Black Gold Oil: Exploring the Future of the Other Black Gold

I find that a significant part of my information
was acquired by looking up something and finding something else on the way.
Franklin P. Adams 1881-1960, American Journalist, Humorist

Unveiling the Potential of Black Gold Oil

Originally published November 22, 2006; Updated Dec 2022

With natural gas prices, especially oil prices, surging, utility companies are increasingly firing up some of their old coal-generating plants and planning on building new ones that employ clean technologies. Coal is still the fuel of choice, as approx 49-54% of the power generated in the U.S. comes from coal-fired power plants. We suspect that many companies will start to build new coal plants employing the new cleaner-burning technologies, and they will do so without giving a thought to supplies, just as is the case with Nuclear power plants, and then watch the price of coal soar.

Another new potential emerging use for coal is for oil generation; with crude oil prices soaring into the stratosphere, this expensive process is now becoming more affordable. Since the U.S. has one of the largest coal reserves, embracing this technology could significantly reduce our dependence on foreign oil.

Delightful read: Next Stock Market Crash Prediction: Unveiling Insights and Impacts

Electricity demand in the U.S. is skyrocketing.

And coal-fired plants have been responsible for providing over 64% of this from 1980 to 2001; demand is projected to increase an additional 45% by 2025. The United States will consume over 5770 billion kWh in 2025. Even though the focus has been on Nuclear power plants recently, we feel there is more than enough room for new coal-fired plants.

First of all, they are cheaper to build, and second, one does not have to deal with radioactive waste materials though ironically, coal-fired power plants emit more radioactive materials than nuclear Power plants; that is a separate topic and beyond the scope of this discussion.

The most crucial factor is that the United States has vast coal supplies and does not have to risk being held at ransom or competing with other countries for uranium supplies. Currently, uranium demand exceeds supplies by 50%; imagine what will happen when all those new nuclear plants come online.

http://www.eia.doe.gov/neic/infosheets/electricgeneration.htm

In 2025 it’s estimated that the U.S. will consume more than 5770 billion KWh, 2,890 of which will be provided by coal. As of 2004, coal was responsible for generating 1974 Billion kWh of electricity, so this represents a whopping 46% increase.

Black Gold Oil Supplies

The U.S. holds the World’s most massive coal deposits; at the present consumption rate, they could last between 200-250 years. These supplies are also nicely spread across the entire U.S. and, for the most part, is pretty close to primary transportation sources. Thus getting these supplies to the marketplace is not a problem. Coal currently accounts for 49-54%of the power supply production; in 2030, that share is expected to increase to 57%. Before jumping up and saying well, that only represents a 3-7% jump, one must understand that power consumption is projected to increase by 33%, if not more, by 2030.

In 1980 569 million tons of coal was used to generate electricity; in 2001, we used 966 million tons, a 70% increase. Demand has been increasing exponentially. We employ more than one billion tonnes a year; imagine what we will use in 2030. To produce the same amount of electricity that coal generates today, we would need to build an additional 25 nuclear plants. Hence it goes without saying that atomic energy alone will not be sufficient to tackle the current problem.

Black Gold: A Rising Demand and Complexities Unveiled

154 new plants are on the drawing boards of over 42 states. TXU, a Dallas-based company, is planning to build over 16 new plants. Interestingly, most coal mines have reduced production or closed many of their mines due to current prices. Hence, we have an anomaly in place, colossal demand looming shortly, and on the supply side, we have cutbacks. This is somewhat reminiscent of the Uranium/nuclear power plant situation. New coal power plants are just not constructed overnight. Markets always look into the future. The price of coal will rise in anticipation of all these new coal plants coming online; this is precisely what’s happening in the Uranium sector.

So far, we have only dealt with the United States, but when one factor in countries such as India and China, things look even brighter for this filthy black material. India and China both have a newly emerging middle class to deal with. Every year more and more individuals are added to this segment of the population, and they all thirst for the simple assets we take for granted. All this means that the energy demand continues to skyrocket, and even though both nations are embracing nuclear power, it will not be enough.

A Balancing Act: Coal’s Pollution Predicament and Soaring Demand

This is why both of them have embraced coal, also though it is going to produce a lot of pollution because they are stuck between a hard place and a rock. As with all governments, they want the fastest possible solution. Once they have fixed the current problem, they will attempt to deal with the pollution issue. Given that both these countries are just in the early stages of expansion, one can rest assured that demand for the other black Gold will not ease anytime soon. If anything, we think it’s simply going to increase. China has surpassed the United States as the largest coal user, consuming more than a billion tonnes annually.

We also have what we would like to call an inter-positive market divergence here; demand for coal will increase significantly, yet many mines are closing operations to cut costs. When demand suddenly increases and supplies cannot keep up, coal prices could start to move upward relatively fast. We already have two plays in the coal sector, ###and ###. We are monitoring several other stocks in this sector and waiting for them to issue a buy signal on our indicators.

Black Gold Oil and Coal Options

If one looks at a six-year chart, natural gas has already mounted a nice rally, and it’s getting ready to trade even higher. After natural gas starts trading in the 12-15 dollar ranges for a significant period and trades here, it will work in the not-too-distant future. Then watch the media suddenly shift its attention to coal; by this time, the intelligent trader should already have taken his or her position.

Once the press starts to focus attention on a sector, usually the first stage of easy money is over and done; the next stage of a painful correction followed by a massive rally start to take shape (most of the minor players sell during the painful correction stage and miss out on the next massive rally). We believe in the future, coal will start to be referred to as the other black gold. For this reason, we have a position in this sector and are looking to add more slowly.

Growth for the sake of growth is the ideology of the cancer cell.
Edward Abbey 1927-1989, American Writer