Agreed - I have been warning about this since Dec., and some permabulls on this board disagreed with me - oh well. I have since trimmed my ACAS position and can re-deploy that capital elsewhere. We see now that ACAS has significant interest rate risk similar to the MREITS themselves. The fact that the ACAS's private firms can't get higher multiples of EBITDA - even with these multiples moving much higher for publicly traded firms is another issue moving forward IMHO.
More a boon to solar - NG in the electric gen markets are day time peaking feedstock, coal is baseload. That said, one would expect short term gas to coal switching up to a point....
To play higher NG prices - first buy NG equities, then solar, then coal.....
"The United States Geological Survey (USGS) has conducted a series of studies on the economic accessibility of coal in the major coal producing regions of the country. The studies have typically found that only a small fraction of the coal will be economically accessible at the current price of $10.47/ton. In August 2008, the USGS issued an updated assessment of coal in the Powder River Basin. After considering stripping ratios and production costs, the USGS concluded that at the time of the economic evaluation, only 6 percent of the original resource, or 10.1 billion short tons of coal, was currently economically recoverable"
The global peak of coal production from existing coalfields is predicted to occur close to the year 2011. … After 2011, the production rates of coal and CO2 decline, reaching 1990 levels by the year 2037, and reaching 50% of the peak value in the year 2047. It is unlikely that future mines will reverse the trend predicted in this BAU scenario. [Emphasis mine.]
The curve for CO2 emissions from coal looks roughly similar — peaks soon and plunges.
Just to avoid a frequent misunderstanding: This doesn’t mean the world is going to “run out of coal.” It simply means that most of the easily reachable coal has already been reached. Going forward, supplies will be more difficult to reach, lower in quality, and/or more expensive to transport. The combination of those factors means that new supply won’t be able to keep up with the drop-off in old supply; overall production will peak and decline. As it does, prices will rise sharply.
Another insightful post - stick with data, and your opinions why BTU is a good investment, and stop the childish behavior and name calling....
We can agree to disagree steelman. We have more economically extractable NG then economically extractable coal - that is the short answer. It is a bit more complex than this, and I have studied this for years. Google the PRB coal reserves, and how much is left that is "economical" - the EIA does not look at how much is economical.....
I listened to the SOTU - again no war on coal was mentioned, or even hinted at. The talking points were pro NG, oil production in the US vs importing oil. again some talk of NG displacing oil as well - again to reduce oil imports...
More discussion of common sense regulation / controls on all industries - no focus on coal. The long term war on coal is simple resource economics.
Yes I have thought BLK would be interested in ACAS - Buy all of ACAS, Spin off the pieces that don't fit, and manage the rest....
In economics there is a study of "externalities", in this case it would be the negative externalities from air and water pollution. So more particulates in the air, causes more people to have asthma, COPD, and other respiratory illnesses. They go and get treatment/help at hospitals causing health care premiums to rise for everyone, causing all US corporation to spend more money on this rather than hiring new workers.
So yes one would need to calculate this cost and assign it to those businesses that create that external cost...
This is a good buying op IMHO. I think land based assets are being valued much higher than GOM, and the lemmings on wall street are following that trend - an overreaction....
EXXI can control its own destiny here - more stock buybacks + increase the divy, keep producing and generating cash.....
I do think short term this could help coal thermal pricing for firms that downsize properly. for utilities, the NG futures( NYMEX )- are probably a better measure for NG prices. We are in huge backwardation - prices in 2015-2016 are still at $4, or even below $4.
Gas-coal switching is very complex - you need to look at the various regions for more localized competition. For the northeast its marcellus gas vs CAPP coal...Also what I am hearing on the ground is not good for coal. Many utilities in 2013 have made the decision not to add pollution controls to many of their coal plants even though it makes economic sense - instead they are making the permanent decision to just use NG gen. regardless of NG prices. Future pollution taxation, or regulations are driving this decision....
