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natural gas (6)


Energy Of The Future. Demand By 2050

When it comes to energy, there is one matter everyone agrees on. For the near future, at least, the world will need more of it—and how it is produced and used will be a critical factor in the future of the global economy, geopolitics, and the environment. With that in mind, McKinsey took a hard look at the data, modeling energy demand from the bottom up, by country, sector, and fuel mix, with an analysis of current conditions, historical data, and country-level assessments. On this basis, McKinsey’s Global Energy Insights team has put together a description of the global energy landscape to 2050.

It is important to remember that this is a business-as-usual scenario. That is, it does not anticipate big disruptions in either the production or use of energy. And, of course, predicting the future of anything is perilous. With those caveats in mind, here are four of the most interesting insights from this research.

Global energy demand will continue to grow. But growth will be slower—an average of about 0.7 percent a year through 2050 (versus an average of more than 2 percent from 2000 to 2015). The decline in the rate of growth is due to digitization, slower population and economic growth, greater efficiency, a decline in European and North American demand, and the global economic shift toward services, which use less energy than the production of goods. For example, in India, the percentage of GDP derived from services is expected to rise from 54 to 64 percent by 2035. And efficiency is a forthright good-news story. By 2035, McKinsey research expects that it will take almost 40 percent less fuel to propel a fossil-fueled car a mile than it does now. By 2050, global “energy intensity”—that is, how much energy is used to produce each unit of GDP—will be half what it was in 2013. That may sound optimistic, but it is based on recent history. From 1990 to 2015, global energy intensity improved by almost a third, and it is reasonable to expect the rate of progress to accelerate.

Demand for electricity will grow twice as fast as that for transport.

China and India will account for 71 percent of new capacity. By 2050, electricity will account for a quarter of all energy demand, compared with 18 percent now. How will that additional power be generated? More than three-quarters of new capacity (77 percent), according to the McKinsey research, will come from wind and solar, 13 percent from natural gas, and the rest from everything else. The share of nuclear and hydro is also expected to grow, albeit modestly.

What that means is that by 2050, nonhydro renewables will account for more than a third of global power generation—a huge increase from the 2014 level of 6 percent. To put it another way, between now and 2050, wind and solar are expected to grow four to five times faster than every other source of power.

Fossil fuels will dominate energy use through 2050. This is because of the massive investments that have already been made and because of the superior energy intensity and reliability of fossil fuels. The mix, however, will change. Gas will continue to grow quickly, but the global demand for coal will likely peak around 2025. Growth in the use of oil, which is predominantly used for transport, will slow down as vehicles get more efficient and more electric; here, peak demand could come as soon as 2030. By 2050, the research estimates that coal will be down to just 16 percent of global power generation (from 41 percent now) and fossil fuels to 38 percent (from 66 percent now). Overall, though, coal, oil, and, gas will continue to be 74 percent of primary energy demand, down from 82 percent now. After that, the rate of decline is likely to accelerate.

Energy-related greenhouse-gas emissions will rise 14 percent in the next 20 years. That is not what needs to happen to keep the planet from warming another two degrees, the goal of the 2015 Paris climate conference. Around 2035, though, emissions will flatten and then fall, for two main reasons. First, cars and trucks will be cleaner, due to more efficient engines and the deployment of electric vehicles. Second, there is the shift in the power industry toward gas and renewables discussed above. The countervailing trends are that there are likely to be some 1.5 billion more people by 2035, and global GDP will rise by about half over that period. All those people will need to eat and work, and that means more energy.

The world is full of unpredictable and sometimes wonderful surprises, so I accept that these numbers are unlikely to be perfect. As with any forecast, they are based on assumptions—about China and India, for example—as well as about oil prices and economic growth. Other sources see different outlooks. Concerted global action to reduce greenhouse-gas emissions, for example, could change the arc of these trends. Technological disruptions could also bend the curve.

For business and political leaders, though, the implications are clear. Given that global energy demand will grow, it is likely that prices will continue to be volatile. Better energy efficiency, then, is an important way to reduce related risks. Technology development is critical to ensuring that the world gets the energy it needs while mitigating environmental harm. This will require substantial new investments. Finally, to encourage the creation of the clean and reliable energy infrastructure that the world needs, energy producers will need to work with local, regional, national, and international regulators. Getting things right the first time is essential; there is extensive evidence to show that dramatic changes in policy act as a powerful deterrent to energy investments by producers. Given the scale of the new investments needed, this will be a factor of growing importance.

Courtesy of McKinsey

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Chart Palooza

I'm continually saving charts and data points which I find interesting but generally don't post enough to share the data.  That being said, I thought "wth" and decided to share some of my most recent.  Perhaps you can find a few of interest or maybe you can translate one into a trade.  It certainly can't hurt.  Your comments would be of interest and will be answered.  Happy trading.

Online shoppers by income group.  It certainly seems Amazon benefits by middle income buyers.  Possibly they just don't have the 'time' to shop in a store, working 60+ hours a week and balancing soccer games, football, cheerleading practice, dinner, laundry, etc.

