Notable energy analyst Gregor Macdonald has an excellent post up which highlights my exact thoughts on coal as an energy play. Except, he of course has summed it up more succinctly than I ever could. Gregor entitles his post 'A Dismal World of Coal,' and here is an excerpt:
"As we can see in today’s price of oil, even the fear of a collapse of the global economy has not done much to move oil down. Oil is stubborn at 90.00. Though a bit below that today. This opens up the prospect that in a world of slower growth, with oil prices high and natural gas prices still high, that OECD demand for coal may start to rise again. After all, the BTUs in coal are still cheap. Industrial use of oil in the OECD has been falling for years, replaced by natural gas. But the OECD can always add back coal, in a time of economic stress. Recessions are a time when more idealistic goals, say, with regard to climate change, are shelved. The need for electrical power at cheaper rates will trump the global warming issue.
Meanwhile, a world of slower global growth and still elevated oil prices will do nothing to dampen coal demand in emerging Asia. In fact, it could further aggravate Asia’s unmet demand for coal. Do you see where I am going, with this? A global recession could drop incomes down to levels where 90.00 dollar oil is still way too high. In that context, the demand for coal could broaden. The decade-long reach for coal among poorer nations, trying to cope with higher oil prices, may be a reaction that widens out to include developed nations. While this would put renewables back on the table, in economic terms, it could also make for a much dirtier world in the meantime. A dismal world of coal, indeed."
The main reason I want to highlight this is because I'm always thinking in macro terms and I can't help but believe that electricity and energy demand in general will continue to rise, outpacing supply. And, this bear market we're in will be presenting some excellent opportunities for long-term investors looking to gain exposure to this impending shift. Energy equities are vastly undervalued due to forced selling because of redemptions/liquidations by hedge funds as I've detailed before here and here.
While I don't doubt the alternative energy movement has legs, it will take many years to fully implement and bring to scale. Until then, coal is still in play and will continue to be. I've written a detailed post of how to play energy in the intermediate (3-5 years) here.
Additionally, Commodity News & Mining Stocks has a post on coal outlook and fundamentals here.
I highly suggest checking out Gregor's thoughts on all things energy.
