Coal vs. Natural Gas: Which ETF Will Win the Battle?

Aside from Supreme Court nominee Sonia Sotomayor, climate legislation is the topic du jour in Congress. The battle has pit two heavyweights against one another, and the winner could determine the fate of related exchange traded funds (ETFs).

The Waxman-Markey bill rode through the House and is now in the Senate. Two major industries are fixed against one another in an effort to sway lawmakers in order to get some “goodies” for themselves in any legislation.

The two power sources are coal and natural gas. While coal is leading the push, thanks to heavy lobbying, natural gas executives are forming a strategy to influence rewrites in the Senate, explains Anne C. Mulkern for The New York Times.

Natural gas is lagging behind its competitors as coal supporters have been talking to senators and aides for months, with their contacts becoming more frequent since the House bill passed. Coal lobbyists want to slow down the pace of the House measure’s plan to cap greenhouse gas emissions and make businesses buy allowances for those emissions.

Natural gas has the added obstacle of competing with the utility industry, which has been active in lobbying legislation. Utilities have a solid reason to favor coal, however, both natural gas and coal are represented in the utility industry. Which commodity can sway in terms of public relations will be determined.

ETFs and ETNs possibly affected:

• Market Vectors Coal (KOL): up 46.1% year-to-date

• PowerShares Global Coal (PKOL): up 40.6% year-to-date
  

• United States Natural Gas Fund (UNG): down 48.1% year-to-date

• iPath Dow Jones AIG Natural Gas Total Return (GAZ)
  

For more stories about coal and natural gas, visit our commodity cateogry.

Comments

[AndrewBaker:]

Natural gas is a green fuel, is in abundance in North America (so plenty of supply without political worries), is less expensive than the equivalent amount of oil (in respect of energy value) and is increasingly being used in new and more energy efficient buildings. Cars can be converted to run on it too.

If it's coal v natural gas, natural gas wins hands down.

Jul 15 08:41 AM

[A Barrel Full:]

Correction, Natural Gas SHOULD win hands down. But thats not the way lobbying works is it.


On Jul 15 08:41 AM AndrewBaker wrote:

> Natural gas is a green fuel, is in abundance in North America (so
> plenty of supply without political worries), is less expensive than
> the equivalent amount of oil (in respect of energy value) and is
> increasingly being used in new and more energy efficient buildings.
> Cars can be converted to run on it too.
>
> If it's coal v natural gas, natural gas wins hands down.

Jul 15 08:51 AM

[Ferdinand E...:]

You say that utilities have a solid reason for favoring coal, which is correct. The reason is price or potential price, but not necessarily if environmental charges are added. Of course, the energy content of coal reserves assures that this resource cannot be ignored.

Jul 15 08:54 AM

[Trane250:]

Natural gas ain't as clean as its proponents claim. Any time that you burn fuel at a high temperature as in a gas turbine, you produce not only CO2 but also oxides of nitrogen (NOX), carbon monoxide (CO) and volatile organic compounds (VOCs). In the most advanced coal burning power plants, fluidized beds and selective catalytic converters using anhydrous ammonia control the production and release of these pollutants. In a gas turbine power plant, these pollutants are just discharged into the air without treatment.

Jul 15 09:05 AM

[skrangeo:]

Let's not get ahead of ourselves. I mean, coal vs. natural gas. We're not even comparing apples to apples. On one side, you have a fossil fuel. On the other....uh...

"TOM BROKAW: Oh, it’s what, between 100 and $200,000.

REP. NANCY PELOSI: No, no, it was between 50 and $100,000, and it’s part of an, you know, entrepreneurial package. This is the package we sign up for, this is what they invest in. But that’s not the point. I’m, I’m, I’m investing in something I believe in. I believe in natural gas as a clean, cheap alternative to fossil fuels."

