Bullish out look for natural gas

[dan_s]

This is bullish for natural gas and for helping to balance the U.S. trade deficit. The percentage of our electricity coming from clean burning natural gas should and will increase. - dan

The US coal industry has been in decline for several years. The primary factors behind the decline are competition from cheaper and cleaner natural gas, and increasingly stringent government regulations. This year the EPA published draft regulations for new coal-fired power plants that will likely be economically impossible to meet.

For years the coal industry has suggested that carbon capture and storage technologies would come along to save the day. But this year the Norwegian government abandoned support for a project that was supposed to demonstrate carbon capture and storage on commercial scale. Thus, coal in the US appears to be on the way out.

US coal producers have been battered as a result. Leading suppliers Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI) saw their share prices decline by another 30 percent and 40 percent, respectively, in 2013. This was on top of steep declines in 2011 and 2012, so that the total market capitalization of BTU and ACI has declined by 71 percent and 87 percent over the last three years.

No country in the world has decreased coal consumption as much in recent years as has the US. This explains the declining fortunes of coal companies with significant operations in the US. But no country has increased coal consumption as much as China. In fact, were it not for China, global consumption of coal would have decreased over the past five years. Instead, the world continues to set new records for coal consumption.

The US has the world's largest coal reserves -- 28 percent of the world's total coal reserves. Given declining US consumption, US coal producers have stepped up exports, and are seeking to expand coal export capacity from the Pacific Northwest to tap into Asia's growing consumption. However, there are many obstacles in place, both domestically and internationally. Domestically, environmentalists will pull out all the stops in trying to prevent this coal from being exported. Internationally, Southeast Asia is a very competitive market given the proximity of major coal exporters Australia and Indonesia. Australia is the world's top coal exporter, with nearly 90 percent of its total exports destined for Japan, China or South Korea.

[ghrcap]

Cold and snow from Chicago through the Northeast corridor is the big story today and natural gas is 7 cents higher, yet the NG stocks are red with the rest of the oils. Kind of surprising?

[dan_s]

By this weekend, natural gas in storage will be under 2,800 bcf. That will be 600 bcf below where storage levels were at this point last winter. If storage goes under 2,000 bcf by mid-February it should get very interesting.

2,000 bcf sounds like a lot, but remember that storage "base load" is around 1,200 bcf. It is very expensive for storage companies to extract the base load gas.

Go to http://www.wunderground.com/ and check out the forecast map for January 7. New England Patriot fans are going to have to be tough to sit through their first playoff game!