Tuesday, March 29, 2016

Cleaning Out The In-Box: Uber Is Top Threat To Oil -- Gartman -- March 29, 2016

Updates

March 18, 2018: Mark Perry schools Dennis Gartman.

February 26, 2018: an update on Dennis Gartman, Uber, Big Oil, and public transportation.

May 16, 2016: an update on "mobility" and Gartman's nonsense about threats facing Big Oil. It's very possible what Gartman noted (the mobile millennials) are a bigger threat to the big automakers, and not to Big Oil (that would come later). Over at AP/Yahoo we have this:
In congested and expensive cities, people are increasingly content to share cars or summon rides using their smartphones.
In five years, 35 million people globally will be using car-sharing services, up from 5.8 million now, according to Boston Consulting Group.
That means 550,000 fewer cars sold each year. Within another few decades, fleets of self-driving taxis could replace the need for personal car ownership altogether. Automakers that don't adapt risk being supplanted by high-tech competitors.
This is not what we are hearing out of India. Or China. Just saying. But Boston Consulting Group knows more than I know.

March 29, 2016: how coincidental. After posting the Gartman nonsense about Uber, Mark Perry had some useful comments about the ride-sharing concept (as did a reader; see comments below). Mark Perry:
I’ve written before about some obvious signs of widespread inefficiency in the traditional taxi market, as illustrated in the photo above that show the dozens of taxis that line up every day at The Mayflower Hotel in DC (and at every other major hotel in DC) and sit idly for very long periods of time waiting for passengers. In this post from last August “Why are a dozen taxis lined up every day at The Mayflower Hotel?” I wrote:
In a dynamic Uber world, the available drivers respond to demand, and are directed by Uber to areas where there are a lot of passengers. And when demand is really high, surge pricing goes into effect to attract even more drivers to areas of high demand. But when there are always a dozen taxis sitting around idly at The Mayflower (and most other DC hotels), that just seems like an outdated form of transportation inefficiency, an inefficient excess supply, a failure to balance supply and demand, and something that would never happen in a ride-sharing world of much greater transportation efficiency.
There’s now evidence of just how inefficient legacy taxis are compared to UberX when measured by two capacity utilization rates: a) the fraction of time taxi and UberX drivers have a fare-paying passenger in their cars and b) the percentage of total miles driven by taxi and UberX drivers with a passenger in their cars. The anecdotal evidence of taxi inefficiency I observe almost every day in DC is now confirmed more formally in a new NBER research paper by Judd Cramer and Alan B. Krueger titled “Disruptive Change in the Taxi Business: The Case of Uber,” -- the abstract is at the link.
Original Post
 
You know we've reached the stage of silliness when we see this headline: Uber is the top threat to oil. Gartman said that. LOL. Over at Finance!Yahoo:
Oil watchers are eyeing a potential freeze by producers as the next catalyst for the commodity, but one oil bear says crude's (New York Mercantile Exchange: @CL.1) biggest obstacle is already here. 
"I think Uber is a threat to oil for the simple reason that millennials have embraced it dramatically," Dennis Gartman, editor of The Gartman Letter, told CNBC's " Fast Money " traders on Monday. "The millennials are saying 'I really don't need an automobile.'"
Since the founding of Uber in 2009, the ride-hailing company has launched in more than 400 cities and taken passengers on more than 1 billion rides, according to the company's website. And it's the simplicity and convenience of the service itself that Gartman said has converted many would-be personal vehicle owners into Uber-dependent passengers. Oil has fallen more than 40 percent since Uber's inception. 
The millennials say "I really don't need an automobile" and then they take more than 1 billion rides in automobiles. During this same period, automobile sales in the US are setting new records.  For someone to suggest that Uber has contributed to the fall in crude oil price borders on the insane. Scratch that. It is insane.

My son-in-law owns three cars and he has no teenage drivers. He loves Uber. He takes Uber to the airport. Uber has nothing to do with whether one "needs" an automobile. 

Do people really feel good about subscribing to The Gartman Letter?

I probably wouldn't have even posted that but it will be nice for the archives. It sort of fits in there with the Kennedy clan saying their grandchildren will never see snow again.

