As the debate surrounding energy sources intensifies, Republican leaders are feeling the heat. House Speaker John Boehner has labeled recent environmental initiatives as “nuts”, while Senate Minority Leader Mitch McConnell called it a “lose-lose proposition.”
But what are they actually reacting to? It’s not merely President Obama’s minor blunders, like his gum chewing during the D-Day anniversary in Normandy, France. Instead, it’s a much more significant issue: his administration’s latest efforts to exert control over the energy sector—using taxpayers’ money.
In recent news, Gina McCarthy, the Environmental Protection Agency (EPA) Administrator appointed by Obama, signed a new proposal under the Clean Air Act aimed at reducing greenhouse gas emissions to a third of 2005 levels by 2030. “These new standards are going to help us leave our children a safer and more stable world,” claimed President Obama.
To offer a more humorous perspective, perhaps we should consider countering greenhouse gas effects by launching millions of ice cubes into the ocean and encouraging everyone to crank up their air conditioning. Absurd, right?
Yet, the EPA’s proposal to slash greenhouse gas emissions feels just as impractical, especially as the globe is currently experiencing a cooling trend, rather than warming. It appears that the once-feared global warming narrative has shifted to a more vague “climate change” narrative.
The Ongoing Shift
To achieve the carbon emissions reductions proposed by the EPA, the primary strategy involves diminishing the number of coal-fired power plants. This poses a significant challenge for the coal industry, although it is not entirely new ground for them.
In a previous article, What You Need to Know about What’s Going on with Natural Gas, we highlighted how natural gas is set to account for a larger share of U.S. electricity generation moving forward.
We attributed this trend to two main factors: the new EPA emissions guidelines for coal plants set to take effect in 2015, and advancements in hydraulic fracturing methods that have unlocked vast reserves of affordable natural gas. Clearly, Obama’s campaign against coal has been ongoing for quite some time.
The transition to natural gas for electricity generation is a continuation of a decade-long trend. Over the past ten years, the share of coal in U.S. energy production has dropped from over 50 percent to approximately 37 percent. In contrast, natural gas’s share has surged from 18 percent to 30 percent, and this trend shows no signs of slowing down.
In addition, the fact that natural gas burns much cleaner than coal has changed the landscape of energy production. Not so long ago, extracting gas from shale was considered impractical, but circumstances have shifted dramatically.
Capitalizing on the Shift
According to the U.S. Energy Information Administration, by 2035, shale gas production is projected to reach 13.6 trillion cubic feet, representing nearly half of all U.S. natural gas production. This abundance is expected to keep prices low for the foreseeable future, although other influencing factors exist.
Alongside the shift in domestic electricity generation from coal to natural gas, the increasing availability of affordable natural gas has also opened the doors for export opportunities. The Department of Energy has recently approved several natural gas export permits, with many more applications pending.
This transition towards natural gas exports presents intriguing investment opportunities. While the full impact of Obama’s war on coal on U.S. electricity prices remains uncertain, we anticipate substantial changes as the shift from coal to gas gains momentum.
Our goal is to pinpoint the best investment strategies that can capitalize on these transitions. Recently, we delved into the details and compiled some insights worth considering. If you missed it, you can access a copy here.
In the coming months, we will revisit our findings and explore new insights. Rest assured, we’ll keep you informed of our discoveries.
Best regards,
MN Gordon
for Economic Prism
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