Even Persian Gulf States, Sitting on Gobs of Oil, are Moving to Coal

Thanks to a reader for sending this article... quite fascinating really when you sit and think about it. Especially the fact the Gulf countries, sitting on piles of dead dinosaurs, are moving into coal. We've been talking a lot about this sector of late, almost as much as fertilizer in the fall. Hopefully the drama in this sector modifies soon and we can move into calmer times where fundamentals trump paranoia.

I can sum up this thesis very succinctly - economics trumps environment. Unfortunately in a bottom line business of making investors money, I can only worry about the economics.

• Der Spiegel, the German newsmagazine, explained earlier this month why the Persian Gulf states are switching to coal. “[They] may be sitting atop massive oil reserves,” the magazine said. “But with prices for crude skyrocketing, it makes more sense to sell it than to use it. Instead, the Gulf states are turning to coal for their own energy needs – to the detriment of the climate.”
• “Demand for coal plants,” the magazine says, “is growing rapidly across the globe.”
• Abu Dhabi (largest of the seven UAE emirates) has announced that it will switch to coal-fired power plants.
  
• Dubai (the second largest) is already building four of them – with a combined output of 4,000 megawatts – as a first-phase investment in coal.
  
• Apart from the United Arab Emirates, Oman (widely regarded as “the next Dubai”) has signed a contract with South Korea for the construction of several coal-fired plants.
  
• Beyond the Gulf, Egypt proposes to build its first coal-fired plant on the shores of the Red Sea.
  
• Russia has announced plans to build more than 30 coal-fired plants by 2011.
• China connects a new coal-fired plant to its electrical grid every 10 days – and intends to keep doing so for several years. Less known is China's decision to construct a massive coal-fired plant in Inner Mongolia that will convert the region's vast coal reserves into oil.
• The coal-to-liquid process used by this plant will consume twice as much coal and produce twice the CO{-2} emissions as the simple burning of coal in a conventional power plant.
• The Kyoto Protocol, incidentally, classifies the Gulf states as developing countries – meaning that they are under no obligation, oil revenues notwithstanding, to reduce CO{-2} emissions.
• They have opted for coal for a single compelling reason: cost. They can produce a megawatt-hour of electricity using Australian coal, Der Spiegel calculates, for $17.49 (U.S.). Using natural gas, the cost rises to $41.34. Using oil, the cost rises further to $79.50.
• One of the ironic differences between Germany and the Gulf states, Der Spiegel observes, is the absence of solar energy investment “in the sun-baked Gulf states.” Germany produced 1,300 megawatts from solar installations in 2007; the Gulf states combined produced 36 megawatts. (that's beginning to change)
• Other German Greens are championing – you are ready for this, right? – coal. “The more strident of the anti-nuclear politicians in Germany are now advocating new coal and gas plants to ward off a certain electricity supply crisis,” Mr. Aplin says. “Why is coal in this mix? It is cheap and domestically available.”
• Two days ago, though, Germany's Finance Ministry issued a remarkably candid public statement. It conceded that Europe's proposals for reductions in greenhouse gases – without the participation of all major contributors worldwide – will be pointless. (Bingo - for every light you turn off in your house or change from 22 mpg to 27 mpg auto, entire cities are being built in other countries - without everyone cooperating there is no "saving the Earth" - and you know how well countries cooperate. The U.S. won't even enter these agreements, and is the biggest pollutant, and China has other issues to deal with - although her people are choking on the air)

Takeaway: Sell coal. The charts say you must, and it's time to go long Macy's instead, since gas will drop to $3.25 and the malls will be teaming with Americans deprived for well over 3 months from buying a new pair of shoes. Heck, they'll probably fly to Las Vegas to shop at the Macy's there since the commodity bull is dead. CNBC told me. Die coal die.

Long a whole lot of coal in fund and quite a bit in personal account