Moving on.

Forbes has an article: why green energy means no energy. Another article for the archives. Forbes is speaking to the choir, as they say. The article begins with several facts/observations with some basic facts about energy and human well-being.
  • There are 7 billion people in the world who need cheap, plentiful, reliable energy to flourish. 
  • Some three billion have virtually no energy by our standards. Over a billion have no electricity whatsoever.
  • In the history of energy technology, only three methods of energy have proven able to produce cheap, plentiful, reliable energy on any significant scale. These are hydrocarbon (fossil fuel), nuclear and hydroelectric power—with hydrocarbon being the most scalable and versatile (e.g., it provides virtually all our liquid transportation fuel).
  • Two of those methods—nuclear and hydro are not carbon-based and therefore are the obvious choices to champion to the extent you are concerned with reducing CO2 emissions.
  • The biggest opponent by far of both of these technologies is the green movement—the movement that claims to care the most deeply about reducing CO2 emissions.
  • That movement keeps insisting, against all evidence, that their anti-fossil, anti-nuclear, anti-hydro stance is not a problem because solar and wind, unreliable, parasitical sources of energy that increase costs wherever they are significantly deployed, will somehow save the day.
The article goes on from there. I'm posting it simply for the archives.

As long as we're dumping on solar energy, we might as well add one more from Forbes (this one is actually better than the linked article above: the myth of wind and solar capacity (we've discussed it at the blog before) but this article has a great graph. The author begins:
When you hear that wind has the most increased capacity, you are supposed to think that it has the most increased ability to provide electricity in the way we need it–affordably and reliably.
But for the kinds of energy I call “unreliables”–solar and wind, whose fuel sources are intermittent, unpredictable, and most of the time unavailable, the term “capacity” is inherently misleading.
A wind farm may operate near maximum capacity at brief, unpredictable moments and produce little to nothing the rest of the time. Those unreliable bursts might add up to 20-30% its supposed capacity.
A set of solar panels may operate near capacity in the middle of the summer in the middle of the day when there are no clouds, but most of the time it has far less ability, when clouds (or non-summer seasons) come that ability can disappear, and at night the panels obviously have no electrical generation ability.
For the purposes of providing individuals the cheap, plentiful, on-demand electricity they need, this is useless.
The actual ability of wind and solar is essentially zero. Witness the celebrated electric grid of Germany.
Is this really what you want your electric company's grid to look like?

Forbes also has an article: Lessons From The Aluminum Industry: The Hidden Cost Of China's Cheap Solar.
The glut of cheap solar panels manufactured in China has largely been considered to be a boon for the solar industry in North America. Who wouldn’t want hugely subsidized solar panels? But, if the chaos derailing the global aluminum industry is any indication, the long-term consequences of China’s solar manufacturing overcapacity are likely to be far less palatable than the short term consequences.
In 2000, China produced only about 11% of the world’s primary aluminum. Now, it produces more than half. This historically unprecedented expansion of production capacity resulted from government policies rather than process improvements or lower input costs. In fact, of the 50 highest-cost aluminum smelters in the world, 37 are located in China.
China’s government has been subsidizing aluminum smelters through direct grants, interest free loans and other “incentive” mechanisms. Absent this massive support scheme, a significant number of the smelters in China would have been forced to declare bankruptcy. Ironically, Chinese smelters often have above average operating costs compared to smelters located outside of China, primarily because of high energy costs.
Energy is the largest component of production costs and accounts for roughly 40% of total costs. The Chinese government has bankrolled its aluminum industry by subsidizing energy, which has kept high-cost smelters in business despite falling aluminum prices.
It's been my impression that countries that countries that subsidize energy at far below its costs will live to rue that decision. I think the same holds for China. China, like Saudi Arabia, cannot afford to subsidize energy forever. 

Regardless of how the aluminum story plays out, I still maintain that the 21st century will be the century in which fossil fuel and fresh water will be the top resource stories, and North America will be the center of both stories. By the end of the 21st century, perhaps by 2050, and perhaps even within my lifetime, Saudi Arabia will be a net importer of energy.

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