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Tuesday, April 03, 2012

Mailbag: "Bear Trader" Reflects on Coal, Natural Gas...and Much, much more"

(Ed.note: The reflections of Bear Trader are conservative reflection and not investment advice) On Coal...Natural Gas...and LNG....The long View The future of coal. People are not going to give up coal on the long term. The "renewable energy" cant is bogus. Windmills are a 14th Century technology even with modern aerodynamic redesign. Solar is bogus because covering the USA with solar cells and storage batteries wouldn't begin to supply the amount of energy required while the cost of installation and upkeep would be totally ruinous. The same applies to windmills. On the long haul the "anthropogenic global warming" hysteria will blow over since it is faith, not science. Coal will be back and in a very big way. From an investor's viewpoint I suspect we will never live to see it happen. Coal in the ground is another matter, but only the Big Boys can play in this game. Lots of action in this play in Australia lately. Natural gas has always been a feast or famine affair caused by regulator action and changing extraction technology. The current low natural gas prices can't last because the drillers need $4 gas to break even. Right now the drillers owe a tremendous amount of money and must service their debt so they maximize sales even when this looses them money. This cannot last for ever. That this is even possible now is a product of Federal Reserve manipulation of interest rates to absurdly low levels (so the gas guys can service the debt). When you see a full court bull press in the media you have to remember that when you are playing poker if you don't know who is the sucker the sucker is you. (Sorry about that.) Right now there is a glut of gas, the greatest gas glut of all time. Not impossible we will see gas well below $2. Lots of talk about liquid natural gas. To make a difference in the US gas market LNG export capacity will have to be greatly increased. This means new large gas pipelines, liquification plants, tankers, and port facilities. We are talking about a lot of natural gas here. This means years, some real money, and regulatory support. There are plans for a very large new gas pipeline in Alaska parallel to the existing oil pipeline from the north shore to Anchorage with construction of liquification plants and port facilites for LNG tankers. The Canadians are planning a similar project from their arctic fields to a Pacific port. Negotiations are underway between Canada, the US, and Alaska to rationalize these two projects. Qatar has a major LNG liquification plant under construction. Lots of natural gas in the area, this could prove a big deal. A lot of Russian gas reserves in Western Siberia are underutilized and the Russians are mulling exporting LNG from Vladivostok. They can get a lot more for LNG in Japan (since Japan is shutting down its' nuckear plants) than they are getting for pipeline gas from the Chinese. The Chinese are building a very large gas pipeline from Iran into southwest China. India is mad for being cut out of the deal. Lots of gas in the Arctic. Really a bunch. Lots of oil, too, but more gas. This will probably lead to war, perhaps in our lifetimes. Lots of geopolitics here.

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