Natural Gas & Coal Investing

by Wes Bridel on September 6, 2010

in Stewardship

Natural Gas or Coal?  We’ve been discussing asset management in a crazy economy.  We’ve been looking at energy for the past several posts in this series.

Some environmentalists hate all hydrocarbons and think we should stop using them.  Others, hate coal, but love gas.  Should you invest in either of them?  We look at the factors favoring each below….

Natural Gas Investing

Natural Gas is a form of energy often found alongside oil, but with different properties.  In the early years of energy exploration, they used to just burn natural gas off because they felt it was worthless in comparison to oil.  While it’s true that It is not as efficient of an energy source, it is also far more plentiful in the US today than oil.

In recent years, new shale drilling technology has enabled formerly un-drillable natural gas, recoverable.  This has increased domestic supply to over 100 years of usage.

Natural Gas is also a favorite of many environmentalists because it burns much cleaner than oil or coal, which are currently our two primary forms of energy.

Because so much natural gas supply has recently come onto the market, the price of natural gas has gotten down into the $4 range.  This makes it one of the few cheap markets available today.  Of course, it has gotten cheap for a reason.  A lot of supply exists out there.  Some analysts think prices will go even lower based on the abundance of supply.  Others believe that because one form of energy is as good as another to large consumers of energy, the price can’t go much lower because coal and other consumers will switch to using natural gas.

Something to consider is that if you can find companies which are making a nice profit even though prices are this low, you might have a stable investment in a proven commodity.

Coal Investing

Coal is still the major source of electricity in the world.  Many people hate it because it is dirty to consume, yet this is one of the world’s primary sources of energy.  In BP’s 2009 annual energy review, it reported that coal’s share of global energy increased in 2009 and that the percentage of global energy demand met by coal was the highest since 1970.  The use of coal is not going away anytime soon.

Coal demand could really begin to outstrip supply in the coming years if governments continue to interfere in this business.  For instance, India uses a large amount of coal for energy.  Because of this politicians have recently enforced low prices to appease the voters.  (Hopefully you realize that this breaks basic laws of economics and will obviously backfire.)  What has happened since then is that coal producers inside of India are having difficulty turning a profit as these low prices.  Many are having to shut their doors because they can’t operate at a loss.  Therefore India will have to import more coal (at higher prices) in order to meet local demand.  Everyone in India loses in this situation, but it is very bullish for coal prices around the world.

China appears to want to venture down this road as well.  In June 2010, they announced price freezes of their own on coal.  Of course, governments can always change their laws, but in the short term the environment for higher coal prices appears set.

Whether these temporary measures stay in place or not, investing in coal or coal producing companies might be a source of stability to your portfolio in a world of volatility.  The people of the world will demand energy shortly after they demand food no matter what is happening in the economy.  And as economic growth happens, more energy is required.

If you have any thoughts or questions on this or other topics, please let us know.  We’ll discuss alternative energy investing next.

Natural Gas or Coal? We’ve been discussing asset management in a crazy economy. We’ve been looking at energy for the past several posts in this series.

Some environmentalists hate all hydrocarbons and think we should stop using them. Others, hate coal, but love gas. Should you invest in either of them? We look at the factors favoring each below….

Natural Gas Investing

Natural Gas is a form of energy often found alongside oil, but with different properties. In the early years of energy exploration, they used to just burn natural gas off because they felt it was worthless in comparison to oil. While it’s true that It is not as efficient of an energy source, it is also far more plentiful in the US today than oil.

In recent years, new shale drilling technology has enabled formerly un-drillable natural gas, recoverable. This has increased domestic supply to over 100 years of usage.

Natural Gas is also a favorite of many environmentalists because it burns much cleaner than oil or coal, which are currently our two primary forms of energy.

Because so much natural gas supply has recently come onto the market, the price of natural gas has gotten down into the $4 range. This makes it one of the few cheap markets available today. Of course, it has gotten cheap for a reason. A lot of supply exists out there. Some analysts think prices will go even lower based on the abundance of supply. Others believe that because one form of energy is as good as another to large consumers of energy, the price can’t go much lower because coal and other consumers will switch to using natural gas.

Something to consider is that if you can find companies which are making a nice profit even though prices are this low, you might have a stable investment in a proven commodity.

Coal Investing

Coal is still the major source of electricity in the world. Many people hate it because it is dirty to consume, yet this is one of the world’s primary sources of energy. In BP’s 2009 annual energy review, it reported that coal’s share of global energy increased in 2009 and that the percentage of global energy demand met by coal was the highest since 1970. The use of coal is not going away anytime soon.

Coal demand could really begin to outstrip supply in the coming years if governments continue to interfere in this business. For instance, India uses a large amount of coal for energy. Because of this politicians have recently enforced low prices to appease the voters. (Hopefully you realize that this breaks basic laws of economics and will obviously backfire.) What has happened since then is that coal producers inside of India are having difficulty turning a profit as these low prices. Many are having to shut their doors because they can’t operate at a loss. Therefore India will have to import more coal (at higher prices) in order to meet local demand. Everyone in India loses in this situation, but it is very bullish for coal prices around the world.

China appears to want to venture down this road as well. In June 2010, they announced price freezes of their own on coal. Of course, governments can always change their laws, but in the short term the environment for higher coal prices appears set.

Whether these temporary measures stay in place or not, investing in coal or coal producing companies might be a source of stability to your portfolio in a world of volatility. The people of the world will demand energy shortly after they demand food no matter what is happening in the economy. And as economic growth happens, more energy is required.

If you have any thoughts or questions on this or other topics, please let us know. We’ll discuss alternative energy investing next.

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