Earthquakes – The New Deadly Side Effect of Cheap Gas Production from Shale Formations

3 Jan, 2012
Gas

Shale Gas Technology has completely changed the Oil and Gas Picture in North America.Natural Gas prices have touched new low below $3/mmbtu as massive discoveries and production of shale gas has led to a glut.With the Technology being exported to other countries,it is expected that Natural Gas may take over from Coal as the preferred choice of electricity power generation.China and India are already taking out tenders for shale gas blocks.However Shale Gas has a nasty side effect which is normally not talked about.The cases have kept increasing though the mainstream media and the powerful oil lobby has tried its best to suppress it.The first one is water contamination which I had written about earlier

Shale Gas Water Contamination

Shale Gas which is a new form of Gas Extraction through Shale Gas Formation found deep under the Earth through Pressurized Injection of Water Mixed with Chemicals,is coming under Environmental Scrutiny.There have already been questions raised against theEnvironmental Safety of the Shale Gas Extraction Process.However the entry of Big Oil and Gas is preventing a fair and unbiased investigation into the harmful effects of Shale Gas.Note a NGO has accused the provincial officials and Gas Companies of illegaly using Water Supplies in Pennsylvania.The US Environmental Protection Agency (EPA) has deepened the probe into the process by asking 9 Exploration Firms to send Chemicals Data used in Shale Gas.

Earthquakes the New Danger

The digging of new injection wells which is used to dispose of water has been linked to earhquakes in Ohio.Note the biggest disadvantage of hydro power is that it can cause massive earthquakes due to movement of  large earth works.Shale Gas does the same in a  smaller way.The Technology is quite new and all the side effects are not known.Minor earthquakes near shale gas digging has been reported before as well.

Ohio Shuts Wells Following Quakes

Ohio became the latest state to take action on the possible link between seismic activity and wells used to dispose of waste water from oil and gas production when state officials ordered a halt to the practice near Youngstown this weekend after several minor earthquakes.

The wells, known as injection wells, have been proliferating in Ohio to accommodate growing volumes of waste water left over from hydraulic fracturing, which involves blasting water, sand and chemicals underground to break apart dense layers of rock to free up oil and gas.

Diversion of Water by Shale gas Companies is another bad effect of this new Natural Gas production.Pennsylvania is Ground Zero for Shale Gas Companies as it has the largest Shale Gas Formation in the world – Marcellus Formation.Large Number of Wells have been dug in the State using Millions of Tons of Water.This has come under the spotlight as it is not legal to draw water under the Clean Streams Act.Only communities adjacent to the rivers can use this water.An Environmental Group has also accused the state EPA of colluding with these corporate interests.
Read about the advantages and disadvantages of Natural Gas to examine the issue further

Nuclear Energy Efficiency vs Fossil Fuels (Oil,Gas) in Power Load Factors,Energy Density and Waste

7 Jul, 2011
Fossil Fuels,Nuclear Energy

Nuclear Energy has come under the spotlight after the Japanese nuclear plant disaster with people focusing on the strengths and weaknesses of nuclear power.One of the most important aspects of nuclear based power is that it is highly efficient.Nuclear Energy is currently the most efficient power source in terms of the fuel required,land area needed and also the waste it produces.The reason for this is that nuclear based electricity is primarily produced from nuclear reactions while other forms of energy like natural gas,coal and oil use chemical reactions.Other such as wind energy convert mechanical energy into useful energy.Nuclear Power currently is mostly produced through nuclear fission as nuclear fusion is still in infancy and its not certain that mankind will be able to use nuclear fusion in a safe manner to generate energy.

Energy Densities of Nuclear Energy vs Fossil Fuels

The Energy Density of Nuclear Energy compared to Fossil Fuels is very high.While most fossil fuel types have similar range of energy output per unit of mass,nuclear energy is almost a million times more efficient .The table below shows the energy densites of nuclear energy fission reactor to different types of fossil fuel

Fuel Type Energy Density (kWh/kg) Number of Times Denser than Coal
Nuclear Fission (100% U-235) 24,513,889 2,715,385
Natural Uranium (99.3% U-238, 0.7% U-235) in a fast breeder reactor 6,666,667 738,462
Enriched Uranium (3.5% U-235) in a light water reactor 960,000 106,338
Natural Uranium (99.3% U-238, 0.7% U-235) in a light water reactor 123,056 13,631
LPG propane 13.8 1.5
LPG butane 13.6 1.5
Gasoline 13.0 1.4
Diesel fuel/Residential heating oil 12.7 1.4
Biodiesel oil 11.7 1.3
Anthracite Coal 9.0 1.0
Water at 100 m dam height 0.0003 N/A

Source http://nuclearfissionary.com

Efficiency in Terms of Nuclear Power Plants Load Factors

Nuclear Power Plants have one of the highest load factors in the power industry.Nuclear Power Plants do not suffer from fuel shortages (except exceptional cases) like thermal coal power plants (eg. India) .Nuclear power plants account for about 11 percent of America’s total electricity generation capacity, but because they operate at high levels of efficiency and reliability, they produce nearly 20 percent of the country’s annual electricity supply.U.S. nuclear power plants have performed at an average industry capacity factor of more than 87 percent for the past seven years.

Coal Power Plants and Oil Power Plants perform at 80-90% load factors while solar and wind energy power plants perform at between 15-35% depending on the energy resource and technology types.

