Tuesday, December 30, 2014

Solar Electric Car vs Gasoline Powered Car: Total Cost of Ownership

In this video I compare the total cost of ownership between an electric car (the Nissan Leaf) powered by rooftop solar panels and an equivalent gasoline car (the Nissan Versa Note). I find that the solar-powered electric car will become cheaper than the equivalent gasoline powered car over the next 5 years. I put the model on Github for anyone who wants to play around with the assumptions: https://github.com/willmartindotcom/peakoilproof.com

The conceptual framework:

Solar-powered electric cars are far better for the environment than gasoline-powered cars, both for air quality and for climate change.

Rooftop solar prices are expected to continue to decline:

Gasoline prices are expected to continue to rise:

In 2012 it became cheaper to drive an electric car with rooftop solar than to drive a gasoline powered car.

Electric car battery costs are expected to continue falling:

The total cost of ownership of a gasoline powered car will likely continue to rise:

The total cost of ownership of a solar-powered electric car will likely continue to fall:

By 2016 it should be cheaper overall to drive a subsidized electric car than it would be to drive a gasoline car. By 2020 it should be cheaper to drive an unsubsidized electric car.

Friday, December 12, 2014

Rooftop Solar eGallon Price Versus Gasoline

How much would it cost to drive an electric car that you charged using rooftop solar versus driving a gasoline car?

In this video I do the calculation.

Thursday, July 17, 2014

Buy My Book! Bitcoin, Cryptocurrencies and a Peak Oil Future of Black Markets

People who have followed my blog for a while know that I'm writing a book on peak oil investing. I'm still hard at work on that book and things are moving forward. I've got a developmental editor helping me focus it down to a publishable state. The peak oil debate has changed a lot in the last few years and I'm working to make the book relevant to the current debate environment.

While I'm working to finish the peak oil book I want to tell you about another book I just published called "Anonymous Cryptocurrencies."

Bitcoins and cryptocurrencies have been a passion of mine since early 2011, when I worked with Ithaca Hours on a plan to digitize their local currency. Since then I’ve seen the value of bitcoin rise from under $1 to over $1000. The advantages of bitcoin are becoming known to a wider audience and more people and companies are getting involved with the "future of money." One of the main disadvantages of bitcoins, however, is that they are not anonymous. In fact, using bitcoins is like posting your credit card statement on the internet but leaving your name off of the top. If anyone can link your name to your credit card number, they instantly know your full payment history. Luckily, a lot of smart programmers are developing alternatives to bitcoin that provide true anonymity. This year I decided to write a book on the subject. Because this space is so new, I'm actually the first person to write a book on anonymous cryptocurrencies. The basic premise of my book is that the global black market is enormous and growing and if even a small percentage of that trade takes place with these anonymous cryptocurrencies, their value could skyrocket. On a longer time frame I believe that these anonymous cryptocurrencies will help protect people from identity fraud, help people around the world fight government oppression and provide a safe and cheap way for the "unbanked" to conduct remittances.

In the book I discuss peak oil and how it relates to bitcoins and other cryptocurrencies. Here is an excerpt from the book:
Peak oil is another candidate for global economic collapse. Oil is a finite resource and as such its extraction rate will eventually peak and decline - that is a geological fact. The consequences of peak oil could be dire because we are currently “addicted to oil.” Everything you see in the room around you (including yourself) is either directly made of oil, required oil in its manufacture and/or was transported to your room using oil. Every calorie of food you eat required 10 calories of hydrocarbons in the form of pesticides, fertilizers and diesel fuel to plow, plant, harvest, package, transport and cook it. When the global rate of oil production peaks and begins to decline, the economic and societal consequences could be tremendous if we haven’t developed oil-independent energy generation, food production and transportation infrastructures. No one knows when peak oil will happen or how dramatic the decline rate will be after the peak, but if it happens soon, we could see economies collapse.

A peak-oil related advantage of cryptocurrencies is the fact that they are essentially “stores of energy.” Cryptocurrencies are usually generated through “mining” and mining requires electricity to power CPUs, GPUs and ASICs chips. The algorithms of these currencies adjusts the mining difficulty until it reaches an equilibrium. Using standard economic theory, over the long run this equilibrium should occur when the marginal cost of mining a coin reaches the marginal revenue of selling that coin. Since electricity is one of the main expenses associated with mining, over the long run the price of these currencies should fluctuate as the supply of mining rises and falls with changes in the price of energy. If peak oil (and peak gas and peak coal) will make the price of electricity rise over time, coins mined today with “cheap” energy should be a fantastic investment for a future with expensive energy.
From a peak oil perspective, I believe that bitcoin and other cryptocurrencies hold a lot of potential. In the past when economies have collapsed (Soviet Union, Zimbabwe, Yugoslavia) the US Dollar has stepped in to replace the collapsed currency. With all of the global fiat currencies (including the dollar) being printed at unprecedented rates, in a future collapse we may see people turn to fixed-supply cryptocurrencies like bitcoin to fill the void. In a future with expensive energy, these "stores of energy" could also be a cheap method of intertemporal energy arbitrage.

I hope you'll support my new book by purchasing a copy on amazon!

Wednesday, June 25, 2014

BP Statistical Review Shows Peak Oil Bumpy Plateau

June is always an exciting month because each year BP releases their "statistical review of world energy" around this time. The BP Statistical Review is one of three important public sources of global oil production data. The other two are the IEA Oil Market Report and the EIA International Energy Statistics report.

From a peak oil perspective, the big news out of BP's report is that we have not yet reached peak oil. Global oil production rose from 86.2 million barrels per day to 86.8 million barrels per day between 2012 and 2013. This gain, however, was a paltry 0.65% increase. If you chart the year-over-year change in global oil production for the past 50 years, you see it has been falling continuously since the 1960's. When you add a logarithmic trendline you see that it is approaching zero.

Perhaps more interestingly, when you chart the world oil production against the world oil production excluding the United States, you see that world oil production has barely budged in nearly a decade if you don't count increasing US fracking production.

Indeed, when you add up all of the production from every country on earth except for the United States, we have been on a "bumpy plateau" of production since 2005.

Which leads us to the question: can the US continue to increase production and stave off global peak oil? The answer, at least according to the EIA, is no. The EIA recently released a forecast showing US shale oil production peaking in 2020.

The forecast of US shale production (as you can see from the chart above) follows an s-curve, meaning the rate of increase of production will begin to decline. When you dig into the data, you see that the rate of production increase for US shale oil is expected to have peaked in 2012 and will fall every year in the future. If the rate of increase for the production rate of US shale oil falls in the future, it may not be able to continue "propping up" the global oil production rate. As a result, it is feasible that we could reach peak oil in the next few years.

While the date of peak oil is important, the date of "peak oil exports" is perhaps more important. The economies of countries like the US and China are extremely dependent on the world oil export market. Likewise, the price of crude oil is set by the world oil export market. When we look at BP's data, we see that global net oil exports peaked in 2006 and have declined 3.5% since. This is mainly due to oil export cannibalization by oil producing countries. As oil exporting countries become wealthier, many begin to develop economies that demand more and more of their own oil production. When this increased internal demand is combined with declining production, we see declining net oil exports. For example, since 2006 Norway's net oil exports fell 37%, Mexico's fell 49% and Denmark's fell 88%. Production increases in countries like Russia and Iraq were not sufficient to increase total world net oil exports. If this trend continues, we could see oil prices continue to rise.

We may not be at peak oil yet, but the alarm bells are certainly ringing.

Thursday, May 8, 2014

Peak Oil and the Outlook for Oil Supply and Demand

This is a presentation I gave last week to the Adhesive and Sealant Council annual convention in Orlando.

The presentation starts with an explanation of the current state of the debate surrounding peak oil. I then move into the outlook for the supply and demand curves going forward. I use the "marginal cost curve" for crude oil to go one-by-one through the various sources of oil supply around the world. I then talk about the future outlook for crude oil demand and the possibility of "peak oil demand" as predicted by The Economist. Finally, I finish with some advice for people working in companies that will be directly affected by peak oil.

Tuesday, March 18, 2014

Psychological Trigger Points For Crude Oil Demand Destruction

I've talked about demand destruction before in this blog. Demand destruction occurs when the marginal benefit of using more crude oil exceeds the marginal cost for people. Essentially, when oil prices go too high, people use less oil. On a personal level, this means that people may drive fewer miles by staying closer to home on the weekends, they might postpone a long-distance vacation, or they might start taking the bus or work from home instead of commuting by car. The Economist wrote a nice article on this phenomenon last year where they stated "in the rich world oil demand has already peaked: it has fallen since 2005."

While demand destruction occurs across every price up the ladder, there are certain psychological trigger points where people "wake up" to the fact that oil has gotten very expensive. Gas stations post their prices on the street and people notice when prices pass certain thresholds. In the United States, we price our fuel in dollars per gallon, and people definitely notice when regular gasoline passes $4 per gallon. In fact, when we look at the average US street price of regular gasoline, we see it bounces off a ceiling of $4 per gallon:

When Americans see $4 a gallon on their neighborhood gas station's sign, the price of oil immediately becomes front-of-mind and they start changing their behavior. Already, there are signs that motorization in the US has peaked. We can imagine that if gasoline prices rose past $5 per gallon, people would dramatically cut back on their gasoline consumption.