Jet[dot]com is now selling some items at a loss to gain marketshare from Amazon

We've had numerous talks in Chat over coal usage (is clean coal an oxymoron or what?) and this certainly backs up the belief that natural gas continues to be embraced.

Then we have a look at Bear markets of 20% or more.The average # of months caught my eye.  No, I don't believe we're out of the woods yet.

Presented without comment.

More on China de-leveraging; reverting to the mean.

Ever wonder just "who" is feeling the most pain with the collapse in commodity prices?

Then we have projections on when the Fed will raise rates; this compared to past increases.  Their rate of increase vs. what is anticipated.

Now a blip from the SoberLook on steel and China's overcapacity.

Lastly a look at China's production growth with many wondering just 'where' is the bottom?

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Beware Old Man Winter (again?)

If the Old Farmers Almanac is even semi accurate, it looks as though it's going to be another nasty Winter - colder than last year (!) ahead thanks to the sun's activity.  According to this video (below) this forecast is nothing to shake a stick at as allegedly they have an 80% accuracy but only time will tell. 

Of course, the folks back home in Chicago will immediately roll their eyes and sigh in pure disgust and they have the right to after the "polar vortex" that rolled through the area last January.  Not only were schools shut and streets impassable but even expressways, covered with salt as fast as they could spread it, froze and brought commuters and semis to a stand still.  Supplies were cutoff across the nation and insurers definitely had to have felt the pain.

Seems I relocated to Texas just in the nick of time!  While we still get a few snow days down here below the 40th parallel North (even a inch of snow here paralyzes drivers and shuts down schools), the first thing that jumps into my mind is firewood.  Luckily I'm already stocked up on wood from our tornado earlier this Summer.  Check.

Next in line: what about trading nat gas?  It jumped up over 80% off of the November lows into February.  Just take a look at some natural gas names as well as UNL and UNG.  It may even be worth taking at look at generator manufacturers such as BGG and see if last years bitter cold helped boost sales.

I say bring it on Old Man Winter.  This year, we'll be prepared and have a hedge against those high heating bills.  Food for thought as you take the snow blower in for a tune up. 

See FBN Video calling for severe cold.

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Seasonal Demand Trades June 2014

Seasonal demand is just what it sounds like.  What seasons certain things see higher demand such as natural gas for A/C and heating or gold for jewelry manufacturing and sales.  With that in mind I thought I'd flip through our Seasonal Charts for hints of possible trades here and in the months approaching.  My unscientific belief has been that larger players begin to buy long futures contracts before the season hits so I begin to watch for divergences and support in charts.  Click on the charts below for a better view.  Let's take a look:

Consumer Staples Which can be traded via $XLP or one of it's components are items which consumers feel they cannot do without.  They're considered non-cyclical, meaning that they are always in demand, no matter how well the economy is performing (or not performing).  Think diapers $KMB, personal hygiene $PG, discounters like $WMT, beverages such as $KO, cigarettes $MO and $PM, pharmacies such as $WAG and $CVS.  There are many other names, but you get the picture.  They're slow but steady growers with dividends which heat up in the Summer and ramp until end of year.  The type of thing yo can buy at the 20d SMA but back up the truck at the 200d. 

Natural Gas  Yes as much as I hate to think it, nat gas demand increases as the Summer heats up.  It's one to watch the weather channel however. Mild temps and it will fall like a rock.  Extreme heat and you have a trade as the shorts are squeezed.  I wouldn't recommend investing via $UNG (very flawed) but rather prefer $FCG or one of it's components.

Bonds  Whether it's the 2yr, 5yr or 30yr (shown) bonds or flight to safety tends to ramp up Spring through end of year when tax receipts are into the government via income taxes and "sell in May, go away" begins.  idk if I'd chase them here but on a pullback, maybe for a trade.  $BND is just one of the numerous bond ETFs out there as well as the well-known 20yr treasury$TLT

They are TRADES right now - not investments.  Stay nimble.

Corn and Soybean shorts.  Once they're in the ground, seasonal demand drops through Fall.  $JJG and $CORN are two ways to short grains although thinly traded.

Crude Oil and Gasoline  longs.  We're talking Summer driving season, then a lull when the kiddies return to school but then a ramp again into the Fall/Winter holidays.  We've already recommended long $USO and will most likely be adding to that position this week.  Stay tuned.

Lastly we have everyone's favorite Gold which catches a season bid going into India's festive wedding season however it should be noted that purchases of the yellow metal fell in Q1 by 26% supposedly due to government restrictions and tariffs.  Still India is #2 to China in gold importing and with China's slowdown, one has to wonder if India will come out on top in 2014. 

$GLD is deeply oversold; maybe a short covering rally?  Watch the charts for a signal.

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2014 Recession Ahead?

