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.