In Europe, gasoline is priced in Euros per Liter. The EIA keeps a summary of current prices in Europe here. In Germany, the largest economy in Europe, 48% of cars are diesel, so the price of diesel is more important than the price of gasoline. Looking at historic diesel prices in Germany we also see a ceiling, but it is at €1.5/liter:

We can imagine that the next threshold in Germany is €2/liter, at which point Germans would almost certainly cut back significantly on their fuel consumption.

In China, gasoline and diesel is priced in yuan/liter. Current prices are ¥1.77/liter for diesel in Beijing. In Chinese culture, many numbers have strong physiological associations. Seven a lucky number associated with "togetherness" - so today's price of ¥1.77/liter might be welcomed by people. Four is considered an unlucky number. In fact, many buildings in china don't have a 4th floor (similar to how many buildings in the west don't have a 13th floor). So while ¥2/liter is likely the next physiological threshold in China, we can imagine that if prices rose to ¥2.44/liter, they would be front-of-mind for people.

Converting Crude Oil Prices to Gasoline Prices
We can convert the price of crude oil to the price of gasoline by looking at the historical difference between these two prices. There are 42 gallons in a crude oil barrel, so a $100 crude oil price is $2.38 per gallon of crude oil. Obviously crude oil is the largest input cost for gasoline, but when you buy a gallon of gasoline you're also paying for taxes, marketing, distribution and refining costs. The EIA has created a nice graphic showing what you pay for in a gallon of gasoline:

Over time, the price of crude oil has become a larger percent of the overall cost of gasoline:

Today crude oil accounts for about 75% of the cost of gasoline in the United States and for about 35% of the cost of diesel in Germany (where taxes are far higher). Using historical data we can come up with a few simple rules of thumb for converting crude oil prices to local gasoline prices for the US, Europe and China:
  • United States: Crude Oil ($/bbl) / 31.5 = Gasoline Price ($/gallon)
  • Europe: Crude Oil ($/bbl) / 80 = Diesel Price (€/liter)
  • China: Crude Oil ($/bbl) / 61.5 = (¥/liter)
For the record, there are more accurate ways of doing this - like calculating the refinery yield for each product and adding on top of that the taxes and distribution cost for each region - but for this blog post some rules of thumb will suffice.

Demand Destruction Thresholds
Going back to our psychological demand destruction thresholds, we can use our rules of thumb to convert them to crude oil prices:
  • €1.5/liter in Europe: $120
  • ¥2/liter in China: $123
  • $4/gallon in the US: $126
  • ¥2.44/liter in China: $150
  • $5/gallon in the US: $157
  • €2/liter in Europe: $160
So looking at future prices, if crude oil hits $120-$125 per barrel, we will likely see demand destruction as certain psychological triggers are hit around the world. The next threshold appears to be $150-$160 per barrel, at which point demand destruction could be quite severe.

Monday, February 24, 2014


"It's hard to make predictions, especially about the future."

Peak Oil
  • What oil price can the global economy support without going into a recession?
  • Have we passed peak $50/bbl oil?
  • Have we passed peak $100/bbl oil?
  • With oil companies cutting back on capital spending, how will global oil production rates continue to increase?
  • Has global conventional oil production peaked?
  • Will increases in unconventional oil production be able to offset declines in conventional oil production?
  • What percentage of oil and gas well casings fail over a 1000 year time span?
  • How many earthquakes are the direct result of hydraulic fracturing and the resulting underground waste water disposal?
  • Do we have enough water to continue increasing the rate of shale oil and gas extraction?
  • Will we see peak oil because of peak demand or peak supply?
  • Once we pass peak oil, will we have a smooth transition to sustainable energy sources or will we have a collapse?
Climate Change
  • Once you account for the methane that leaks into the atmoaphere along the life cycle, is fracking for gas better or worse than coal for climate change?
  • What is a "safe" amount of global warming?
  • After all of the positive and negative feedback loops are accounted for, what is the real warming potential of a ton of greenhouse gas?
  • Given that warming potential, how many tons of greenhouse gas can we safely emit into the atmosphere?
  • How much economically-extractable hydrocarbon energy is left in the ground?
  • Is the amount of economically-extractable hydrocarbons in the ground higher or lower than the amount we can safely emit?
  • Is it possible with current technology to hold global warming to a safe level without harming our economy?
  • When will we see a global carbon tax?
  • Will China unilaterally tax carbon?
  • Will politicians fail to act on climate change until we see catastrophic climate disruptions (thermohaline shutdown, megastorms, megadraughts, greenland ice sheet collapse)?
  • If politicians wait until a crisis to act, will it be too late to halt climate change?
  • If we fail to act, is it possible to reverse climate change through geoengineering?
Economic Sustainability
  • Is it possible in this century to provide 10 billion people a developed-world standard of living without destroying the environment?
  • Throughout history, when governments have rapidly debased their currencies through money printing, it has always led to high inflation. This time though, all of the government are doing it at the same time and we haven't seen much inflation yet - is this time different?
  • How long can real interest rates remain negative?
  • What ever happened to breaking up banks that were too big to fail?
  • Why did the Federal Reserve Bank of New York say it would take 7 years to repatriate 674 tons of gold to Germany when they claim to have 6,700 tons of gold in their New York vault?
  • Can income inequality continue to get more severe every year without a triggering some kind of backlash?

