The Most Unlikely Beneficiary of the Natural Gas Boom

Peter Krauth

An array of energy's sub-industries are making a fortune from America's natural gas boom.

Rigs, pipelines, rail, wastewater treatment, trucking, seismic imaging, well-site security… And a lot more opportunity is on the way, like the deal Kent just uncovered.

But perhaps the most unlikely beneficiary of the shale revolution is the coal industry.

After all, "King Coal" has been dethroned in recent years by the swelling supply – and bargain prices – of clean-burning natural gas. Indeed, thermal coal at the Australian port of Newcastle, the Asian benchmark price, is currently near lows not seen since November 2009.

Australian producers have especially been struggling. They've been cutting costs and paring back production because U.S. and large project financiers like the World Bank are pulling away from coal projects.

And overall, ever-increasing environmental regulation is discouraging coal-powered electricity.

But the dynamic is suddenly changing.

That's why these $19 coal shares could jump to $26…

How to Play Worldwide Energy Arbitrage

This is a pricing game – a global one.

You see, while North Americans currently enjoy natural gas at close to $3.40 per million cubic feet (Mcf), Europeans are paying three times as much, between $10 and $11 per Mcf.

Asians are bearing more than four times the cost, at $15.60 per Mcf.

That's why Japan and South Korea are ramping up their LNG imports.

And this massive arbitrage opportunity – low North American prices versus high European and Asian prices – is supporting natural gas here in North America.

But it's making cheap coal attractive everywhere…

In Europe:

Cheaper Fuel Trumps Emissions Goals

Coal, according to Frost & Sullivan, has "suddenly become popular once again."

Harald Thaler, industry director at the firm, says the influence of cheaper North American natural gas from shale production has been twofold:

Massive shale gas production has caused North American utilities to switch from coal, while slowing Chinese demand simultaneously weighed on the fuel source.

And that has coal prices looking a lot more attractive to Europeans, despite their goal to reduce carbon emissions to 80% of 1990 levels within seven years.

In America:

Coal Will Generate 40% of U.S. Electricity

With natural gas prices on a steady, albeit slow, upward climb, coal has become more attractive to American utilities, as well.

That's why Moody's recently upped its outlook for the U.S. coal industry, from negative to stable, indicating that despite weak business conditions, they don't see industry fundamentals "deteriorat[ing] further over the next 12 to 18 months."

Vice president and senior analyst at Moody's, Anna Zubets-Anderson, said the agency expects "over the next year or so coal-fired power plants will capture 40% of US electricity generation, up from 37% in 2012."

Zubets-Anderson also foresees stable but rising natural gas prices to make coal more attractive on a relative basis, potentially through early 2015.

In India:

Peter Krauth

About the Author

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Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

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