I entered into NRP some time ago, which was quickly an unmitigated disaster. The position is down 25% from my purchase price. I sold half the position, along with other partial positions, back in January when I raised cash.
Today, I added back some of that for $14.93.
I want to talk at brief about coal. The time to buy into US coal reserves is now, while euphoria over natural gas is highest and markets are most spooked about a Democrat directed EPA.
I am in no way minimalizing the importance of the shale revolution. Not by a longshot – if you look at my own holdings, BAS and HCLP represent a firm belief in the continued importance of those assets to the US energy equation.
What I am doing is highlighting the continued importance coal will have in US power generation and abroad.
Coal presently makes up just over 1/3 of US domestic generation. This is down from 1/2 earlier this decade, most prominently replaced by the surge in application with natural gas. Yet, markets price in equilibrium of choices, when operating correctly.
We have to presume that markets will find a price that fairly limits benefits between choosing natural gas versus coal versus nuclear versus…for equivalent production of energy. This would suggest that natural gas prices are set to rise (further enhancing the payoff for the producers). I would also expect that, as excess capacity gets utilized, the adaptation of coal plants to gas will subside.
This process may take a little longer to finish, and perhaps gas will even match coal in terms of energy mix before it is done. What I would not count on is coal rapidly or even ever completely being removed from global energy production.
Which brings us to the fears of EPA punitive measures against coal. So far, these are aimed at coal fired power plants. While this would, at least temporarily, hinder US energy production from coal here at home, what is to stop US coal producers from simply shipping overseas? And why is metallurgical coal acting so volatile when it is not a component of US power generation?
The signs, to my eyes, spell clear a story of market overreaction to pop culture and fantasy. Power generation shifts or slides, waxes or wanes. It does not turn on or off. Coal has been systematically shunned regardless of its exact nature (energy versus metallurgical) and the driving catalyst seems to be mostly political.
But politics change and politics in this country are about to.
I will give you a 6 month synopsis of what is about to happen. In November, the DNC is going to get creamed, delivering the Senate to the RNC. You can suspend your political predilections, as this is merely obvious to anyone not sucking their own exhaust. And the GOP has no problem with coal power generation. In fact, the Republicans think the argument against coal power generation is, quote, “stupid”.
This will change the short term plot dynamics that drive most superficial market players. Around middle of 2015 or early 2016, coal will be “the most obvious buy ever”, whereas today it is “fools nonsense.” Of course, when it is “the most obvious buy ever”, it will be at some considerable percentage above where you can take a position today.
This will accelerate especially if it should appear going into the next presidential election that a Republican is about to take the White House (that is still too far out for me to see, but it is certainly not out of the question). In such an event, the current shunning of coal will look especially stupid and myopic.
Regardless of the next presidential cycle though, the simple act of the GOP taking both chambers of Congress should noticeably shift the messaging surrounding out of favor coal plays. Executive overreach through agency bodies, no longer shielded by the Senate, will begin getting visibly and openly reprimanded; or even punished.
This shift, along with coals critical importance to the US economy and abroad, should render this a generous buying opportunity in hindsight.