Efficiency in Terms of Waste Generated

Nuclear Power Plants produce much lower mass of waste as compared to normal fossil fuel plants like coal,natural gas and oil.Note these fossil fuel plants produce greenhouse gases like carbon dioxide etc. besides coal produces byproducts which are highly dangerous to human health like mercury etc.There are also byproducts generated like fly ash which are also dangerous and harmful to the environment if not disposed of carefully.Nuclear Waste though is a different matter.While some can say its low in quantity the potential hazard is also of magnitudes higher.For example the whole Fukushima danger was due to the spend nuclear rods or nuclear waste.Nuclear Waste is one of the most difficult waste products to transport and store because of its dangerous radioactive effects.Given the long life of some of the transuranic elements Nuclear Waste has to be stored in a safe manner for thousands of years which is a tough given that the chances of leakage become enormous in such a long time scale.Storing of Nuclear Waste has to be performed in a extremely complicated manner which is also enormously costly.Also there are problems of NIMBY with Nuclear Waste Storage as nearby residents don’t want such toxic waste stored anywhere close especially as it does not bring any economic or social benefits.Not there is no permanent storage site despite many decades of planning and billions of dollars being spent.While Japan and Europe reprocess the fuel in the hope that they will be used again that remains a dream with thousands of tons of HLW piling up.USA does not reprocess and also has more than 60,000 tons of nuclear waste waiting for a final home.Till then most of the spent nuclear fuel is being stored in spent fuel pools and dry casks making them vulnerable just like another Fukushima

Summary

We can say that Nuclear Power is most efficient form of energy generation in terms of energy density however in case of waste it is not so.This is because disposing of nuclear waste is a very costly and complex activity which many of the developed nations have shown complete disregard for.Nuclear Power is also efficient in terms of cost (the older plants that is) and plant load factors.

Read more about Nuclear Companies and Stocks

Advantages and Disadvantages of Natural Gas Energy – Pros and Cons of Gas Usage

7 Jul, 2011
Gas

Natural Gas has got a lot of press these days as massive discoveries of natural gas reserves in shale gas formations has meant that the prices have gone down substantially and new power plants and infrastructure is being developed to use natural gas as fuel.Even as crude oil and coal prices have gone through the roof,natural gas prices have dived.This is due to the new technology being commercialized which is allowing huge shale gas deposits to be used.This has led to forecasts that natural gas will become a more important part of the energy mix in the coming days.The falling prices of natural gas has also led to declining electricity prices in the USA where shale gas development is the most advanced.Natural Gas prices have gone down to as low as $3.5/mmbtu from $8 in 2008 and experts predict that it may go down to $2.5/mmbtu.Shale Gas has its own critics who say that the shale gas deposits are much lower than being said and they deplete much faster.Environmental concerns are also being raised about the fact that it leads to poisoning of the water supplies with France banning shale gas mining completely.Natural Gas is a byproduct of Oil Drilling and in the earlier days it used to be looked upon as an irritant and burned off.But now it is being used to generate power,in chemical and fertilizer plants and also being used in some parts of power vehicles as well.Natural Gas is also used for Heating in most western developed countries and for Cooking as well.With increasing availability it is replacing coal and oil in power plants and tranport now.

Advantages of Natural Gas

1) Cheap and Abundant – The biggest advantages and Pro of Natural Gas is that it is now cheaper than almost any other fuel.New ways of extracting Natural Gas has made it abundant and in the coming days massive formations are waiting to be discovered.

2) Provides 24/7 and Continuous Source of  Power – Natural Gas can provide electricity 24 hours,7 days a week unlike other sources of renewable energy.This makes it very important and some gas solar and gas wind hybrid plants are being developed.General Electric has developed very efficient Gas Boilers and Engines to improve the Efficiency of Gas to Energy Conversion.

3) Used for providing Peaking Power – Natural Gas is used to provide Peaking Power that is Electricity when Demand is very High.Note Nuclear Plants and Hydro Plants run continuously and it makes no difference to cost to stop them.However Natural Gas as no constraint and it is used to provide power at peak times and is stopped when demand is lower.This makes Natural Gas important to the development of Renewable Sources of Intermittent Energy like Wind and Solar Energy

4) Most Important Fuel for Cooking and Heating - Natural Gas is the most commonly used fuel for heating and cooking.Oil is not used as it is costlier.

5) Easily Transported Through Pipelines and as Liquefied Natural Gas (LNG) – Natural Gas Infrastructure is being developed rapidly and it is now transported over land through big Pipelines and over Water through massive LNG Tankers.This is done in a cost effective manner which implies that Cost of the Gas is not increased too much

Disadvantages of Natural Gas

1) Greenhouse Gas Emissions(GHG) – The biggest Disadvantage of Natural Gas is that it releases Carbon Dioxide which has been sequestered for millions of years in the dead bodies of plant and animals.This transfers the Carbon from the Earth to the Environment leading to the Global Warming Effect.Global Treaties have failed in putting a Cost on this,though individual countries are tying to account for this through Carbon Taxes and Cap and Trade.Natural Gas has been touted as a much Greener Fuel as compared to Oil and Coal.However some experts dispute the fact that Natural Gas is cleaner and say that if you consider the lifetime impact from the mining of Gas to its use it may be more harmful to the environment than Oil

2) Pollution of Water and Earth– Natural Gas leads to Air Pollution as some Gas escapes into the Air and its not possible to capture all the Natural Gas that is released.Shale Gas has raised huge concerns for causing toxicity to nearby water bodies

3)  Growth in Terrorism and Violence- Gas  is drilled in some of the worst dictatorships like Saudi Arabia,African countries.This  Money goes directly into the hands of these despots who have amassed trillions of dollars.They give rise to violence and growth in terrorism as this oil money is used to fund these organizations.Osama Bin Laden comes from one of the richest Saudi families.

