WLT, ANR, ACI are all one bad day away from fresh lows. BTU and CNX have held up better yet are still weak. The best names, CLD and ARLP, would not be spared in a sector wipe-out. Second quarter conference calls had management commentary’s as very optimistic after having enjoyed the hottest month on record. In September managements will be speaking at various conferences and I expect enthusiasm to be more tempered. Here is why:
“A rig producing, on an energy basis, 50 percent natural gas, 20 percent natural gas liquids and 30 percent oil, can still be considered an oil well if that is the major revenue driver, Baker Hughes said.” Thus natural gas production has stubbornly refused to fall in spite of the falling rig count. Reuters
From Gas Production Crests Ahead of the Storm at RBN Energy:
- “Bentek reported that last week’s average US gas production was 64.5 Bcf/d – close to the all time high of 64.7 Bcf/d set in November 2011.” Further, “Bentek reports another 0.5 Bcf/d of Marcellus production will be brought online in September after gathering line expansions are completed.”
- “Natural gas demand did pick up in 2012 – in particular the roughly 4.8 Bcf/d of increased power burn as gas prices fell below coal encouraging coal to gas generation switching.” The natty over supply is huge.
- “Seasonal power burn increases will likely taper off in September as temperatures fall and peak generation declines.” With natural gas at $2.63, expect coal fired generation to be shut down, not natural gas.
- Conclusion: Shoulder season for natural gas pricing and the coal stocks will be more difficult to navigate than most expect.
I know many coal stock investors like to blame President Obama for their stock price woes. But right now gas, not politics, is coal’s problem. Intermediate and long term coal plant retirements, however, may be determined by the election. “A Romney win could imply that the appeal and some of the proposed regulations would be dropped or eased, which could slow retirements. An Obama re-election probably means the court fight continues, possibly more stringent regulations to follow and coal retirements to resume their projected pace.” SNL
Big Coal Faces Steel Slowdown Amid Shale-Gas Pain: Commodities at Bloomberg.
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