Once we broke support a few months ago in the metals market, I began pointing to much lower levels b...
Coal Hotter than Alternative Energy
03/01/2011 5:28 pm EST
Declining subsides for “clean” energy and a growing coal shortage mean the latter is where you should look for gains, says Elliott Gue, editor of The Energy Strategist.
We've got crude oil rising, and tensions in the Middle East are percolating. Does that give rise to opportunities in the alternative energy markets?
Some of them. The problem with alternative energy is that carries a very high cost.
Even with oil prices where they are today, oil is still a lot cheaper than wind and solar power. So, I think that sometimes it’s overestimated how quickly the world can shift away from traditional fossil fuels.
I do think there’s some opportunity, particularly in areas like nuclear energy. Nuclear power is clean, obviously, and is seeing a lot of growth right now. China is building as many as 40 new nuclear power plants.
But as far as traditional wind and solar, I think the real headwind you’re going to see this year is declining subsidies in Europe. Countries like Germany have been heavily subsidizing wind and solar. Now with the fiscal austerity that we’re seeing in Europe, they’re actually cutting back on those subsidies.
Europe has embraced nuclear energy, but there seems to be resistance here in the United States. What could we do to reduce some of that resistance?
It is very difficult.
Where you’re seeing most of the growth in nuclear power is really your emerging markets. Yeah, Europe is definitely sort-of on board—France gets 80% of their power from nuclear and most of the other countries get 20% or 30% so more than the United States.
But most of the growth we’re seeing is really in the emerging markets—especially Russia, India, and China. These countries are building nuclear power plants very, very rapidly.
It’s difficult in a country like the United States because you have issues with siting, permitting, and just the public not fully understanding the technology. They have a perception that it’s unsafe, even though really there hasn’t been a major accident in the nuclear power industry at all. Even at Three Mile Island there was no release of radiation.
The only true accident we had was Chernobyl, and that really wasn’t in the Western world—and in the West, we wouldn’t have built a plant along those designs—so I think it’s definitely an uphill climb in the United States. But you’ve got enough growth to go around in the emerging markets.
How about the four letter word known as coal. Anything there?
Absolutely. Coal is still the real workhorse of the grid. I think a lot of people think that it is sort of this dead or dying fuel. That’s absolutely not the case.
China gets about 80% of its power from coal, and we’re also seeing a real squeeze in the metallurgical coal market this year. Metallurgical coal is used to make steel. China of course a major steel maker, India another one.
We’ve seen floods in Queensland, Australia this year—the worst since the mid-1970s, perhaps even longer. And then a cyclone. Remember, the rainy season in Australia doesn’t end for another couple of months, at the end of March, so that's an ongoing problem that has really hit supplies of metallurgical coal and sent prices sort of sky high.
So, I think companies with a lot of Australian metallurgical coal exposure are going to see a real jump in prices this year. Companies like Peabody Energy (NYSE: BTU), which is an American company but has a huge presence in Australia.. It's going to do well by that.
I also think US coal companies that have a lot of metallurgical coal production—companies like Patriot Coal (NYSE: PCX) and International Coal Group (NYSE: ICO)—are going to do quite well because those prices are really skyrocketing. And a lot of these countries are looking for alternatives to Australia because they’re worried this could happen again next year.
We’ve seen a lot of extreme weather there in recent years, so that’s definitely become a concern—and they may look to the United States as an alternative source of supply.
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