4) Non Renewable Source of Energy and will eventually Deplete – Like other sources of fossil fuel energy,Natural Gas Energy is going to deplete eventaully and does not form a sustainable answer to man’s energy questions.While the current large discoveries have made Natural Gas Cheap,these will also become empty.Compared to Gas,Solar and Wind Energy will last for a very very long time and building infrastructure for these cleaner fuels is more useful

5) Dangerous to work with and Combustible – Natural Gas is highly combustile and it can lead to explosions if not carefully handled.This is the reason that it is not used in vehicles more.Also it exists mostly in the gaseous state which makes handling it more difficult than Oil

Also Read

Pros and Cons of Solar Energy

Pros and Cons of Wind Energy

Advantages and Disadvantages of Coal

While  Shale Gas could be an Energy Panacea ,is it Environmentally Safe?

There have been concerns raised about the environmental degradation resulting from Shale Gas Production.Recent incidents of water and soil contamination from Pennsylvania has led to voices being raised in protest.Note all Fossil Fuel extraction leads to some extend of Environmental Pollution both during extraction and during usage.Shale Gas in no exception.However some unique types of Pollution being reported by Farmers has led to more focus on this still nascent technology.Pennsylvania has quarantined cattle which have fallen sick after drinking toxic waste water.Shale Gas Extraction requires injecting Water mixed with Chemicals at High Pressure to fracture Shale Rock formations.This results in contamination of water with chemicals that can lead to human and animal sickness.The problem arises from “Fracking” that involves mixing of water and toxic chemicals.Reports from US indicate that tap and toilet water in houses near these gas wells have been severely contaminated.Their have also been reports about Gas Leakages.Federal Regulators have tentatively started investigating  Shale Gas Technology.But the Oil Industry in typical fashionis opposing the scope of the study.Reminds me of Saudi Arabia blocking the study of climate change on rising seal levels.The Oil and Gas companies currently don’t even have to reveal the chemicals they are using during the Fracking process.Lets hope that this Regulators do their job otherwise it could lead to another BP Oil Spill type of disaster in the future.The laxness of the Oil Drilling Regulator was a major factor in one of the world’s biggest environmental disasters.

Advantages and Disadvantages of Oil – Cons Disregarded by Powerful Lobbies

7 Jul, 2011
Fossil Fuels,Oil

Oil is one of the most important commodities in the world playing an important part in some of the biggest industries like chemicals,transport,power,petrochemicals etc.The high energy density and easy availability have made mankind almost completely dependent on oil for most of his needs.Almost all of the world’s cars run on petrol /gasoline which is derived from crude oil.Despite new evidence that burning oil leads to massive pollution and greenhouse warming nothing had been done to prevent its usage growth.In fact each year billions of barrels of oil are burned to power cars,ships,trains etc.Some countries use oil to power electricity as well though that has been decreasing as oil prices have increased substantially in recent years.The massive oil dependency has been decried by politicians for a long time but little has been done to reduce it.Powerful oil lobbies run by massive industrial conglomerates like Exxon,Chevron,BP etc. have managed to kill legislation which would reduce the subsidies to the fossil fuel industry.The BP Oil Spill after creating a massive hue and cry has faded from the public mind and its now business as usual for the Oil Industry.The only way Oil usage can be reduced it seems is when the world runs out of oil and the prices become too high for most people to use it.

Advantages of Oil

1) High Energy Density – Oil has one of the highest energy densities which means that a small amount of oil can produce a large amount of energy.This makes it very useful as its high energy density has made it the preferred choice for use as fuel in automobiles.

2) Easy Availability,Infrastructure for Transport and Use – Oil is widely distributed in almost all parts of  the world.Also there exists a massive infrastructure to transport oil to other places through ships,pipelines and tankers.This means that oil is available throughout the world

3) Crucial for wide variety of Industries – Besides Transport,Oil is a critical component in a wide variety of other industries.It is difficult to think of a commodity which has such a huge role to play in a wide variety of human products from Vaseline,cloth,medicines etc.

4) Easy to Produce and Refine – Oil is not very difficult to produce though most of the low cost locations have already been depleted.Now Oil is being mined off the coasts in seas and also tar sands.Oil Refinery Technology is also quite old and mature which implies that refining of oil to get valuable products like diesel,petrol is also quite easy

5) Constant Power Source and Reliability - Unlike solar and wind energy,oil can produce power 24/7  and is highly reliable.Oil engines are a mature technology and highly reliable to work with.

Disadvantages of Oil
1) Greenhouse Gas Emissions(GHG) – One of the biggest Disadvantages of Oil  is that it releases Carbon Dioxide which has been sequestered for millions of years in the dead bodies of plant and animals.This transfers the Carbon from the Earth to the Environment leading to the Global Warming Effect.Global Treaties have failed in putting a Cost on this,though individual countries are tying to account for this through Carbon Taxes and Cap and Trade.

