….and Where Natural Gas Goes, Coal Can follow (but when??)!
If you believe in higher gas prices, it might be worth the effort to revisit future coal fundamentals. After a horrible few years (stocks down 70-90%), it’s extremely difficult to find a coal bull. However:
1) Natural gas, at $4.50, is, for most power generators, well above the coal-fired switch point. And (see elsewhere), the “clean BTU” could trade even higher over the next few years. $5-6 gas could measurably improve utilization of the more efficient coal-fired power plants (the bottom 10-ish % of capacity is still likely to shutter now or during enforcement of mercury regulations).
2) The thermal coal trade has slowed — Europe can’t buy much more, Chinese demand has slowed, and freight is expensive. But a weaker dollar may help over time, and smarter observers than me believe the “seaborne” trade is poised to improve (more demand, less supply) over the next couple years.
3) Lastly, any 2008-10 expansion projectors have ‘Exited, stage right,’ What coal miner wants to promote a HIGHER capital budget?
Its worth remembering that, despite the mineral’s terrible emissions characteristics, coal offers the cheapest BTUs on the planet — $4/MMBTU at $80-100/ton in high power growth markets (China, India) where energy options are currently limited. Yes, better environmental stewardship is an extremely important objective and, eventually, unconventional gas, nuclear, and renewables might define coal’s denouement. But economics, unfortunately, continue to trump emissions in some parts of the world, nearer term.
The near term remains rocky, despite seasonal strength in power and heating demand, and higher gas prices. But a view to 2015+ could spell opportunity.