Tuesday, January 5, 2010

2010: A Big Year for Natural Gas?

CONSOL Energy, which is one of the largest coal producers in the U.S., announced yesterday that its board had approved the company's 2010 capital budget and had allocated 40% of the budget to its majority owned subsidiary CNX Gas.  CNX will devote $152 million and add a second rig to drill the Marcellus Shale in 2010.  But I found the comments made by CONSOL's CEO Brett Harvey particularly interesting:
"In looking beyond 2010, I believe that spending on coal will migrate to maintenance of production levels, while gas will likely be the growth vehicle."

"While a lot can happen between now and 2011, I currently envision that coal capital will be lower in 2011, while gas spending will be higher."
CONSOL has its feet in both the coal and gas ponds, so its bets are hedged on the question of coal vs. gas, but the company is better known for coal.  It's interesting to see such bullish comments on natural gas, especially at the expense of coal.

It reminds me of a quote I saw earlier today in a Wall Street Journal article about the Total/CHK deal by natural gas stock analyst David Heikkinen of Tudor, Pickering and Holt: "'There's this vibe that 2010 could be a transformational year' for the energy business." 

Along those same lines, I saw an analyst note that suggested some provisions of the NAT GAS bill in Congress to promote CNG use could end up in a second "jobs bill" to increase U.S. employment that might get passed in early 2010 (paid for with returned TARP money).  As far as I know, this has not been publicly debated, but some of the incentives and tax credits in the NAT GAS bill could accelerate adoption of natural gas as a transportation fuel. 

Malcolm Gladwell popularized the term "tipping point" in his book of the same name.  I'm starting to think 2010 will be the tipping point year for wider acceptance of natural gas as part of the U.S. energy mix.

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