2) Pollution of Water and Earth– Oil Spills have caused massive pollution of water bodies as massive oil supertankers lead oil.This leads to the death of thousands of animals and fishes every year beside devastating the local ecology.The BP Oil Spill caused billions of dollars in losses  and even to this day small Oil Spills keep happening.
3)  Growth in Terrorism and Violence- Oil is drilled in some of the worst dictatorships like Saudi Arabia,African countries.This Oil Money goes directly into the hands of these despots who have amassed trillions of dollars.They give rise to violence and growth in terrorism as this oil money is used to fund these organizations.Osama Bin Laden comes from one of the richest Saudi families.However the powerful Oil Money also manages to suppress the voices of protest .

4)Emission of Harmful Substances like Sulfur Dioxide,Carbon Monoxide,Acid Rain - Oil Plants emit harmful substances such as Sulfur Dioxide which cause health hazards among the surrounding population and Acid Rain.While modern equipment has reduced the emission of these harmful substances,it is still very harmful to humans.

5) Leads to production of very harmful and toxic materials during refining,Plastic is one of the most harmful substances – Oil exists as a mixture of hydrocarbons with traces of sulfur and other compounds.Refining of Oil leads to production of harmful gases and solids like Carbon Monoxide and Plastic.

Also read about Nuclear Energy Advantages and Disadvantages and Hydro Energy Advantages and Disadvantages

Read about the Oil Companies Shenanigans in the BP Oil Spill

Oil Companies are coming under increasing fire in the aftermath of the BP Oil Spill which has exposed a lot of skeletons in the Fossil Fuel Closet.British Petroleum has already been exposed for the lies and deception with even the US regulators coming under criticism for lax regulation.The Oil Industry instead of owning responsibility has acted in a most shocking manner with Drilling Operator Transocean  trying to escape responsibility behind a 150 year old law which caps liabilities at a measly $27 million.Even Oil Companies unrelated to the disaster,Exxon and Chevron are facing tough questions about the validity and morality of their Billions of Dollars in Windfall Profits.The super rich Oil Lobby seems quite helpless in the face of the public anger generated against the roughshod environmental treatment by Big Oil.

Contempt Towards Environment by Big Oil

These companies will find out that trying to fight back (like the Financial Industry) against public opinion might backfire for them.Oil companies like BP,Exxon have for a long time completely disregarded their responsibility towards the society.BP despite being a leading solar producer has recently closed its factories in the US while Shell has abandoned plans for investing in offshore wind.The lame excuse given each time is economic unviability even as other companies continue to make huge investments.Even shareholder fury in the past has failed to move the Oil Companies to invest more in Renewable Energy.

President Obama has said that the Oil Spill will change the shape of the Energy Industry just like the 9/11 Terrorist Strike.However the Oil Industry is much bigger and  essential to society  to be changed radically in a short time.However,if long term incentives and policies are changed , then this Environmental Disaster might have a Silver Lining after all.There are already calls by some Senators to redirect the huge fossil fuel subsidies in the US and Louisiana has already passed bills supporting Renewable Energy.

Investing in Coal a Great Idea (Think China,India) – US Coal Stocks,Market Vectors Coal ETF(KOL) Analysis

6 Jul, 2011
Coal

Coal is the biggest source of Energy for Electricity Production in the world and its use is expected to continue to grow to 44% of the Electricity Production by 2030 (IEA).Despite Coal having many dangerous disadvantages,its Advantages of cheapness and abundance have made it the Fossil Fuel of choice.With global reserves estimated to be around 200 years,it does not have the “peak oil” characteristics as well.Though not a Coal Fan,nonetheless Coal stocks are a great investment choice due to the fact of its growing demand which is outstripping supply.China and India are massively growing their electricity,steel and cement production which  requires billions of tons of coal.China consumers almost 45% of the global coal production while Indian demand is growing by leaps and demands as well.Indian Power Utilities are grabbing up Coal Mines in Africa,Australia and Asia to secure feedstock for their gigawatt thermal power plants.Despite its growing importance Coal does not have a lot of choice in terms of investment unlike Fossil Fuels like Oil and Gas.Here is a list of Coal Stocks which one can invest in  and the sole Coal ETF – Market Vectors Coal ETF (KOL).

List of Coal Stocks

US Coal Stocks

Peabody Energy Corporation (BTU) – Market Cap of $18.5 Billon.Peabody Energy Corporation is the largest Coal Company in the United States with operations both in USA and  other countries.The Company has equity interests in a wide variety of Coal Mines and Coal Related Companies.It owns majority interests in 28 coal mining operations located in the United States and Australia.The Company holds approximately nine billion tons of proven and probable coal reserves and more than 500,000 acres of surface property.

CONSOL Energy (CNX)  – One of the the biggest Coal Companies in  the US with a Market Cap of around $12 Billion.CONSOL Energy is not a pure play Coal Company rather it has equal interest in Gas and Coal.. The Company produces pipeline coalbed methane (CBM) gas from its coal properties in the Northern and the Central Appalachian basin, and oil and gas from properties in the Appalachian and Illinois Basins.During 2010, it had 13 mining complexes, including two 49% equity affiliates, all located in the United States. The Company had an estimated 4.4 billion tons of proven and probable reserves

Arch Coal ACI – Market Cap of $5.6 Billion .During the year ended December 31, 2009, the Company sold approximately 126.1 million tons of coal and  operated 19 active mines at 11 mining complexes located in the United States.  On October 1, 2009, the Company acquired Rio Tinto’s Jacobs Ranch mine with 345 million tons of coal reserves and integrated it into the Black Thunder mine.

