energy in the global system. Here’s that particular table:

Without duplicating the longer discussion contained in Oil Fall—which goes into detail on some of the methodologies across these various results—I would advise paying most attention to world estimates from the Lawrence Livermore National Laboratory (LLNL) for 2011 and the International Institute of Applied System Analysis (IIASA) for 2014. Importantly, while the entirety of the waste gap is not ultimately harvestable—owing to things like line losses in electricity transmission, and that many processes will continue to require combustion—the lesson here is rather forceful.

To illustrate how waste will be steadily removed from the system, please consider the following progression.

• California’s 35 million registered vehicles running exclusively on petroleum, asking nothing from the powergrid, and consuming 15.5 billion gallons of road fuel each year.

• California’s 35 million registered vehicles no longer running on petroleum, but rather entirely on the electric motor platform, and relying wholly on the electric grid for power. But, a grid powered entirely by natural gas.

• California’s 35 million registered vehicles running exclusively on the electric motor platform, and relying entirely on a grid that is powered only by wind, solar, and storage.

In the first step, 35 million California ICE vehicles transition to 35 million EV, thus steadily giving up 9.3 billion gallons of petrol that was wasted, lost to the atmosphere. Surprising, to be sure. But, once again we are reminded that the internal combustion engine is powerful, but wasteful, losing at least 60% of its energy. In this first step, we have wiped out the waste heat from 35 million individual engines, but, we still have the waste heat from natural gas power plants. Far, far less waste heat systemically—but, with another step to go.

In the second step, we then remove the waste heat from the natural gas power plants, and now we are left with the line losses only, in electricity transmission.

Repeat this progressive removal of waste heat across a number of domains, and you begin to see how energy transmission partly pays for itself. Will we be able to transform all processes, services, engines, machine operations, and so forth from combustion to non-combustion sourced electricity? No. Or, at least not easily or quickly.

But everyone should understand this transformation is already underway. The energy savings are already appearing, already measurable in California and the UK where the greater systemic energy efficiency of running an EV is now being disseminated as combined wind+solar go past 20% of electricity supply in those two domains.

Will Australia’s ongoing catastrophe show up, thousands of years from now, in the geologic record? That was my thought when reading this moving account, from Sydney based writer James Bradley. A vast layer of carbon dumped and fixed into the soil; sustained temperatures marking their impression across land and sea; and most of all, the carcasses and bones of a billion newly dead animals. Were we to find such a notable striation today, one might conclude a sudden methane release or some other similar event had occurred, appearing in the record as a sudden die off.

Gregor Macdonald, editor of The Gregor Letter, and

The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.


Monday 30 December 2019

(18th C. chart of trade between the US and England, in millions, 1700 - 1800)

Combined wind and solar will nearly reach a 10% share of US electricity production in 2019. While the rate of growth has slowed in the last two years, commercial rooftop solar, utility scale solar, and a new growth spurt in wind power will see total deployment accelerate again in the new decade. | data current through October 2019.

US power generation from coal is on track to fall to levels last seen 50 years ago, in 1978. The US is now tracing out the super-decline of coal seen in the UK, in which coal for electricity eventually falls to zero. Policy is no longer the main driver of the retirements. Utilities are instead running sophisticated modeling programs which are spitting out the same answer: shutter all the coal, and replace capacity with an array of natural gas, wind, solar, storage, and demand-side management. In a total system that produces more than 4000 TWh, coal’s share will likely dip just below 1000 TWh, having been cut in half in just a decade. | data current through October 2019.

Global power generation from coal is expected to fall rather hard, by over 3% in 2019. While total global coal consumption for all applications peaked back in 2013, coal-burn for electricity has kept growing. That’s expected to come to an abrupt halt in 2019, and frankly it’s not clear where we go from here. Does spare capacity in China continue to rear its head in the next few years, or, does wind, solar, and natural gas finally arrest the growth? It’s impressive already that combined wind and solar globally will reach above 2100 TWh this year. | data current through December 2018

California gasoline consumption is on track to fall by 1.8% in 2019, after a statistically insignificant decline of 0.3% last year. At the state level, we operate without current census data on population or vehicle-miles-travelled data. That said, factors in the decline of petrol consumption range from adoption of EV to the unbundling of transportation more generally in short-trips, now taken up by everything from public rail transit to micro-mobility electrics. It is expected that California will lose a single congressional seat after the 2020 census, as the population growth rate in other large states outpaces its slowdown. Moreover, it should be mentioned that gasoline tax increases continue in the Golden State, and all incentives are tipping away from ICE vehicles towards EV. It’s a safe bet that gasoline consumption in California has peaked for good—but, as in other domains, this does not mean a rapid decline is imminent. | data current through September 2019.