"Plan for the future because that's where you are going to spend the rest of your life." -Mark Twain

Monday, January 13, 2014

2014 Predictions

I love New Years because it is the one time of year when experts seem to throw caution to the wind and make wild predictions about asset prices.  Of course, most of these predictions will be wrong because as Yogi Berra famously said "It's tough to make predictions, especially about the future."  But nevertheless it is fun to see how the experts view the market over the coming year.  So without further ado, here are the asset price predictions I scraped from around the internet:

Looking back at energy prices in 2013:

2014 Energy Price Predictions:
  • Oil: EIA: Down 4%
  • Oil: Survey of 27 experts: Down 4%
  • Oil: Eurasia Group: "a-better-than 50% chance...oil prices are cratering through $80": Down 25%
  • Oil: Credit Suisse: Down 5%
  • Oil: Chris Nelder: Up 3%
  • Natural Gas: EIA: Up 4%
  • Natural Gas: Chris Nelder: Flat
  • Coal: EIA: Up 1%
  • Solar: IHS: Down 10%
  • Solar: NPD Solarbuzz: Down 6%
  • Solar: GTM Research: Down 1%

Looking back at various asset class investments in 2013:

2014 Asset Class Predictions:
  • US Equities: Average forecast according to Bloomberg: Up 6%
  • US Equities: Goldman Sachs: Up 3%
  • US Equities: Goldman Sachs: "The S&P500 Is Now Overvalued By Almost Any Measure"
  • US Equities: Scott Minerd, Guggenheim Partners: "can  rise another 10% to 15% before it pulls back"
  • US Equities:  Peter Boockvar, Lindsey Group: Down 20%
  • US Equities: Emad Mostaque, NOAH Capital Markets: Down 20%
  • International Developed Equities:
  • Emerging Market Equities: Jan Dehn, Ashmore: "It is entirely possible that emerging markets will be the best performing asset class in the world [this year].”
  • Emerging Market Equities: George Magnus, UBS: “Emerging markets have a lot to worry about from a resurgent dollar”
  • Emerging Market Equities: Anatole Kaletsky: "Emerging markets will make a comeback"
  • Emerging Market Equities: Jeremy Grantham: "“My guess is that the US market, especially the non-blue-chips, will work its way higher, perhaps by 20-30 per cent in the next year or, more likely, two years, with the rest of the world, including emerging market equities, covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999."
  • Emerging Market Equities: Mohamed El-Erian: "Do not bet on a broad emerging market recovery"
  • US Bonds: LPL Financial Research: "Bond valuations remain expensive compared to historical averages"
  • US Bonds: Bill Gross: "should provide low but attractively defensive returns"
  • US Bonds: Bank of America: "Challenging year for fixed income"
  • US Bonds: Jeffrey Rosenberg, Blackrock: "Traditional bonds could experience losses"
  • International Bonds: Morgan Stanley and Goldman Sachs: Bearish
  • Gold: Emad Mostaque, NOAH Capital Markets: Up 20%
  • Gold: Bank of America: Down 11%
  • Gold: Barclays: Down 3%
  • Gold: Ole Hansen, Saxo Bank: prices have "bottomed out"
  • Gold: Philip Klapwijk, Precious Metals Insights: Down 2.5%
  • Silver: Bank of America: Down 21%
  • Bitcoin: Jason Hamlin: Up 250%
  • Bitcoin: Jason Hamlin (contradicting himself?): Up 500%
  • Bitcoin: Lightspeed Venture Partners: Up 500%
  • Bitcoin: "56% of bitcoiners": Up 1000%
  • Bitcoin: Cameron Winklevoss: Up 4000%
  • Bitcoin: Hugh Hendry: "I would buy Bitcoin if I could"
  • Bitcoin: Mark T. Williams: Down 99%
  • Bitcoin: Oliver Pursche: "bites the dust"
  • Bitcoin:  Lauren Orsini: "the end of Bitcoin as we know it"