Alpha Natural Resrouces (ANR) Market Cap of $7 Billion,Alpha Natural Resources  is a coal supplier in the United States. It operates 66 mines and 13 coal preparation plants in Northern and Central Appalachia and the Powder River Basin. During 2010, Alpha sold a total of 84.8 million tons of steam and metallurgical coal.

Walter Energy (WLT) - Market Cap of $7.5 Billion  primary business, the mining and exporting of hard coking coal for the steel industry.During 2010, the Underground Mining segment produced 6.7 million tons of metallurgical coal. Underground Mining also extracts methane gas, from the Blue Creek coal seam. Its natural gas business produces approximately 38 million cubic feet of gas daily from over 1,700 wells

Massey Energy (MEE) – Market Cap of $6.9 Billion.Massey Energy Company (Massey), incorporated in 1920, is a coal producer in the United States. At January 31, 2011, the Company operated 84 mines, including 66 underground mines  and 18 surface mines in West Virginia, Kentucky and Virginia. On April 19, 2010, the Company completed the acquisition of Cumberland Resources Corporation and certain affiliated entities (Cumberland). The Cumberland operations include primarily underground coal mines in Southwestern Virginia and Eastern Kentucky. The Company owns a majority interest in Coalsolv, LLC (Coalsolv).

Alliance Resource Partners (ARLP) has a Market Cap of around $3 Billion.It operates primarily to serve  United States utilities and industrial users. It operates nine underground mining complexes in Illinois, Indiana, Kentucky, Maryland, and West Virginia. At December 31, 2009, ARLP  had approximately 647.2 million tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia and sold 25 million tons of coal.

Patriot Coal Corporation (PCX) has a market cap of $2.25 billion and produces coal in the eastern United States, with operations and coal reserves in Appalachia and the Illinois Basin. It is also a producer of metallurgical coal. The Company’s operations consist of 14 mining complexes which include company operated mines, contractor-operated mines and coal preparation facilities.During the year ended December 31, 2009, the Company sold 32.8 million tons of coal and  controls approximately 1.8 billion tons of probable coal reserves

International Coal Group (ICO) – - Market Cap of $2.2 Billion  is a producer of coal in Northern and Central Appalachia .As of December 31, 2009, the Company operated a total of 11 surface and 11 underground coal mines located in Kentucky, Maryland, Virginia, West Virginia and Illinois.The Company’s mines in Central Appalachia produced 10.1 million tons of coal in 2009, and the mines in Northern Appalachia produced 3.9 million tons of coal in 2009.

Oxford Resource Partners (OXF) has a market cap of around $550 million and produces coal from mines  in Ohio.Company produced 5.8 million tons of coal, including 0.4 million tons produced from the reserves it acquired in western Kentucky from Phoenix Coal and sold 6.3 million tons of coal.OCX controls 91.6 million tons of proven and probable coal reserves

James River (JRCC) – Market Cap of $900 million, James River Coal Company mines coal through six subsidiaries  located in eastern Kentucky and in southern Indiana. As of December 31, 2009, the Company’s six mining complexes included 14 underground mines, 10 surface mines and 10 preparation plants, five of which have integrated rail loadout facilities  As of December 31, 2009, it controlled approximately 271.1 million tons of  coal reserves. and  produced 9.8 million tons of coal

Coal Stocks Symbols

1 Arch Coal, Inc. ACI
2 Alpha Natural Resources, Inc. ANR
3 Peabody Energy Corporation BTU
4 CONSOL Energy Inc. CNX
5 Evergreen Energy Inc. EEE
6 Massey Energy Company MEE
7 Natural Resource Partners LP NRP
8 Penn Virginia Resources PVR
9 Walter Energy, Inc. WLT
10 Yanzhou coal mining Co. (ADR) YZC
11 International Coal Group, Inc. ICO
12 Penn Virginia GP Holdings, L.P. PVG
13 Patriot Coal Corporation PCX
14 Cloud Peak Energy Inc. CLD

Market Vectors Coal ETF (KOL) Analysis

Market Vectors KOL ETF provides a good well diversified way to invest in Coal which is seeing a massive upsurge in demand driven by India and China.Note KOL is the only listed Coal ETF with Assets under Management (AUM) of nearly $900 million.It invests mostly in large cap companies and has a global scope.For investors looking for individual stocks here is a list  of US Solar Companies and Stocks and Indian Coal Stocks.China with around 3 Billion Tons of Coal Consumption and India with another 500 million Tons depend on King Coal for majority of their Energy Needs.While China generates 80% of its Electricity from Coal,India generates around 65%.While both countries have Huge Reserves and Production of Coal,their voracious demand is leading to surging imports.These Imports are being sourced from countries like Australia,Canada and USA which are going through Coal Mining Booms.Ports are getting congested as Infrastructure failed to meet the growing coal needs of India and China..The Biggest Advantages of Coal its Abundance and  Cheapness of Coal has made it the Fossil Fuel of Choice for Electricity Companies building power plants in developing countries despite its Drawbacks.This has led to a fight to secure Coal Supplies through vertical integration into buying up of coal mines,building ports and railways to transport Coal.Though India too faces some environmental opposition,massive ultra mega power plants with capacity of 4000 MW are getting built by new Indian private utilities.