US gasoline consumption failed to make progress for third year. US auto sales and sales of ICE vehicles peaked in 2016—as did US gasoline consumption. The declines since then are exceedingly small. But like California, US gasoline consumption has now likely peaked for the last time. It’s not just the advent of EV capping petrol consumption growth. The rise of electrics are chewing their way through the rich underbelly of short-trips in suburban areas across the country. All this said, beware forecasts of any rapid decline in gasoline consumption. We are on a plateau for now; though admittedly when the break finally comes it could be pronounced. | data current through November 2019.

Global motor gasoline is expected to rise by just 1.1% in 2019, according to the IEA. Closer examination of the IEA’s forecast however indicates anomalously high estimates of China road fuel consumption, so as with most IEA forecasts one should favor downward revisions in the months ahead. To the IEA’s credit, they are forecasting a year of near no-growth next year in gasoline use, with a projected increase of just 0.2%. The driver of these trends globally is similar to the same array of factors seen here, in the US. But most notably is the meaningful decline in the sales of ICE vehicles in China, the world’s largest vehicle market. Mind you, sales growth of EV this year is super slow—barely positive in most markets. This has taken a tiny amount of pressure off ICE sales. But the picture is still bleak for ICE, with sales falling into outright decline in most markets. In China, ICE sales are falling particularly hard, from a peak over 28 million to around 24 million this year. (The data is currently quite volatile month to month as sales of ICE and EV reflect rapid changes in China’s car market, and economy.) Needless to say, ICE sales in China—as in other markets like Europe, and California—have now peaked. | data current through November 2019.

The US has become energy independent, on a net basis. The United States in recent years has seen its consumption of energy flatten, even as population and GDP grows. At the same time, domestic production of oil, associated petroleum products, natural gas, wind, and solar has grown so quickly that after tallying up imports, exports, and consumption, the US energy balance sheet has now tipped into surplus. The structural trend change became obvious years ago. Still, it’s amazing to witness. While the US is still an importer of crude oil, the balance sheet is going to move further into surplus as we move through the next decade. That is, of course, until foreign demand for exported fossil fuels begins to wane. In the chart below, you could say, the red has turned to black. | data current through September 2019.

Total public construction spending per capita stopped growing a decade ago. Intuitively, it may strike some as normal that spending would level off—if one assumed the US merely had to maintain a large inventory of functional infrastructure. Alas, that is not the case. The US remains in a severe, ahistorical infrastructure deficit with schools, subways, water systems, port and intermodal arrays, and powergrid(s) in need of full replacement. It has been 70 years since the last big round of public investment—and it shows. | data current through December 2018.

—Gregor Macdonald, editor of The Gregor Letter, and

The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.


Monday 16 December 2019

Fires in Australia have turned the mountain snows of New Zealand’s Southern Alps a dirty shade of pinkish-brown. Running rampant in Eastern Australia—roughly 2000 km away from the South Island—the bush fires collectively, by comparison, are far larger than California’s 2018 Mendocino fire as illustrated in these excellent graphics at Reuters. A stunning set of photographs from New Zealand based photographer Elizabeth Carlson appeared internationally in early December, and a good collection of them can be seen at Earther.

Climate in Swedish is klimat, which seems worth noting as Greta Thunberg was just named Time Magazine’s person of the year. The 16 year old activist is the youngest person to be named by Time, replete with front page coverage. I recommend an essay by David Roberts at Vox, who probes the dynamics of Thunberg’s success in sparking such large, international support. Her refusal (or perhaps, in part, an inability) to respond in expected ways to social cues seems to be a strong component of her power. Roberts also notes another paradox of her effectiveness: Thunberg avoids any specific policy cures. Without question, Greta is worth study for anyone in the business of persuasion.

Climate science and climate projections have predictive value. A recently published paper by Zeke Hausfather and co-authors found that, “14 of the 17 climate projections released between 1970 and 2001 effectively matched observations after they were published.” Hausfather discussed the work in a Twitter thread, and the paper was published at Geophysical Research Letters. As the decade comes to a close, the rollout of data and findings in the energy and climate area will accelerate, in my view, because the intensity of research and fact gathering has understandably increased in the past twenty years.

