Crude oil prices could be on the verge of exploding as the largest storage hub in the world is nearing empty. Natural gas is trading above $5. Gasoline and heating oil are the highest they have been in years. Yes, the energy markets are going through a profit-generating ride, whether investors are holding futures contracts or stocks. But there is another component of the global energy industry that is soaring at all-time highs, despite the planet’s collective effort in recent years to destroy it: coal. As a shortage intensifies, do you smell what the black rock is cookin’? If so, it smells like money for traders, producers, and mine workers.
Sold Out! Good Luck Finding Coal
You would be lucky to find a lump of coal in your stocking this Christmas or next year’s holiday season. It is probably more valuable than the Shiba Inu tokens your nephew will gift you or more enjoyable than a Dan Brown novel that your colleague will give during a Secret Santa event at the office.
Arch Resources, America’s second-largest coal miner, revealed that it had sold every lump of coal it will extract from the ground for 2022. Demand has been so fierce that it sold next year’s coal for $16 per ton, or 20% over spot value. Peabody Energy Corp, the nation’s top coal miner, has already sold 90% of its coal inventories from the Powder River Basin region for next year. “It’s pretty much sold out,” Peabody CEO Jim Grech said during a recent conference call with reporters. “We only have a small portion left to be sold for 2022 and for 2023.” Alliance Resource Partners, another top coal miner, confirmed it would ship approximately 32 million tons of coal this year. It also announced that it would deliver its 2022 and 2023 contracts of 30 million and 16 million tons, respectively.
The party is ostensibly just getting started. Indeed, there are two main short- to medium-term factors that could support these prices: U.S. coal stockpiles at power plants are at two-decade lows, while temperatures across the United States are beginning to fall.
Demand for coal is soaring throughout the globe. China, India, Europe, and many developing economies are driving much of the demand, with these regions reporting power outages and shrinking inventories of conventional and unconventional sources of energy. Here are some of the latest trends: India’s coal production advanced nearly 2%, Asia is constructing hundreds of coal-fired power plants, and European coal prices are at their best levels in 13 years as demand amplifies. Better yet, mine workers are in such tremendous necessity that businesses are offering as much as $100,000 a year.
Is Relief on the Way?
Fossil fuel critics largely assert that this coal rally will be short-lived, and any miner or investor pouring money into the black rock will not generate a return on investment. This is comparable to the White House and the Federal Reserve shrieking to the heavens that inflation is not happening and then eventually conceding that it is here to stay (they still believe inflation is transitory). The data suggest that there will not be relief in coal prices – for now. The advanced orders highlight that coal consumption will remain at multi-year highs until two things occur. The first is that crude oil and natural gas prices need to decrease, and supplies need to increase. The second is that renewables, from solar to wind, need to be more reliable to support vast and simultaneous demand.
Speaking of Green Energy
The sun is shining on Coal Country, while winter is clouding over the rest of the world. As North America, Europe, and China brace for the arrival of Old Man Winter while running low on oil and gas, they have no alternative but to turn to the black rock. The problem? Like a discount flat-screen television on Black Friday, it is sold out. Despite the world trying to decimate coal and install a green economy through mandates and incentives, the traditional fossil fuel is coming back. This is, in part, due to the transition to windmills and solar panels that cracked under pressure.
COP26 participants might be clutching their pearls at the rebirth of Coal Country, but they have two options: Sit in the dark or ensure the public can live comfortably. Politicians might not care about their constituents, but they do care about getting re-elected. So, how can they serve another term in office if the voters are twiddling their thumbs in darkness?
~ Read more from Andrew Moran.