KOL ETF

Market Vectors Coal ETF (KOL), which was launched in January 2008.

KOL Composition

KOL  is composed of 40 coal stocks  with the Top 25 Holdings make up 93% of the weight of the ETF.The ETF has  5 holdings with weight greater than 5% and has a well diversified mix of geograhies from USA,China and Indonesia.KOL largely has large cap stocks which make up more than 80% of the market cap with Mid Caps at 17% and Small Caps at a miniscule 3%.

1) Coal Sectors form 100% of the ETF Market Cap – The ETF has 5 sectors of Coal Mining and Produciton,Coal Equipment,Coal Technology,Coal Power Generation and Coal Transportation.Not surprisingly Coal Mining forms 68% of the Market Cap while Coal Mining Equipment forms 16%.This makes sense as KOL is mainly a play on Coal as a Mineral .

2) Top 5 Companies form 40% of the ETF- The Top 5 Constituents of the ETF namely Peabody,Consol Energy,China ShenHua,Joy Global and Bucyrus form 40% of the ETF’s value.2

3) Valuation of the KOL is currently quite high - The P/E and P/B of the ETF at31x ad 4x is quite high and reflects the current bull run in Coal Stocks.It may not be an oppurtune time to invest in this ETF at the present time,however its a good long term buy because Coal compared to Oil is still quite cheap.Beside KOL has given astounding returns in 2009 and 2010 vastly outperforming S&P and the Energy Index

Despite the high valuation,KOL gives a very good dividend yield of around 2%.

4) KOL Cost is cheap– The ETF is charging a total expense of 0.6% of the Weekly Average Assets which is quite cheap.It allows an investor to invest in top quality Global Coal Stocks from different countries at a relatively low cost which makes it an ideal Coal Play.

 5) Stowe Coal Index – KOL follows the  The Stowe Coal Index which is a trademark of Stowe Global Indexes LLC and is licensed for use by Van Eck Associates Corporation in connection with Market Vectors Coal ETF (KOL).

Summary

KOL has managed to rectify most of its drawbacks since its inception when it held a large percentage of coal utilities like Huaneng and has become an ideal way to invest in Coal.Given the run up in commodity prices and the sharp surge in Coal prices,KOL valuation has increased quite dramatically rising more than 30% in 2010 after a 150% run up in 2009.This may not be the best time to get in,however the massive takeover fights and high valuation being given to Coal Assets may imply that KOL might not come down in price anytime soon.The growing energy needs of China and India make KOL one of the best ways to play this stock.It is an ideal investment tool for buying into higher Oil Prices as well.

Details of KOL Holdings

Company Ticker Shares Market Value % of net assets
Joy Global Inc JOYG US 754,524 $74,637,514.08 8.36%
China Shenhua Energy Co Ltd 1088 HK 15,729,908 $73,754,597.65 8.27%
Consol Energy Inc CNX US 1,391,943 $73,104,846.36 8.19%
Peabody Energy Corp BTU US 1,064,666 $72,514,401.26 8.13%
Bucyrus International Inc BUCY US 765,138 $69,971,870.10 7.84%
Walter Energy Inc WLT US 328,702 $46,402,861.34 5.20%
Bumi Resources Tbk PT BUMI IJ 112,752,500 $42,134,912.20 4.72%
Massey Energy Co MEE US 629,898 $41,989,000.68 4.71%
Alpha Natural Resources Inc ANR US 734,079 $41,915,910.90 4.70%
Yanzhou Coal Mining Co Ltd 1171 HK 11,027,961 $41,092,030.88 4.60%
Arch Coal Inc ACI US 1,024,996 $35,393,111.88 3.97%
China Coal Energy Co 1898 HK 25,880,095 $35,153,626.34 3.94%
Adaro Energy Tbk PT ADRO IJ 117,347,215 $31,088,715.90 3.48%
Exxaro Resources Ltd EXX SJ 1,110,674 $28,817,320.50 3.23%
Patriot Coal Corp PCX US 595,166 $15,611,204.18 1.75%
Fushan International Energy Group Ltd 639 HK 19,212,067 $14,787,805.75 1.66%
Tambang Batubara Bukit Asam Tbk PT PTBA IJ 5,270,000 $13,596,882.95 1.52%
International Coal Group Inc ICO US 1,146,584 $12,589,492.32 1.41%
MacArthur Coal Ltd MCC AU 950,974 $12,084,011.61 1.35%
Aquila Resources Ltd AQA AU 1,099,055 $11,191,265.96 1.25%
Indo Tambangraya Megah PT ITMG IJ 1,943,052 $11,160,935.36 1.25%
22 Whitehaven Coal Ltd WHC AU 1,432,014 $10,592,590.12 1.19%
23 Coal & Allied Industries Ltd CNA AU 79,797 $10,319,721.99 1.16%
24 Straits Asia Resources Ltd SAR SP 4,027,200 $8,743,562.03 0.98%
25 Cloud Peak Energy Inc CLD US 398,185 $8,660,523.75 0.97%
26 New Hope Corp Ltd NHC AU 1,497,136 $7,882,907.33 0.88%
27 SouthGobi Energy Resources Ltd 1878 HK 510,997 $7,434,747.03 0.83%
28 Hidili Industry International Developmen 1393 HK 6,304,307 $5,860,978.12 0.66%
29 White Energy Co Ltd WEC AU 1,590,286 $5,195,803.01 0.58%
30 Semirara Mining Corp SCC PM 896,152 $4,773,223.54 0.53%
31 Indika Energy Tbk PT INDY IJ 9,155,000 $4,373,953.81 0.49%
32 James River Coal Co JRCC US 181,724 $4,323,213.96 0.48%
33 Gloucester Coal Ltd GCL AU 318,392 $3,660,613.96 0.41%
34 COCKATOO COAL LTD COK AU 5,197,173 $2,832,707.41 0.32%
35 FreightCar America Inc RAIL US 78,058 $2,387,013.64 0.27%
36 Headwaters Inc HW US 395,652 $2,358,085.92 0.26%
37 Nippon Coke & Engineering Co Ltd 3315 JP 957,000 $1,785,432.86 0.20%
38 Net Other Assets / Cash 0 $870,630.06 0.10%
39 PUDA COAL INC PUDA US 127,241 $763,446.00 0.09%
40 Western Coal Corp WTN CN 43,470 $537,340.66 0.06%