If so, blame Mother Nature.  I dread seeing my next heating bill and will most likely be selling a kidney on Ebay to cover the cost.  A 2011 research paper by James Hamilton highlighted how historically, recessions occurred after a spike in crude oil prices.  Well what do you think we're witnessing in nat gas here?  Sure, it's an enormous short squeeze but what will the record snowfall, cold temperatures AND a spike in natural gas do for revenues, earnings and consumer spending

I'm surprised MSM media isn't talking about this more.  Sure, they're mentioning the slow down in the retail sector (charts already showed that) but what about the "R" word?  Oh wait, their job is to prop up and distract "entertain".  I almost forgot.

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Natural Gas Outperforming Crude Oil *booyah!*

[Edited October 15, 2012 to add Reuters link and Citicorp PDF ]

Natty outperform black gold?  Texas tea?  Yes it's happening and the intriguing part is it could continue.  It's unimaginable, unheard of, pure heresy but it at the same time, appears to be the Captain Obvious trade to these novice aging eyes.  While I'm no guru and don't begin to know it's intricacies, allow me to explain from a technical analysis and common sense point of view.  [CLICK ON ANY CHART TO ENLARGE]


#1  Falling crude oil demand in developed countries continues and this decline is expected to continue going forward......while increasing demand is expected in developing countries however I doubt quite a rapid increase given the status of global economies at this point in time.  Main point however, is that the U.S. itself is not expecting to increase its demand any time soon.

On a side note, the EIA expects more U.S. homes to use more heating fuels this Winter. [See report] BP, Shell and others are pushing hard to export overseas [Reuters]



#2 The push for American independence from foreign oil.  Now before you roll your eyes thinking this is a political pitch, I'm merely pointing out the obvious with nonpartisan facts that can easily be found at the Baker Hughs website.  While prior administrations have all *touted* they were for pushing for this initiative, only in the last four years have we actually *seen* a change in U.S. oil rig counts, increasing 4x from prior levels.  That, my friends, is a definite step in the right direction [imo].

In February 2012 Citigroup acknowledged the enormous expansion of new US crude oil supply thanks to North Dakota and announced The Death of the Peak Oil Hypothesis and that this excess supply will apply future downward pressure on crude pricing.



#3  Now for some simple common sense.  I'm certain the big boys would love to push crude's pricing to test the 2008 highs [and they will one day] but given not only the fragile U.S. economy, but slowing in every other global economy, I don't see how anyone with half a brain is going to risk pushing the consumer off a ledge with higher gasoline pricing.  After all, anything over  $4/gal. begins to weigh on the economy.  Additionally historic crude oil spikes have been proven to be followed by economic recessions [see research data here] so let's just take the idea of higher crude oil [minus any temporary spikes due to Middle East tensions] off the table.  So how's a poor oil baron to make a buck?   Why by letting natty have it's day in the sun of course!





#4  So let's lower the # of natural gas rigs [red], tightening supply, and increase the crude oil rigs [blue].

Fewer rigs = less supply

Interestingly enough, the EIA has predicted that the US will become a net-exporter of natural gas as well.  Nice! [See report]






Then let's take a look and see if Mr. Stockmarket is confirming my thesis.


On a daily basis I usually view heavy volume as a sign of selling, however on a longer time frame [monthly] you can see where USO was experiencing enormous volume on dips prior to it's enormous run up.  Short covering and accumulation on a large scale.  Big players can then sit back and unload gradually over time.


*Now* we see the same huge volume in the nat. gas ETF, UNG but does that alone mean anything?  Let's look further.




IN futures we see that Natural Gas futures [/NG] are in Contango with future contracts pricing higher than the current.  Translation:  higher forward prices are an indication of expectations of supply tightening; hence the higher forward price.......and this is the first time in YEARS that this has been the case.








How about seasonal demand?   It begins to creep up in September anticipating colder temperatures.  A warmer-than-normal Winter such as we saw last year would hamper demand however Minneapolis MN received 2-1/2 feet of snow just last week [!]  so one can only wait and see.  Hope for cold temps folks.






Next we examine a chart of the "Widowmaker" UNG, which for years took everyone and anyone's money who tried to get long as Natty.  Reason being is that nat gas had an ever-increasing excess supply causing "backwardation" [lower forward pricing] and since UNG quite often recalculates based on the next months contract [which was lower in price], any long buyer was basically swimming against the current like a Salmon going upstream [but they have more success].  Now that natty is "Contango", forward contracts are higher, helping UNG with a boost as it re-balances.  fwiw we were watching natty this Summer in Chat and had a buy signal @ $16.00!



Lastly, I compared the performance of USO to UNG and not only is natty outperforming, it broke major support in the USO/UNG ratio.  In my mind, this is significant.  I'd like to see a correction on a weekly time frame to test $17 support but for now, my bet is nat gas will continue to outperform black gold for the near term.   Come on Winter!






Clearly I am more of a t/a trader than a long term, fundamental investor therefore I urge you to do your own diligence.  I currently have no position in UNG, USO, nat. gas or crude oil futures nor do I intend on establishing one within the next 72 hours.







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