Waiting on NG for Coal

Listening to the coal company management teams on their conference calls broach’s the surreal.  The observer is left to figure out by himself the industry is depressed.  Hope springs eternal with happy talk.

Three things have kept natural gas production from falling: 1) Associated gas produced from oil wells, 2) Gas behind the pipe backlog, and 3) Drilling productivity gains.  The stubbornly high natural gas production levels are good for the coal rebound.  Extra time will help draw down the heavy coal inventory, fueling the potential recovery.

Meanwhile, when a modest rebound does occur in natty, producers will not be able to take advantage.  Natural gas producer balance sheets are stretched.  Bringing the rigs back will require capital up front.  Further, the NGL drilling craze looks to slow.  Dry gas drilling has collapsed.  Haynesville Play

A look at natural gas by Hard Assets Investor.

In spite of being a bit propagandish, The Global Outlook for Coal is a good read at Coal News.  But current markets are quite soft, so do not get to excited as Indonesia miners cut 2012 thermal coal output forecast at Reuters.

“Between 2000 and 2010, the global consumption of coal increased by around 2.3-million tons, or 50%, and is expected to expand by another 25%, or 1.7-million tons, in the next decade.”  Mining Weekly  I am suggesting the investment winners will be the low cost producers who use the down cycles to take market share from high cost and leveraged players.  The biggest winners will be peasants who learn what it is like to enjoy lemonade with an ice cube and become able to read by light at night.

“Not enough coal is being dug up by the state monopolist, Coal India.”  (Economist)  “India’s peak electricity demand exceeds supply by nearly 10 percent” so they suffer regular rolling brownouts.  Bloomberg.  Water problems means India will have to import coal:  Gigoam.