Source – http://www.vaneck.com/funds/KOL.aspx

 

Indian Coal Stocks

1) Coal India Limited (CIL)- The State Owned Giant Coal Producer dwarfs the other companies through its sheer size,scale,cost and reach.The company has fared poorly in the current year after its IPO as its production growth has almost come to Zero.However its sells coal at such a low cost,that it could easily raise prices of coal in select categories to meet its financial goals.One of the safest investments in the stock market.It posseses high level of cash,low valuation compared to global peers and has a huge room to raise coal prices in the future.

2) Neyveli Lignite Corporation is a PSU like NTPC and is also involved in lignite mining company in India. The company is mainly based out of the southern state of Tamil Nadu and mines some 24 million ton of lignite per year with an installed capacity of 2490 MW

3) Singareni Collieries Company Limited (SCCL) is a PSU  jointly owned by Andhra Pradesh and the Federal Governm .The company is involved in mining coal  in the GodavariValley region, with reserves of around 8 Billion Tons with production of around 50 million tons a year.Note listed currently still one of the major coal companies in India.

Natural Gas and LNG Supply and Demand in India – List of Companies and Gas Market Review

5 Jul, 2011
Energy,Gas

Introduction

Natural gas is rightly termed as the Fuel of the 21st Century, has emerged as the most preferred fuel due to its efficiency and cost effectiveness. The demand of natural gas has sharply increased in the last two decades at the global level. The production of natural gas is around 87 million standard cubic meters per day. The main producers of natural gas are Oil & Natural Gas Corporation Ltd. (ONGC), Oil India Limited (OIL) and JVs of Tapti, Panna-Mukta and Ravva. Even private parties from some fields produce gas under Production Sharing Contracts. Government has also offered blocks under New Exploration Licensing Policy (NELP) to private and public sector companies with the right to market gas at market determined prices. In India most of the production of gas comes from the Western offshore area. The on-shore fields in Assam, Andhra Pradesh and Gujarat States are other major producers of gas. Smaller quantities of gas are also produced in Tripura, Tamil Nadu and Rajasthan States. OIL operates in Assam and Rajasthan States, whereas ONGC is operating in the Western offshore fields and in other states. Prior to 1987, gas prices were fixed by ONGC/OIL. since 1987, the price is being fixed by Government. The Ministry of Petroleum & Natural Gas has been regulating the allocation and pricing of gas produced by ONGC and OIL by issuing administrative orders from time to time. The gas produced by the JVs and by NELP operators is governed by the respective production sharing contracts between the Government and the producers. Under the existing policy, 100% Foreign Direct Investment (FDI) is allowed for both LNG projects and natural gas pipeline projects.

Natural Gas Allocation & Supply Scenario:

As against the total allocation of around 118 MMSCMD, the gas supplies by GAIL is of the order of 63 MMSCMD spread over about 300 major consumers. Around 32% is supplied to the fertiliser sector, 41% to power, 4% to sponge iron and the balance 23% goes to other sectors. Around 8.5 MMSCMD of gas is being directly supplied by the JVs/private companies at market prices to various consumers. This gas is outside the purview of the Government allocations.

Liquified Natural Gas:
Natural gas at -1610C transforms into liquid. This is done for easy storage and transportation since it reduces the volume occupied by gas by a factor of 600. LNG is transported in specially built ships with cryogenic tanks. It is received at the LNG receiving terminals and is regassified to be supplied as natural gas to the consumers. LNG projects are highly capital intensive in nature. The LNG trade started in mid 60′s and has increased rapidly.World trade in LNG is currently in the range of 150 BCM. The major exporting countries of LNG are Algeria, Qatar, Indonesia, Malaysia, Australia, whereas, the major importers are Japan, South Korea, Taiwan and Western Europe. Geographically, India is very strategically located and is flanked by large gas reserves on both the east and west. India is relatively close to four of the world’s top five countries in terms of proven gas reserves, viz. Iran, Qatar, Saudi Arabia and Abu Dhabi. The large natural gas market of India is a major attraction to the LNG exporting countries. In order to encourage gas imports, the Government of India has kept import of LNG under Open General License (OGL) category and has permitted 100% FDI.Petronet LNG Limited (PLL), a JV promoted by GAIL, IOCL, BPCL and ONGC was formed for import of LNG to meet the growing demand of natural gas. Shell’s 2.5 MMTPA capacity LNG terminal at Hazira has been commissioned.

