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- ⚡DeepSeek rewrites the AI resource equation
January 21, 2025
PRESENTED BY: EKT INTERACTIVE ENERGY TRAINING
Morning,
Red across the board as DeepSeek rocked the AI investment while simultaneously reframing the question of future power demand. Interestingly, the Dow was up 300 points as basically everything other than tech did pretty good.
In other news, Bessent was approved as Treasury Secretary in a less contentious vote and has some takes on what tariffs may look like. We'll see how long he's allowed to speak from his own script.
What's in this issue:
Energy Market Recap
DeepSeek rewrites the resource equation
Headlines
| Crude Oil (Mar) | $73.17 | -1.49 | -2.00% |
| Natural Gas (Feb) | $3.697 | -0.330 | -8.19% |
| Copper (March) | $4.2315 | -0.0895 | -2.07% |
| S&P 500 | 6,012.28 | -88.96 | -1.46% |
| Dollar Index (DXY) | 107.16 | -0.28 | -0.26% |
ENERGY MARKETS
🛢️Oil prices joined in the selloff with WTI ending lower by 2% on the day. We currently are in a world with more questions than answers as we await tariffs, executive orders, and any X post that might change the current world order.
DeepSeek's release showed that the recent, yet well-entrenched, narrative on AI and power demand is back in the 'who knows' pile.
WTI Spreads
Mar/Apr: +0.67
Mar/Dec: +4.79
Dec5/Dec6: +2.65
🔥Natural gas prices dropped over 8% as weather models turned warmer over the weekend, especially for the first week of Feb. Plus, that whole 'AI doesn't really need that much electricity' headline is shaking things up.
While the run up from below $3 to around $4 could have been construed as a trend, the last 10 or so trading sessions has just been an exercise in gaps.
Winter isn't over, but with the Feb contract expiring on Wednesday we're already looking ahead to March. As far as nat gas is concerned, winter is just about done.
However, we still need to get through this weeks EIA number where another large draw in inventories is expected as it represents last weeks frigid temps.
PRESENTED BY POWERING THE FUTURE
Powering the Future is a seven-module course of topics curated from our Oil 101, Power 101, and Renewables 101 courses - geared to address today's hottest energy topics from natural gas and LNG, to nuclear power, energy storage and the grid.
These are the topics in the news every day and are critical for operators and investors alike to understand.
DEEPSEEK’S RESOURCE EQUATION
Good news everyone! The energy transition is back on!
The headlines yesterday were all about DeepSeek, a Chinese AI startup, letting the air out of the AI bubble. I'm sure you read some stories, but to sum it up the company's modeling methods achieve near-OpenAI quality functionality with a fraction of the compute.
And by fraction, the word is 3-5% of OpenAI's use. (Read carefully... not 3-5% less.)
For our purposes, a fraction of the compute means a fraction of the energy.
So while the AI Index (otherwise known as the NASDAQ), plummeted by 3%, it wasn't just Nvidia that was being cut loose.
Constellation Energy was down 20% on the day. Texas-based Vistra Energy was down almost 30%.
Consumers and Builders Gain
Of course, Nvidia's pain is Apple, Microsoft, Meta's gain. The prospect of less chips, CPUs and power in an AI-driven future is good for the companies actually building out the products.
These stocks did just fine despite the index heading lower.
Jevons Paradox
The question now is whether this development has really shifted the future of power demand - and by how much. After all, the demands of AI were unforeseen until about a year ago, and the first rule of forecasting is don't draw straight lines too far out into the future.
This move may have lowered the direction of power consumption, but it's still up and to the right. The question is how much things have changed.
Jevons Paradox states that as technological advancements improve the efficiency of resource use, the overall consumption of that resource often increases rather than decreases due to reduced costs and increased demand.
Lower cost to develop AI bots, agents, LLMs will just mean more of them. This is just getting started.
Recommended Read: Four big reasons to worry about DeepSeek (and four reasons to calm down) - Platformer
HEADLINES
"China's mostly coal-based thermal power generation is set to fall in 2025 for the first time in a decade, some analysts estimate, though they caution that extreme weather or stronger than expected industrial growth could upend that forecast."
"If more LNG plants come in the U.S., it will stabilise international LNG prices," Petronet LNG Chief Executive Akshay Kumar Singh said in a post earnings media call."
"In many European capitals ... the conversation is ongoing on how to deal in terms of retaliation and what could be different responses to tariffs."
“I pushed back on them initially and then they tried to insist that I was the odd one out and that all other investors were OK with the much higher multiple. Gaslighting at its best,”
ECONOMIC CALENDAR
Monday - New home sales
Tuesday - Durable goods
Wednesday - FOMC, Weekly Crude Oil Storage Report,
Thursday - Weekly Natural Gas Storage Report, GDP, Jobless Claims
Friday -