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The Asian Move from Coal Will Revolutionize Energy Investing

by | published September 4th, 2018

Veteran readers of Oil & Energy Investor are familiar with what I’ve been calling the age of a rapidly developing “Energy Balance.”

The expanding number of genuinely different energy sources is providing the kind of balance utilized in satisfying the world’s demand quite unlike anything we’ve witnessed before.

This is no longer about one energy source taking demand from another and leaving the old one obsolete.

Nor is it about locating some “silver bullet” that will wean the market from its dependence on crude oil.

It likewise requires that investors move away from the zero-sum approach – where one person’s gain is the other’s loss – that so often has permeated our thinking.

Imagine it like this.

A harlequin jester stands with his juggling balls. One ball is held in his hand, one is halfway through the air, and the third is high above his head. None of these balls will stay in place, and they’re constantly shifting as the jester throws them.

This is how we can picture the energy balance these days.

No one energy source will ever completely take over and be above the juggler’s head for long.

In fact, while renewables will experience the largest increase, the top three energy resources today – crude oil, natural gas, and coal – will still be the leading sources for at least the next 20 years.

But right now, we’re seeing a very important shift in Asia – as the “coal” ball leaves the prominent position and the “oil” ball comes into play.

And that means increased profits for you over the next few months…

Asia’s Move from Coal will lead to a Monopoly in the Energy Balance

All indications point toward worldwide energy demand shifting to Asia, a process that began earlier in the 2010s.

This shift remains the man reason why coal, despite its declining usage in the so-called “industrialized world,” will remain as one of the three main sources for some time to come.

Coal is essential to meet exploding electricity requirements in Asia.

On average, Chinese authorities must put a new medium-sized coal-fueled power generator online each week to meet rising demand. Such reliance likewise results in acute environmental concerns.

Beijing has responded to this problem with a serious move to reduce reliance on coal, by emphasizing the import of natural gas, and especially liquefied natural gas (LNG), along with the opening of domestic shale gas reserves – of which they have more than any nation on earth.

However, the Chinese move to gas will take time, especially when it comes to fashioning the support and technical infrastructure necessary to exploit shale deposits.

Therefore, short-term, coal remains King in Asia.

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And when it comes to importing gas, the main pipelines are currently almost at maximum capacity, while LNG involves a rising competition with the other two major global importers – Japan and South Korea.

This makes Asia a large factor in how the global energy balance develops. Supply will rise to meet demand, with that occurring from more interchange among the disparate sources.

The breakthrough will come when more of the distinct energy sourcing becomes available for genuine transference.

In other words, as energy becomes increasingly interchangeable, so too does the reliability of the overall sector.

In fact, I have started to structure and test a Moor Transference Coefficient (MTC) to map such change…

How we’re going to Change Energy Investing for the Better

Of course, some of this transference has taken place already.

Downstream oil use as feeder stock for petrochemicals has given way to natural gas – in North America, coal has increasingly been replaced by gas in electricity generation.

The biggest transference challenge, however, remains in transportation.

There, much of the world has remained dependent upon oil products. Even in this industry, however, the increasing application of LNG and compressed natural gas (CNG) has begun a major transition.

In North America, that switch has resulted in a massive change in trucking and mass transit.

The increasing visibility of electric and hybrid vehicles is a good predictor for another transference underway in transport.

This element is particularly intriguing because the electricity powering more vehicles comes from a widening range of energy sources – hydrocarbons, renewables, nuclear, and even geothermal.

All of this takes time to shake out.

In the process, it is revising how investors regard the energy sector and the targets within it. This is where the MTC (which I will go into in more detail at a later date) comes into play.

It will provide an interesting bridge between various energy supplies and the common level of demands, and should allow us to identify revisions in the energy market and trends.

The objective here is to identify investment moves early, as elements move from one energy type to another, and as the emerging balance emphasizes efficiency and reliability.

The energy balance will also provide greater opportunities to play a widening number of energy investments.

I mention all of this now because, as we move into the next two months where all eyes will be on an external pressure – i.e. U.S. sanctions on Iran – influencing oil prices and the interchange between broader energy supply and demand will oblige us to widen what those sanctions really mean to the demand side of the relationship.

Which means that the global need will be satisfied one way or another.

Sincerely,

Kent

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