We’ve done exceedingly well in 2016 trading oil stocks – but as we move to 2017, we need to take a look at where to concentrate our focus to continue the strong performance. While we’ve had several opportunities to take advantage of dips in oil prices to get quality oil E+P’s at bargain prices in the last year, those bargains are no longer around – many of our most favored stocks are well priced and not to be bought today.
So to start 2017, as with all my trades, I want to look for VALUE – where the rest of the investing world has left an opportunity underappreciated or entirely overlooked. And here, I see two good ones: liquid natural gas and coal.
Coal stocks have been off of my radar for almost a decade. In the end, coal is a dying energy source, and will never re-attain the importance to the U.S. electricity grid and industrial growth it once had. Many of coal’s strongest companies have been forced into bankruptcy restructuring in the last two years. Still, the Trump campaign was fierce in its support of coal miners and can do quite a bit to re-enliven coal production, at least in the short term of the next several years.
First and foremost, he has the power to roll back much of the EPA regulatory structure that turned the power industry away from coal. His pick for EPA commissioner is Scott Pruitt, the Attorney General from the oil rich state of Oklahoma. Like the President-elect, he is a climate change ‘dissenter’…
We’ve done exceedingly well in 2016 trading oil stocks – but as we move to 2017, we need to take a look at where to concentrate our focus to continue the strong performance. While we’ve had several opportunities to take advantage of dips in oil prices to get quality oil E+P’s at bargain prices in the last year, those bargains are no longer around – many of our most favored stocks are well priced and not to be bought today.
So to start 2017, as with all my trades, I want to look for VALUE – where the rest of the investing world has left an opportunity underappreciated or entirely overlooked. And here, I see two good ones: liquid natural gas and coal.
Coal stocks have been off of my radar for almost a decade. In the end, coal is a dying energy source, and will never re-attain the importance to the U.S. electricity grid and industrial growth it once had. Many of coal’s strongest companies have been forced into bankruptcy restructuring in the last two years. Still, the Trump campaign was fierce in its support of coal miners and can do quite a bit to re-enliven coal production, at least in the short term of the next several years.
First and foremost, he has the power to roll back much of the EPA regulatory structure that turned the power industry away from coal. His pick for EPA commissioner is Scott Pruitt, the Attorney General from the oil rich state of Oklahoma. Like the President-elect, he is a climate change ‘dissenter’ and I think we’re likely to see many of the existing Obama guidelines on carbon emissions and obligations towards increasing renewable generation abandoned. This, by itself, may not be enough to move the power industry back towards coal; Utilities won’t want to make a large-scale investment in coal knowing that the Trump administration might only have a four year life, with a renewed commitment to curbing emissions to follow again.
But guidelines for new, or more likely, upgraded coal plants could entice some utilities. This is a quote from a former EPA administrator under Bush who was considered for the top job before Pruitt was selected: “I think the advice they will get is that they really need to do a carbon standard for new coal-fired power plants”, said Jeff Holmstead. “But they can do one that’s not unreasonable.”
Translation: New or upgraded coal plants will be given much greater emissions leeway and husbanded in to the grid under a Trump EPA.
That could really get coal going again.
Next, I want to renew my thoughts that 2017 will see an underappreciated acceleration towards liquid natural gas. Previous years have seen just the speculative promise of converting our national glut in natural gas into a booming export market – but 2017 will be the first year when that export volume becomes a reality and will impact natural gas prices.
And still only one company leads this trend will remain, the only fully hedged LNG investment to appear in 2017 – Cheniere energy (LNG).
Cheniere does not bank upon the spot prices of either U.S. or their export markets for natural gas, and does not need an immediate arbitrage to take advantage of that disconnect. It is true that right now the differentials between gas prices here and in, let’s say, Japan, are huge – more than $10 per mcf. But even if those numbers were to shrink quickly, Cheniere would remain unaffected as they have already banked and hedged long-term contracts for their LNG exports.
And Cheniere remains the only game in town – at least until Dominion (D) finally finishes their Cove Point plant, still only 2/3rds done as of August. For the next three years, Cheniere will only increase their lead as they expand from Sabine Pass, Louisiana into their new plant in Corpus Christi, Texas.
They’re not cheap, but I can’t see shares of Cheniere doing anything but trending upwards throughout 2017. That goes for unlikely coal stocks too. They remain two of my best ideas right now heading into 2017.
