Now that the Democrats are out of the power seat, the Republicans are champing at the bit to change the direction of the United States’ energy policy.
Energy has always been high on the Republican agenda. They view it as the easiest way to generate economic growth.
After all, the United States is flush with energy… even if some fuels don’t have the best reputations.
Now the Republicans want to bring back an unpopular but powerful commodity: coal.
The new ruling party aims to get it on the market as fast as possible, and the Democrats will be all but powerless to stop them…
The Outlaw That Never Left
Coal has been under a dark cloud for the last several years – a victim of economic and non-economic factors.
The popular media portrays it as the energy source to avoid at all costs – citing the fuel’s heavy pollution.
And the perceived shift from coal to natural gas and renewables has caused a negative sentiment for coal stocks.
But coal is far from dead…
A slow global recovery has resulted in ample supplies of coal and lower prices per ton.
Plus, coal is still the primary source of energy around the world. As the two charts below show, coal consumption has actually increased over the past 10 years, not decreased as many think.
Fuel of the Masses
The primary driver for increased coal consumption is (and will continue to be) the lure of lower prices per energy unit produced.
There’s also the pure fact that poor countries around the globe are going to buy the cheapest energy sources until they become richer, more educated about carbon emissions, and have access to other fuels at the ground level.
As I have seen during my travels through poor and emerging mega population centers like India, most of these people are still using bricks of coal for heating and cooking fuel.
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And that won’t change for many years to come.
Coal offers greater energy independence from foreign sources, especially the Middle East – a fact that will make these issues difficult for the Democrats to fight.
Indeed, while the Keystone Pipeline, LNG exports, and deregulating oil exports are what appear to be at the top of the agenda, the smart money will be made from coal.
You see, the low-hanging fruit of the new Republican-dominated Congress will be existing energy policies and protecting the constituents.
New Sheriffs in Town
Mitch McConnell, the Senate Majority Leader, represents Kentucky – ranked No. 3 on the list of coal-producing states. The No. 1 state is Wyoming, which is also headed up by a Republican Senator, Mike Enzi.
To think that either will allow coal to be pushed further into the abyss of “bad energy” sources would be naïve.
Until last week, the two legs of the Republican energy stool were oil and gas. But now… the third leg – and arguably the cheapest from a valuation standpoint – coal, is likely to make a comeback.
Both have rallied since the election, but are beginning to pull back after the euphoria, trading much closer to their respective 52-week lows than highs.
But that may all change once the new Senators take their seats in January.
And “the chase” continues,