Coal stocks hit record levels as gas futures rise
New York (Platts)--1Sep2005
Coal producers saw their stock prices surge near or above their 52-week highs
as the status of the Gulf of Mexico's natural gas supply remained uncertain in
the wake of Hurricane Katrina.
With about 17% of US electricity generated from natural gas-fired power
plants, compared with more than 50% from coal-fired plants, utilities could
look to coal to fill some of the generation void. The stock market appears to
be anticipating an expanded use of coal, possibly bought on the spot market,
to fill any gap.
The Gulf produces about 10 Bcf/day of natural gas, but with 8.3 Bcf, or 83%,
of production shut in, gas prices reached record levels on the New York
Mercantile Exchange Wednesday, topping $12.25/mmBtu after Gulf producers
reported damaged platforms and unmoored drilling rigs. Shut-in volumes were
down from 8.8 Bcf on Tuesday, but the Materials Management Service -- the
federal agency that manages offshore energy and minerals -- reported that 482
platforms and 79 rigs were still evacuated on Wednesday.
Analyst David Khani of Arlington, Va.-based Friedman, Billings, Ramsey told
Platts Coal Trader Wednesday that only coal-fired plants have spare capacity.
"It's really the only alternative. It probably won't help much in the summer
because coal plants are running 24/7, but it will help in the fall."
Khani said the Gulf production cuts could be long-term, noting that some
production is still off line from Hurricane Ivan, which hit in September 2004.
"There's a risk that this could last more than a few weeks. This could be a
substantial problem for a while."
Shares of Peabody Energy Corp., the country's largest coal producer, closed up
$1.68 to $71.60 on the New York Stock Exchange Wednesday with 2.8-bil shares
trading hands, and Arch Coal Inc. shares were up $1.09 to $64.18, both beating
their previous 52-week highs. Peabody's low over that same period was $26.33,
while Arch shares were down to $31.86. Peabody had a two-for-one stock split
in March.
Also setting a new high was Massey Energy Co. Its shares closed up 80? to
$50.84. Shares had traded as low as $26.03 over the last 52 weeks.
Others reporting gains on Wednesday were Natural Resource Partners, which
settled up $1.53 at $61.53; James River Coal, which closed up $1.48 at $49.57;
CONSOL Energy Inc., which settled up $1.16 at $69.73; Foundation Coal Holdings
Inc., which closed up 59? at $35.64; and Alpha Natural Resources Inc., which
closed up 24? at $29.79.
Actual damage to natural gas supplies won't be known for a few days at least.
"Unlike [Hurricane] Ivan, Katrina went through the heart of the older shelf
platforms, which have less overall production but more structural integrity
issues," said Joseph Allman of RBC Capital Markets. "The storm may also have
damaged pipelines from deepwater platforms that cross over these platforms or
run through the mudslide areas of West Delta and South Pass."
But Khani told Platts Wednesday that only coal-fired plants have spare
capacity. "It's really the only alternative. It probably won't help much in
the summer because coal plants are running 24/7, but it will help in the
fall."
Khani said the Gulf production cuts could be long-term, noting that some
production is still off line from Hurricane Ivan, which hit in September 2004.
"There's a risk that this could last more than a few weeks. This could be a
substantial problem for a while."
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