Casey Research: What the Australian floods could do to coal prices

By Marin Katusa, Casey’s Energy Report:

The most important metallurgical coal basin in the world is underwater. Open pits have become lakes, stockpiles are soaked, and rail lines are submerged... and, in places, destroyed. Damage is estimated at $5 to $6 billion.

Australia accounts for almost two-thirds of global coking coal production. Much of it comes from Queensland, where an area the size of France and Germany combined is underwater. That includes the Bowen Basin coal region, which produces almost a third of the world's coking coal. The Bowen Basin was hit with 350 mm of rain in December, against an average of 102 mm.

Floods are now receding from the Bowen, giving some miners an opportunity to ship from existing stockpiles. Other mines are still inaccessible, and several rail lines are still submerged or damaged. And since open pits are still flooded and will take weeks to drain, shipping from stockpiles only postpones the inevitable: a reduction in met coal supply. Analysts think a recovery to pre-flood coal production levels will take at least three months.

At least six major global coal miners have declared force majeure, which means they can miss contractual shipments because of circumstances out of their control. The list includes Anglo American, Aquila Resources, BHP Billiton, Macarthur Coal, Rio Tinto, Vale, and Xstrata. Mines responsible for between 100 and 140 million tons of annual coking coal production are now under force majeure, representing as much as 40% of global supply.

And it's probably not over yet. Australia's Bureau of Meteorology predicts both eastern New South Wales and southeastern Queensland have a 60% to 70% chance of receiving higher-than-average rainfalls between January and March 2011.

What does it mean for coal prices and coal equities?

Read full article...

More on coal:

The easiest way to profit from skyrocketing coal prices

Why the breathtaking rally in coal could be going much, much higher

China will soon be the world's largest importer of this essential energy commodity

View the original article here

Morgan Stanley: Oil prices to surge to $100

From Bloomberg:

Crude oil prices will rise as spare production capacity drops to "untenable levels" by the end of 2012, Morgan Stanley said in a research report.

Spare capacity passed its peak this year and may decline to 4.1 million barrels a day by the end of 2011 from 5.9 million barrels today, Hussein Allidina, an analyst at Morgan Stanley, said in the report today. It could drop to 2.5 million barrels a day by end-2012, he said.

"Tighter, impossible levels of spare capacity are seen from 2013 to 2015," the report said. "With demand relatively inelastic in the short run, we reiterate our view that higher prices will be needed to ration demand."

The bank maintained its end-2010 forecast of $95 a barrel, its 2011 forecast of $100, and 2012 estimate of $105 a barrel. Oil for December delivery traded at $81.83 on the New York Mercantile Exchange at 2:45 p.m. Singapore time.

Non-OPEC production may decline by 380,000 barrels a day in 2011 to 52.2 million barrels, and by a total of 2.2 million through 2015, according to the report. That means OPEC will need to pump more as global demand increases.

"OPEC will increase production prompted by declining inventories," Allidina said. "Although OPEC production capacity grows, contingent on an Iraqi production increase of 1.4 million barrels a day, the 1.5 million OPEC crude production increase envisioned through our forecast horizon is not sufficient to offset non-OPEC declines."

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net.

More on oil:

This U.S. oil giant will be the first to explore Iraq

These American companies are making a fortune from the Iraqi oil boom

OPEC wants to push oil to $100

View the original article here