Below is a repost(from UNG board) form my 2013-2012 econometric simulation I ran in the fall of 2012. You can see the model predicted we would be 10% below the storage ave. now in Jan 2014, and 15% below in Feb. with Jan price of 5.41. and moving to over $6 by march. But then this higher price will move more supply to market(with a lag), and prices will pull back.
Date % from 5 yr ave NG price
2-Jan-2013 0.12 $3.55
1-Feb-2013 0.16 $3.23
4-Mar-2013 0.16 $3.23
3-Apr-2013 0.13 $3.51
4-May-2013 0.08 $3.86
4-Jun-2013 0.05 $4.10
4-Jul-2013 0.03 $4.28
4-Aug-2013 0.01 $4.45
4-Sep-2013 -0.01 $4.61
4-Oct-2013 -0.02 $4.75
4-Nov-2013 -0.04 $4.90
5-Dec-2013 -0.07 $5.10
4-Jan-2014 -0.10 $5.41
4-Feb-2014 -0.15 $5.81
7-Mar-2014 -0.19 $6.07
6-Apr-2014 -0.18 $5.99
7-May-2014 -0.14 $5.72
7-Jun-2014 -0.12 $5.55
7-Jul-2014 -0.10 $5.39
7-Aug-2014 -0.08 $5.23
7-Sep-2014 -0.06 $5.06
7-Oct-2014 -0.04 $4.89
7-Nov-2014 -0.03 $4.76
8-Dec-2014 -0.01 $4.64
7-Jan-2015 0.00 $4.52
oil and gas firms have to operate in so many different states - it would be easy to have one set of rules to follow - compliance would be much easier - IMHO
I do not wish to get into state rights vs fed.....
I agree. In CO they are drilling for oil - and they are making so much cash on oil, the industry can pay for as much water as they need. I think in CA the water battles will continue - drilling vs farming. I think we need strong federal regulation on fracking - it will not stop fracking, just make it way cleaner, less of a hassle for residents, and more expensive. This would be a short term boost for coal, but not change the trend away from thermal coal imho...
Good well thought out points. Yes Fracking is starting to come into focus here in CO. The water use, and fugitive methane from oil fracking is going to be much more heavily monitored and controlled...
I am unsure how China will go - they overproduce commodity solar - so it is in their own interest to use it locally. If more solar gets deployed - you need baseload gen that is rampable like NG gen. Coal and nuke are non-rampable - they need to run hot and stay hot..
Maybe CTL technology + and using this coal liquid in a rampable power plant? Could work for china since LNG will be very expensive for them....
My focus is on US energy markets, so I will let other post on Eurozone energy markets. In the US the fracking is for oil, not NG. Coal uses more water full cycle then NG gen. A big issue may be China - I keep hearing more and more on the pollution in the bigger cities - China is a command economy so they can change quicker than you think. IMHO China will replace coal gen with NG gen + solar since they produce so much solar and exporting it has been a problem.
The longer term coal markets for US thermal look pretty bleak to me. But the met coal markets should improve, especially in the US once we start to spend again on our aging infrastructure. BTU has the best biz model, but ACI has the best valuation IMHO.
In the shorter term if NG prices rise like my model predicts - $6-8 mcf, then PRB should be profitable for a while - for the next 5-6 years? Past then with rail constraints, and increasing overburden cost in the PRB, even that area will have difficult thermal economics IMHO...
" In a matter of years gas demand will decimate supplies."
This will not happen. NG prices will continue to rise finding a range of $6-8 over the next few years. Currently about 80% of drilling/fracking is for oil - and the resulting "waste" gas is currently supplying the US. Once NG prices stay above $5, drilling budgets will start to shift and we will actually drill for NG, causing a sharp rise in NG production.....
CCJ has done very well. It is hard to model the economics of Nuke's since we have not built many new plants over the last 20 years. The fuel, O&M cost are very low, but if it cost $2-4 a watt to build and commission??
My NG pricing model suggest we should be over $5 now, and ranging from 6-8 an MCF 2014-2016...We could end the NG withdrawal season at 25+% below ave storage....