List of Natural Gas and LNG Companies in India

Note most Oil and Gas Majors in India are involved in Natural Gas production as well as Oil and Natural Gas are generally found together.Below is the list of companies which have major natural gas and LNG production and distribution operations as compared to crude oil

GAIL India – GAIL (India) Limited, is India’s flagship Natural Gas company, integrating all aspects of the Natural Gas value chain right from exploration to marketing.It emphasizes on clean fuel industrialization, creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields, LNG terminals and other cross border gas sourcing points. With a market cap Rs. 58,000 crores GAIL is expanding its business to become a player in the  International Market. . The revenue earned was 24,000 crores (2009-10) with a net profit margin of 11%.The business has achieved laying of Natural Gas high pressure trunk pipeline, LPG Gas Processing Units & Transmission pipeline network, oil and gas Exploration blocks, OFC network offering highly dependable bandwith for telecom service providers etc. GAIL has been entrusted with the responsibility of reviving the LNG terminal at Dabhol as well as sourcing LNG.GAIL is one of the best performing stocks in the Energy Industry in India in the last couple of years.It is a well managed fast growing company in one of the best sectors in India with high competitive barriers.

Oil India Ltd.- With a market capitalisation of Rs. 31,000 crores, OIL is engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of LPG. It became a wholly-owned Government of India enterprise in 1981. The revenue earned by the company was 2,400 crores & with a net profit margin of 36% in Dec ’10. Very similar in profile to ONGC it  presently produces over 3.2 million tons pa of crude oil, Natural Gas and over 50,000 Tones of LPG annually. Most of this emanates from its traditionally rich oil and gas fields concentrated in the Northeastern part of India and contribute to over 65% of total oil & gas produced in the region. It has emerged as a consistently profitable international company with exploration blocks as far as Libya and sub-Saharan Africa.

Reliance  Industries - The Flagship Company of the Ambanis and India’s largest Private Company Reliance Industries is also an Oil and Gas Giant .The Company has seen very sharp growth in the last decade and is diversifying into Retail.With a market cap exceeding $30 billion it is India’s most valued company.The company is also one of the biggest exporters in India with one of the largest petrochemical and oil refining complexes in the world at Jamnager.It recently sold a stake in its valuable Godavari Basin to BP for a whopping $7.5 billion.Extremely cash rich with a horde of more than $15 billion,it has started on empire building through ventures in Finance ( DE Shaw) ,Communicatoins (buying of wirelss broadband spectrum),Shale Gas Buys in the USA,Hospitality (Buying up stakes in Hotel Companies).

ONGC Corp – With a market cap of Rs. 235,000 crores ONGC ranks 3rd in Oil & Gas Exploration & Production (E&P) Industry globally .It cumulatively produced 803 Million Metric Tonnes of crude and 485 Billion Cubic Meters of Natural Gas from 111 fields. ONGC’s wholly-owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest Indian multinational, with 40 Oil & Gas projects in 15 countries. The company earned a revenue of approx Rs. 20,000 crores with net profit margin of 34% in Dec’10.It holds largest share of hydrocarbon acreages in India & contributes over 79 per cent of Indian’s oil and gas production. Created a record of sorts by turning Mangalore Refinery and Petrochemicals Limited (MRPL) around from being a stretcher case at BIFR to the BSE Top 30, within a year.

Petronet LNG Ltd. -  It was formed as a Joint Venture by the Government of India to import LNG and set up LNG terminals in the country, it involves India’s leading oil and natural gas industry players. The promoters are GAIL, ONGC, IOCL & BPCL. The company has a Market cap Rs. 9,000 crores. The revenues earned in Dec’10 was approximately Rs.3,600 crores with a net profit margin of 5%.

British Gas – BG Group is a key player within the gas industry in India, with a presence in both the E&P and T&D segments. BG Group has increased its exposure in India’s growing natural gas sector by developing its upstream position through licensing rounds and acquisitions.BG Group has held a 30% interest in the Mid and South Tapti gas fields and the Panna/Mukta oil and gas fields since 2002. In 2009, the combined fields produced 13.7 mmboe.BG Group has a 65.12% controlling stake in Gujarat Gas Company Limited (GGCL), with the remaining 34.88% publicly owned. GGCL is India’s largest private sector natural gas distribution company in terms of sales volume. As at end June 2010, GGCL served more than 296 000 residential, commercial and industrial customers through a pipeline network of over 3 500 kilometres. GGCL also fuelled compressed natural gas (CNG) to more than 119 000 natural gas vehicles (NGVs) as at 30 June 2010

Indraprastha Gas (IGL) – Incorporated in 1998, IGL took over Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited (Formerly Gas Authority of India Limited).The project was started to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors. The 2 main promoters of the company are  – GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL)

Gujarat State Petronet Ltd. (GSPL) – It is  a Gujarat State Petroleum Corporation (GSPCGSPC Group company is a pioneer in developing energy transportation infrastructure and connecting natural gas supply sources including LNG terminals to growing markets. GSPL is first Pipeline Company in India operating on open access basis and is a pure transmission network.The transmission network of the company envisages development of systematic and seamless pipeline network across Gujarat connecting various suppliers and users.

 

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