Natural gas puts writing on the wall for coal

The writing is on the wall. In the United States, coal is on its way out and natural gas is on the way in. While the market only saw a slight pop (NYMEX:NGV13) on yesterday's big announcements on coal and natural gas, but make no mistake about it long term it signals the beginning of a new era.

The EPA basically outlawed new coal plants in this country unless they install carbon capture equipment, which at least for now is prohibitively expensive. Of course if there is a will there would be a way but with an abundant supply of natural gas there will be no will unless natural gas prices explode.

At the same time the Obama administration moved to approve a third LNG export terminal as the world is clamoring to get their hands on cheap U.S. natural gas. Because the Obama administration has approved two terminals in just three months it is possible that the dozen or so applications that are already pending. The export terminal in Lake Charles, Louisiana is the latest to get a conditional license and will be allowed to export up to 2 billion cubic feet of natural gas a day for 20 years.

While the market in natural gas might not be excited now about these developments, this is a classic case of low prices started to cure low prices. Gluts don't last forever. Market forces are already at work and Obama and his fixation on carbon presents the perfect opportunity to push through his anti-coal/anti-carbon agenda behind the cover of cheap natural gas. Forget the fact that some in our manufacturing sector are afraid to lose the competitive advantage that gas gives us but that is a problem for another day. So as of today the U.S. now has approved LNG exports of 5.6 billion cubic feet per day of gas exports from three projects. That represents about 8% of current daily U.S. gas production.

The way to play this is to buy long term options! Oil spiked on report that a Syrian shell hit the Golan Heights. The AFP is reporting that "Two seemingly stray mortar shells fired in the Syrian conflict struck the Israeli-occupied Golan Heights Thursday," the military said. "They were apparently fired in error," an army spokesman told AFP, adding that they hit open ground and caused no injuries. Israel did not immediately respond. The Golan has been tense since the beginning of the conflict in Syria more than two years ago. So far, there have only been minor flare-ups as Syrian small arms fire or mortar rounds hit the Israeli side, prompting an occasional Israeli response. Israel, which is technically at war with Syria, seized 1,200 square kilometers (460 square miles) of the strategic plateau during the 19 67 Six Day War, and later annexed it in a move the international community does not recognize.

Reuters reports that that "Global oil supplies look comfortable despite a massive outage in Libyan output and oil prices could see some downward pressure if sharp currency depreciation in emerging markets leads to softer demand," the International Energy Agency (IEA) said. The IEA, which coordinates energy policies for developed economies, said global oil supply was set to jump in the next months thanks to a mix of seasonal, cyclical and political factors and notwithstanding the Libyan problems. "While the geopolitical storms in the Middle East and North Africa have yet to pass, easing fundamentals look set to lessen the pressure somewhat on market participants — at least for the next few months," the IEA said in its monthly report. Oil prices rallied to six‐month highs in August amid expectations of Western military strikes in Syria and as Libyan production plunged to a tenth of capacity because of protests at fields and terminals in the worst disruption since the 2011 revolution.

The IEA said even if Libyan production remained disrupted for the rest of the year, the winding down of seasonal field maintenance in the North Sea and the U.S. Gulf of Mexico shall bolster supply in the fourth quarter of 2013. "New North American production — including U.S. light tight oil and Canadian synthetic crude — continues to surge. Saudi production is hovering near record highs, even as a seasonal dip in domestic air-conditioning demand looks set to free up more barrels for export," it added. The agency left its global demand growth estimates for 2014 broadly unchanged compared to its report last month at 1.1 million barrels per day, up from 895,000 bpd in 2013, as it said the underlying macroeconomic situation improved. Global oil demand is projected to average 92.0 million bpd in 2014. But it said demand could see some downward pressure in emerging economies whose currencies have depreciated steeply in recent months. As oil is priced in U.S. dollars, when an oil‐importing country's currency falls vs. the U.S. unit, its oil import bill in the domestic currency rises. Some currencies in Asia and Latin America have been hit hardest by expectations that the U.S. Federal Reserve will slow its bond-buying program, which would lead to a strengthening of the dollar. The Indian rupee lost nearly one‐third of its value in the four months to the end of August and other countries such as Indonesia, Malaysia, Peru, the Philippines and Thailand have also seen their currencies weaken. "If sustained, this may ultimately curb their demand trend or, in countries where oil subsidies are in place, raise pressure on their governments to reduce those subsidy programs," the IEA said.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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