Jul 15 09:20 AM

[john s. gordon:]

i agree it is possible to maladjust a methane burner to produce NOx, i;ve seen it done.
all right trane how do you get VOC's out of methane?
> jack

Jul 15 09:49 AM

[GMiki1:]

Both coal and nat gas will be needed, in addition to oil. At some point the realization will hit. As for cap and trade--sounds bad to me from all points of view. Raises the price of housing (energy efficient certification) and food (bovine gas tax) as well as traditional forms of energy. Not a good time for this.

Jul 15 11:17 AM

[Joe H.:]

It's a Gas! Down with Cap& Tax!

Jul 15 11:48 AM

[Elliott:]

Coal can lobby until the cows come home but that doesn't change the basic fact that nat gas is more economical than coal, especially when nat gas is under $6. That's why multiple utilities are converting power plants from coal to gas. Gas has a lower heat rate (fewer btu's needed per kWh of electricity generated). It's cheaper to transport gas by pipe than a bunch of coal by train. For the last 18 months coal has been losing this battle -- utilities have been voting with their feet and switching to gas just on economics. Even if coal wins some GHG cap'n'trade concessions it may not be enough to wrestle market share away from nat gas.

Jul 15 01:13 PM

[Trane250:]

Methane is a VOC. Gas turbines require constant lubrication with oils and other substances containing benzene and a variety of other organic compounds. These substances burn off the bearing surfaces and are released into the exhaust.


On Jul 15 09:49 AM john s. gordon wrote:

> i agree it is possible to maladjust a methane burner to produce NOx,
> i;ve seen it done.
> all right trane how do you get VOC's out of methane?

Jul 15 05:32 PM

[DirtSimple:]

All fuels produce CO2, NOx, CO, SO2 (if sulfur is in fuel), H2O and other compounds when burned. Chemical composition of the fuel determines what the products of combustion will be when the fuel is oxidized. Combustion is the release of energy when the fuel is combined with oxygen in the oxidation process. The primary components of the fuel, typically C & H, combine with O to form CO2 and H2O, the major constituents in exhaust gas, along with the nitrogen that was in the combustion air.. This happens whether it's a gas turbine or a coal boiler. Both simple and combined cycle gas turbines use advanced combustors and post combustion catalytic clean-up to control NOx and CO just as the coal plants do. Coal has more C in the fuel and thus has higher CO2 emission than gas fuel. Gas turbine exhaust is always cleaner than a coal plant exhaust. Coal is cheaper, but it normally has many other trace elements in it such as mercury and lead that are problematic. Gas turbine combined cycles are roughly twice as efficient as coal fired steam plants, so when you combine that with the fact that gas fuel has lower carbon content than coal, the overall environmental impact from the gas turbine plant is always lower than that of a coal plant.

Re VOC's = Volatile Organic Compounds, These are usually understood to be higher order hydrocarbons, and are usually specified as being non-methane and non-ethane compounds. Methane and ethane are the two primary components in natural gas. Higher order complex hydrocarbons that survive the combustion process (C & H molecules that did not oxidize in the combustion process) are exhausted with the other combustion products. This happens in both coal boilers and in gas turbine combustion processes. (Trane250 - It has nothing to do with lube oil. If lube oil is burning off of the bearing surfaces, there is a big equipment problem, and the unit either is about to, or already has, tripped off-line.)

So, after all that ,,,, what is it, coal or gas???

IMHO - 50+% of our generating base using coal isn't going to disappear overnight. Gas fired simple and combined cycle is the only current available solution to meet short term load growth needs, especially if/when the economy picks up. Alternatives will continue to develop, but when the price of alternatives and CAP & TAX are in full swing, the consumer will start to wake up to what's happening when he gets the bill. (BTW - did you know that every MW of wind or any intermittent renewable generation requires a dispatchable back up source for reliability, usually gas fired GT these days?) I don't expect coal to drop long term, and it should see support in the export market as well, if not at home. The opportunity I'm watching for is signs of recovery, then go long gas. And, if GE ever dumps its financial arm, I'm all over that one! Even more if it dumps NBC too.

Disclosure - no positions in either coal or gas at the moment, Retired GE.

Jul 15 09:32 PM