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Eye on the Market

12th Annual Energy Paper

Michael Cembalest
Chairman of Market and Investment Strategy
For J.P. Morgan Asset & Wealth Management

 

The Elephants in the Room

We start with a global summary of the energy landscape, including the energy crisis in Europe, the recovery in the oil & gas sector and a warning label on industrial electrification and carbon sequestration forecasts. We continue with a detailed assessment of the hydrogen economy, whose liftoff is still many years away. We look at deep decarbonization plans for China, whose carbon intensity and emissions levels are the highest in the world. We conclude with three topics dealing with electrification: electric vehicle adoption by gasoline super-users, the transmission quagmire and the push to ban residential and commercial combustion of fossil fuels in favor of electric heat pumps.

  • Hydrogen
    Ultimate hydrogen use cases may be narrower than advertised once costs, round-trip efficiency, materials handling and competition from direct electrification are factored in. Liftoff is still years away

  • Transmission
    The US transmission grid is growing at just 1% per year as renewable energy projects swamp local interconnection queues ill-equipped to handle them, and as environmental groups and landowners block transmission projects without fear of federal intervention

  • Gasoline super-users
    The top 10% of US gasoline super-users consume almost one third of all US gasoline. Are there better ways of incentivizing them to switch to electric vehicles than current policy?

  • China
    China’s carbon intensity of energy consumption and its emissions are the highest in the world. The IEA sees a path for deep decarbonization in China, but it is highly reliant on a lot of very aggressive assumptions

  • Heat pumps
    Some countries and US municipalities have banned on-site combustion of fossil fuels in new buildings in favor of electrification via heat pumps, often without backup systems in place. Is everyone ready for what this entails?

Electrification as a means to decarbonize energy use

  1. Gasoline super-users: How should the US deal with its gasoline super-users? Also: what is the impact of rising metals prices on EV battery costs and supply chains?

  2. Transmission: The US transmission quagmire shows little sign of changing.  Interconnection queues are swamped, and both landowners and environmental groups are blocking critical renewable project

  3. Fossil fuel bans, heat pumps and electrification of winter heating:  What will happen to transmission grids at times of peak loads if no backup thermal systems are in place?  And what about the pace of change if bans on fossil fuels only apply to new buildings?

Whydrogen?

Hydrogen use cases may be much narrower than advertised, and the timeline is a very long one.  Optimists see multiple hydrogen adoption pathways in power, transport, home heating, marine shipping, rail and aviation; we take a closer and more skeptical look.

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IMPORTANT INFORMATION 

Purpose of This Material: This material is for information purposes only. The views, opinions, estimates and strategies expressed herein constitutes Michael Cembalest's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such.

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