Carbon Tracker published a research note this week with a fascinating (if not ominous) conclusion for oil and gas investors: Fossil fuel demand is entering a period of terminal decline at a precipitous pace. The note dives into the “vicious spiral” of peaking demand across the oil/gas value chain—overcapacity, low utilization rates, high unit costs, and eventually stranded assets leading to major write-downs and bankruptcies across the sector. What I found particularly compelling about the report was that the analysts specifically identify seven “virtuous and vicious feedback loops” that are leading to this dramatic renewables revolution—a revolution that will likely only accelerate from here.
“This vicious cycle is happening to each fossil fuel in turn: first it was coal, now it is oil, next it will be gas. Half the US coal sector went bust within two years of peak global coal demand in 2014. Globally, the capacity factor of coal power generation has fallen to below 50%. Similarly, the European electricity sector wrote down $150bn in unused fossil fuel capacity in the decade following its 2007 fossil fuel peak. The falling oil demand in 2020 resulted in record write-downs for North American and European oil companies of over $150bn. Conventional car manufacturers are being forced to shut down or sell factories in the face of their electric competition. And analysts such as Morgan Stanley argue that internal combustion engine (ICE) manufacturing capacity already has no value.”
Why isn’t the construction industry more innovative?
“Construction is a high dollar value, low profit margin, highly competitive industry—the potential rewards for someone who can find a cheaper, more efficient way of doing things is enormous.” This observation comes from a recent essay by Brian Potter, a structural engineer who writes Construction Physics, a fantastic newsletter about the technological forces shaping the construction industry. What I found so interesting about Potter’s essay is that it sets out to explain something that I didn’t even realize I was curious about until I started reading: Namely, why has there been relatively little innovation in the construction industry? (Except for Hadrian X, of course, the brick-laying robot.)
“A new or innovative system that involves changes to the process thus incurs a significant risk penalty that would likely exceed the expected benefits of the innovation. Construction innovations thus tend to be incremental and evolutionary, things that don’t change the underlying processes. Where does this leave us for construction innovation? I suspect it means that any new system that would involve a substantial change to the process needs to be delivered in a way that can address these issues of risk. One option is to make sure the risk doesn’t end up burdening one particular stakeholder; for instance, offering to design and stamp your system as a deferred submittal (in practice, we see a lot of this for new systems). Another is to internalize the risk yourself – instead of selling your new amazing system, use it to build buildings yourself (this obviously screens off all but the highest-impact innovations).”
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Why every tech company wants to be a metaverse company
Way back in the first issue of the Nightcrawler, I wrote a little bit about the concept behind the metaverse, and how companies like Roblox are attempting to create the global virtual reality platform of the next century. Since then, the FAANG gang have begun to start to expressing their own ideas and desires to participate in the metaverse as well. This week, Ben Thompson of Strachery wrote a thoughtful essay, breaking down how companies like Microsoft and Facebook are starting to express their own visions of the metaverse—and how (and why) they plan to invest in “the internet of the future.”
“It is on the Internet, where anything is possible, that walled gardens flourish. Facebook has total control of Facebook, Apple of iOS, Google of Android, and so on down the stack. Yes, HTTP and SMTP and other protocols still exist, but it’s not an accident those were developed before anyone thought there was money to be made online; today’s APIs have commercial intent built-in from first principles… This is why I don’t think it is absurd that Nadella was the first tech executive to endorse the metaverse as a strategic goal. There is likely to be good business in building private metaverses for private companies, in a not-dissimilar way to Stephenson’s Franchise-Organized Quasi-National Entities made it easy for small-scale entrepreneurs to set up their own franchise-states.”
“You shouldn’t do this job unless you’re willing to experience a lot of failure and have it be really galling. In my experience, the best investors here… I had a former colleague who used to say that he’d had more one-way bungee jumps than anyone else at Capital. And he was arguably the best investor I ever saw here. I think he made that point on purpose. He did it to be self-effacing, but I think he was also saying, ‘Hey, if you want to do well like I have, you need to be able to tolerate doing terribly.'”
“I want to be the best investor I can be, and I want my partners to benefit from what results. Being the best investor I can be involves channeling my love for the art in a way that is perfectly natural and unique to myself. I want Greenlea Lane to be uncompromising self expression, because that is how it can serve others in the best possible way. My partners want that too: I feel a personal connection with everyone invested in Greenlea Lane, and I know they all want me to keep being myself, rather than live up to some formula or standard of how things “should” be done. Greenlea Lane’s reason for being is to play a role for its partners that nothing else can–not because it is “the best” or anything of the sort, but because it is completely itself and the right match.”
“Tiger Global has been willing to move quicker, pay higher prices and forgo board seats at rapidly growing start-ups. Its style, first developed in countries such as China, India and Russia, has now made its biggest splash in the US, where some rivals feel threatened by the investment firm’s aggressive tactics. The pace of its investments has drawn shocked responses from the rest of the market. Already this year it has invested in more than 170 venture deals in start-ups, more than double its total in all of 2020, according to data from PitchBook. Tiger Global served as a lead investor in more than half of those financings — about three deals a week — effectively setting the price for a company’s shares.”
“In 2012, Hou Yifan became the first female player to beat Judit Polgár in a classical game in twenty-two years. She did it at a tournament in Gibraltar, in a field that included some of the world’s top Grandmasters. fide ranks players using the so-called Elo system: winners take points from losers, and the discrepancy in their ratings coming into a match determines the number of points won and lost. The Elo system is also used to calculate performance ratings achieved at specific events; Hou’s rating for the tournament in Gibraltar was an astonishing 2872. She tied for first place with the British Grandmaster Nigel Short, once the No. 3 player in the world. Short won the title in tiebreaks, but Hou emerged as the star of the tournament and the heir to Polgár. Suddenly, she carried tremendous symbolic weight every time she sat down at the board.”
“This breaks through the current barriers with multi-chip modules. With an interposer-based technology such as Nvidia datacenter GPUs, they are limited by interposer manufacturing limits. TSMC’s 5th generation CoWoS-S recently went into mass production with interposers that are 3x the reticle limit. The reticle limit is 26mm by 33mm and is associated with the maximum area a lithographic machine can pattern in one instance. This method involves reticle stitching and other manufacturing difficulties because the interposer is a silicon chip itself. This type of packaging has limitations in scaling the number of chips for huge AI workloads.”
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Welcome to The Nightcrawler, a weekly collection of thought-provoking articles and analysis on technology, innovation, and long-term investing. The Nightcrawler is published every Friday evening by Eric Markowitz, Nightview Capital’s Director of Research. Subscribe below. In this evening’s email… Quote of the week: “Doubt is not a pleasant condition, but certainty is absurd.” Voltaire Embracing uncertainty as a competitive edge In …