The British artist Banksy has a public mural in Venice, highlighting the advance of sea-level rise. The work originally appeared earlier in 2019, but was highlighted on the artist’s Instagram in December when the city suffered heavy flooding.

A methane release feedback loop remains a dangerous risk from climate change. A report this week suggested the Arctic may have already reached this tipping point. The Arctic Report Card, released annually from NOAA, offered evidence the Arctic may now be an increasing source of CO2 as the region’s permafrost thaws. Indeed, the report showed that annual temperatures over a trailing 12 month period were the second highest since the year 1900. “These observations signify that the feedback to accelerating climate change may already be underway,” the report concludes—from coverage in The Washington Post. A direct link to the report can be found at NOAA.

The dislodging of the seasons is one of the more bewildering aspects of climate change. The poet Jorie Graham has a fine poem, which I hope you will read, in the October 10 issue of the London Review of Books which alludes to this encroaching loss of stability. Needless to say, literature has long found meaning in the seasons, using them as units of account, and, a way to find our position through time. In the poem, Whom Are You, Graham quite expertly uses monosyllabics and the musical effects of the caesura to bind the reader’s attention. Not an easy thing to do. Indeed, I would argue the poem’s use of the caesura is dazzling: laid out in a well planned array. Graham’s musical structure unusually combines slowness and urgency, driving the poem straight to the heart.

Combustion of fossil fuels creates enormous heat loss (waste), whereas wind and solar are wildly more efficient. Accordingly, energy modelers have long forecasted that a transition to wind and solar will deliver an energy savings dividend. Is something like this happening in the United Kingdom? Using data from the BP Statistical Review, and the latest 2019 data from the UK government, Britain’s rapid transformation of its electricity system is increasingly paired with an overall decline in total electricity consumption. As of last year, combined wind+solar provided nearly 21% of power in the UK system, ten times the share from 2008’s 1.83%. In the same period, however, total electricity demand fell by 14%, from 388.1 TWh to 333.1 TWh.

There is no question the great recession of 2008-2010 looms large in any data series of the past decade. That said, the EIA reported last month that from 2005 to 2018, the US economy grew 25% while US energy consumption rose just a single digit, 1.0%. Back in the UK, we know the energy source hurt worst by the advance of renewables—and frankly, in the UK, we are talking mostly wind power—is coal. And while UK economic growth has been more tepid, it has still been positive: rising 9% from 2010-2017. When you look at the chart above, therefore, it would be reasonable to conclude that the UK’s success in nearly wiping out coal combustion to levels near zero, and replacing that capacity with a revolutionary buildout of wind, has indeed delivered a hefty energy dividend.

The insurance industry is increasingly hard-pressed to model climate change, because climate change upends all the models. The Wall Street Journal is currently publishing an ongoing series, The Price of Climate, and an early October installment focuses on the insurance industry. Historically, to build probabilistic models, the industry gathered historical data. But historical data may be declining rapidly in value. One example: the Persian Gulf, home to vast arrays of oil and gas infrastructure, has long been safe from damaging cyclones—historically. But recent research suggests risk of Gulf cyclones is rising. The WSJ quoted Princeton professor Stephen Pacala, also a board member of Hamilton Insurance Group: “Climate change makes the historical record of extreme weather an unreliable indicator of the current risk.” 

To decarbonize the world’s energy system, you will want to see oil demand growth decelerate, and annual electricity production grow strongly. And that’s exactly what’s happening. In the 20th century, annual oil demand growth ran at 2% or more. More frequently in this century, that growth rate has fallen closer to 1%. And yes, that’s a very big difference. In 2019, oil demand growth is expected to fall short of 1%, as electricity generation once again grows faster. With the exception of 2015, global electricity growth will have overtaken oil growth in every year of the decade.

The end of oil growth is growing nearer in time. Please see this excellent summary from Seattle-based professor and entrepreneur, Rob Carlson, Seeing The End of Oil.

The Gregor Letter wishes everyone a relaxing holiday. What better way to mark the season (while we still have recognizable seasons) than to point your attention to the #treebybike hashtag on Twitter.

Gregor Macdonald, editor of The Gregor Letter, and

The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.

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