Cues from the commodity markets, more of the same? CASPR relief rally overdone?

Based on recent price movements (1), low hedging levels for 2013 and analyst forecasts, it is likely natural gas prices will be lower for the next few years than they were in 2011.  In comparison, I estimate oil price forecasts are flat to positive and coal price forecasts are negative.

If forward prices and analyst forecasts for 2012 hold true, I believe it will be another bad year for the independent power producers, another good year for liquids MLP’s and another bad year for the coal miners.  On a side-note, I believe the the delay in the implementation of CASPR is temporary and the EPA will succeed in implementing CASPR after some modifications.

In my opinion, it makes sense to remain long regulated utilities and short some coal names.

(1) Jan 2013 contract NG prices have declined approximately 30% over the past year.  Producers have only hedged 13% of their total production for 2013 and are unlikely to do so with 2013 calendar strip prices below $4.  This lack of hedging should translate into lower capital expenditure.

Disclaimer: I am long some regulated utilities.


Perhaps inaction in Durban is not such a bad thing? and the declining price of carbon credits

The FT recently reported that 2011 is set to be the 10th hottest year on record (going back 160 years) and in fact, it is the hottest year in which there is a cooling La Nina weather pattern. This is based on the latest report by the Intergovernmental Panel on Climate Change, The UN body for reviewing research on climate change.

The Intergovernmental Panel on Climate Change has published a series of reports on the eve of the UN climate conference in Durban, showing that the human actions and green house gasses are responsible for rising temperatures.  However, there are many skeptics,  including the Global Warming Policy Foundation and the writers of freakonomics.

In the meantime, the price of carbon credits continues to fall, down from approximately 10 Euros in August 2011 to less than 7 Euros in November 2011.  By way of comparison, most analysts estimate the price of carbon needs to be>$40 by 2020 to result in a meaningful decline in carbon emissions.   Are these low prices for carbon a sign of a dis-functional market?

Perhaps once the science regarding GHG and global warming is sorted out, we need to make some structural changes to cap and trade or use another mechanism, like a carbon tax.

Some useful links: