Robin Hood In Australia

"Australia's biggest mining companies Monday raised the stakes in the heated battle with the government over a planned new tax, warning that the proposal had already damaged the nation's reputation and accusing the government of misrepresentations. ... Fellow miner BHP Billiton Ltd. attacked the government for what it said were misrepresentations about the tax rate it pays on its Australian operations. ... Mr. [Tom] Albanese reiterated that Rio Tinto is carrying out reviews of all of its planned capital investments in Australia in light of the planned tax, and said the proposal had damaged Australia's reputation as a place to invest. ... The proposed levy would see companies taxed at a rate of 40% on profits above a rate of return in line with the long-term government bond rate of about 6%. ... If the tax had been enacted a decade ago, Mr. Albanese said companies such as Rio Tinto wouldn't have made the heavy capital investment in businesses like its iron ore operation in the Pilbara region of Western Australia state and the nation would have been poorer as a result", my emphasis, Alex Wilson at the WSJ, 25 May 2010, link:

http://online.wsj.com/article/SB10001424052748704226004575263203385448426.html.

"Wayne ... Swan said miners are effectively 'arguing that a government cannot change its pricing arrangements. It is the equivalent of the steel mills saying to the companies that they can't put up the price of iron ore. It has to stay the same for 40 years. That is nonsense. ... Swan rejected media reports that a visit to China later this week is intended to reassure Chinese steel makers that the proposed tax won't lead to higher commodities prices", Rachel Pannett at the WSJ, June 2010, link: http://online.wsj.com/article/SB10001424052748704875604575280444005329232.html.

"Swiss mining company Xstrata PLC on Thursday said it would stop development of two major projects in Australia, saying neither will be viable under the government's proposed resources tax. ... In its announcement Thursday, Xstrata said it will stop development of its A$6 biillion Wandoan thermal coal project and its A$600 million Ernest Henry underground copper project. The move follows Xstrata's decision in early May to also suspend a A$30 million three-year copper exploration program. ... Prime Minister Kevin Rudd cast doubts on Xstrata's move, saying it was strange that the company should stop spending on Wandoan when the legislation covering the new tax won't be drafted for 12 months and it won't come into effect for two years. ... The tax targets profits, not production. ... 'The resoruce super-profits tax has created significant uncertainty for the future of mining insvetment into Australia and would impair the value of previosuly approved projects and exploration to the point that continued investment can no longer be justified,' Xstrata Chief Executive Mick Davis said", my emphasis, Ray Brindal at the WSJ, 4 June 2010, link: http://online.wsj.com/article/SB10001424052748703561604575283461667881540.html.

"'The Australian people own those resources, and they deserve a fairer share of those resources,' said Kevin Rudd, prime minister, in a television interview", William MacNamara at the FT, 4 June 2010.

"'The impact of the tax eliminates the net present value of the Wandoan coal project almost entirely and substantially reduces the value of the Ernest Henry underground shaft project,' Mr. Davis said", Peter Smith at the FT, 4 June 2010.

Will Australia return 40% of a company's deficiency if an investment yields less than 6%? We note Australia wants to change taxes on existing investments. Does Australia's government believe mining ventures, 95% of which fail to find an economic orebody, are government bonds? Or are Australian government bonds as risky as mining ventures? Of course the investments wouldn't have been made. When Rio did its IRR calculations ten years ago, it assumed existing tax rates. If Rio had assumed a higher tax rate, its projected after-tax cash flows would have been smaller. What's not to understand? A substantial amount of ore in Australia will become "extra-marginal" if this tax goes through. In addition, the hurdle rate for all investments in Australia will increase as a result of "tax uncertainty". But "the ore belongs to the people". It did until Australia leased the land. See my 28 March 2008 post: http://skepticaltexascpa.blogspot.com/2008/03/stripper-well-economics.html. This proposed tax reminds me of 1980's "Windfall Profits Tax" which failed to produce the revenues Jimmy Carter & Co. projected, link:http://en.wikipedia.org/wiki/Windfall_profits_tax.

I reject Swan's argument. If one has a long-term supply contract at a fixed price, that's it. The price is fixed. If one forms a partnership, he also agrees to a profit division. Over the long run as mining investments decrease, the new tax will cause some increase in commodities prices.

Is Rudd really this stupid? Suppose Xstrata did an IRR calculation on a project which its expects to have cash flows for the next 25 years. If the new tax comes into effect in two years, it will reduce the project's cash flows in years 3-25. What's strange Rudd? The change in projections is made now. Henry, raise your own army. See my 21 March 2010 post:

http://skepticaltexascpa.blogspot.com/2010//03/whose-reserves.html.

Rudd ignores Australia's agreeing to its cut when the resource projects started. Australia and the miners made a deal. Stick with it. See my 12 June 2010 post:

http://skepticaltexascpa.blogspot.com/2010/06/magic-words.html.

Net present value? Have you ever heard of the term Rudd?

Nationalization, Aussie Style

"Australia's government plans to reap billions of additional dollars in tax from the country's booming resource industry and use the extra revenue to cut corporate taxes to a more globally competitive level and offer more-generous tax concession for smaller companies. ... The move to capture a bigger share of mining-company profits triggered an outcry from the resource industry, which argues that the plan puts more than 100 billion Australian dollars (US$92.55 billion) in future investment in the mineral industry 'under a cloud'. ... Australia has the world's largest reserves of brown coal, lead, mineral sands, nickel, silver, uranium and zinc--as well as the second-largest global reserves of iron ore, highly sought after by developing countries such as China", Rachel Pannett at the WSJ, 3 May 2010, link:

http://online.wsj.com/article/SB10001424052748704608104575219400863016496.html.

"Feeling like it missed out the last time around, Australia wants its piece of the next commodities' bull market.The government is pitching a Resource Super Profits Tax on mining profits. This is part of an overhaul targeting the 'proceeds of the next mineral boom,' for the broader economy. For example, nonmining corporate taxes will fall", Mohammad Hadi and Alex Wilson at the WSJ, 4 May 2010, link: http://online.wsj.com/article/SB10001424052748704342604575221700829646686.html.

It doesn't matter which government. In one repect they are all the same: they change the rules after the fact to your detriment. You who made Roth IRA conversions, take note.

Australia missed out? Did it "invest" in the minerals industry with public funds to develop mines and oil wells within Australia?

Cheap Natural Gas-2?

"'Nobody was talking about $3 gas a year ago,' said James Daly, director of gas and energy supply for Nstar, the utility formerly known as Boston Edison. ... For more than a century, the US has relied on coal to produce the biggest share of its electricity. Coal now accounts for about half of the nation's electricity, compared with about 21% from natural gas. ... This isn't the first time the power industry has embraced natural gas. In the late 1990s, as states deregulated their electricity markets, a new breed of so-called merchant generators built scores of gas-fired plants, ecouraged by rosy supply forecasts and easy borrowing. ... New natural-gas discoveries, however, in Texas, Lousiana, Pennsylvania and elsewhere, have created a gas glut that analysts expect to linger. Energy consulting firm Wood Mackenzie predicts gas prices won't recover until 2015. ... 'We're pulling back the coal throttle,' said Ted Carver, chief executive of Edison International, Rosemead, Calif., which owns several coal-fired plants that sell power on the open market. ... 'There basically is no spot market for coal right now,' adds Jim Thompson, managing editor of the Coal and Energy Price Report in Knoxville, Tenn., a coal-industry newsletter. 'Coal companies are living off their utility contracts'," my emphasis, Rebecca Smith and Ben Casselman at the WSJ, 15 June 2009, link: http://online.wsj.com/article/SB124502125590313729.html.

Coal and natural gas both look cheap to me. Disclosure: I own shares of companies in both industries.

Lazarus Nukes?

"UniStar Nuclear Energy, NRG Energy Inc., Scana Corp and Southern Co. are expected to share a set of loan guarantees to be awarded by the Energy Department. The guarantees would enable the companies to start building the reactors as early as 2011, with the plants likely to come online by 2015 or 2016. ... Seventeen companies applied for $122 billion of federal loan guarantees for 21 proposed reactors. ... The likely launch of the next generation of nuclear reactors--a move in the making for at least a decade--has big implications for the economy and the environment. Expanding the use of nuclear power has the potential to make a significant dent in emissions of carbon dioxide, the most commonly produced greenhouse gas. And Energy Secretary Stephen Chu has made nuclear power an agency priority. ... Facing community resistance, ballooning costs and complaints about a looming radioactive-waste problem, power companies didn't file applications for new plants for more than 25 years", Rebecca Smith at the WSJ, 17 June 2009, link: http://online.wsj.com/article/SB124519618224221033.html.

The potential return of nuclear power to the US also bodes well for uranium's price. Disclosure: I hold some uranium exploration company shares.

Cheap Coal?

"Every year, federal employee George Warholic calculates America's vast coal reserves the same way his predecessors have for decades: He looks up the prior year's coal-reserve estimate, subtracts the year's nationwide production and arrives at a new official tally. ... But the estimate, recent findings show, may be widely overconfident. ... Last year, the US Geological Survey completed an extensive analysis of Wyoming's Gilette coal field, the nation's largest and most productive, and determined that less than 6% of the coal in its biggest fields could be mined profitably, even at prices higher than today's. ... David Rutledge, an electrical-engineering professor at the California Institute of Technology who has studied global coal production, figures the US has about half as much recoverable reserves as the government says, which would work out to about 120 years' worth. ... By adding an economic component, the study broke ground. Jim Luppens, an industry veteran who is now chief of the coal-assessment project for the USGS, says policy makers often confuse the total coal resource--which he describes as the 'blood, guts and feathers' number--with coal reserves, which he likens to the edible meat. 'They mix up the R-words,' he says. ... Based on consumption [in 1907], the USGS concluded there were three trillion tons of coal, enough to last 5,000 years. By the 1950s, armed with more mining data, the USGS and the now-defunct US Bureau of Mines reduced their estimate of the total resource to 500 billion tons", my emphasis, Rebecca Smith at the WSJ, 8 June 2009, link: http://online.wsj.com/article/SB124414770220386457.html.

Amazing, Uncle Sam discovers coal mining has real costs. Therefore coal "reserves" are a function of coal's price and the relevant mining costs.

Oil Investments

"When crude hit $70 a barrel, Canada's oil sands became alluring. At $80, wind energy was profitable. And at $100-plus, even pricey plans to turn coal into gasoline came within reach. ... So far, companies aren't cutting major ongoing projects with oil under $50 amid a growing global recession and sharply shrunken demand. But increasingly they're postponing final investment decisions--the point at which contracts get signed, contractors are hired, and money is committed--at least until the lofty costs of doing business mirror crude's fall. ... George Kirkland, Chevron's executive vice president of global upstream and gas, ... 'For a period, oil prices went up faster than the costs of goods and services. But that's turned, it's definitely turned,' he said. 'And it's got to turn back.' ... According to Simmons & Company International, total exploration and production spending this year will exceeed $380 billion, including available figures from government-run oil companies as well as publicly traded producers. ... 'If we see oil sustained at $50 or $60, you will see more new projects delayed, especially in high-risk environments like deep water and unconcentionals like oil sands,' said Gary Adams, vice chairman of Deloitte's oil and gas group", Kristen Hays at the Houston Chronicle, 14 December 2008.

Until oil prices rise, investment in these projects will lag. Oil and gas and the related stocks look cheap to me.

Obama on Oil

"Barack Obama received many ovations during his acceptance speech at the Democratic convention in Denver. Perhaps the most enthusiastic applause from the crowd of 84,000 came after the senator from Illinois declared: 'And for the sake of our economy, our security and the future of our planet, I will set a clear goal as president: In 10 years, we will finally end our dependence on oil from the Middle East.' ... But we retain a quaint notion that reality should be in the same room during discussions of the world's single most important commodity. And embracing energy reality requires looking closely at the numbers. If you assume a fleet of electric power plants operating with 30 percent efficiency, replacing [6.1 million barrels of OPEC crude daily], would require about 1.4 million megawatts of electric power capacity. ... That's a huge amount of production capability, particularly when you consider that the entire U.S. power grid has about 986,000 megawatts of capacity. Thus, if Obama wants to replace OPEC supplies with electric cars, then, in just 10 years, he plans to: a) more than double America's existing power production capacity; and b) overhaul the power grid so that millions of cars can be recharged without causing blackouts. .. We're in favor of solar. So what would it take to replace OPEC oil if Obama wanted to just use electric cars supplied by solar power? If you assume a conversion efficiency of 12 percent, the [US] would need about 3.5 million megawatts of installed solar capacity, That's more than three times the existing electric capacity in the country. It also translates into about 35.5 million acres of solar collectors, or an area the size of the state of Illinois. ... So let's take a modest approach and assume that Obama wants to use cellulosic ethanol to replace the 2.5 million barrels of oil per day that come from the Persian Gulf. That would mean creating a domestic industry capable of producing 38.3 billion gallons of motor fuel per year. Sound's reasonable, right? Not so fast. ... Remember that ethanol's energy content is only about two-third's that of gasoline. So to produce the energy equivalent of 38.3 billion gallons of conventional motor fuel, the [US] would actually need to produce about 49.7 billion gallons of celluslosic ethanol per year. ... Obviously, there's disconnect between the Democratic nominee's rhetoric and the hard realities of the energy world, a business that runs on numbers, not vague promises about 'change.' In July alone, Obama's campaign raised some $51 million. Perhaps someone on his campaign should buy the candidate a calculator", my emphasis, Robert Bryce and Michael Economides (B&E) at the Houston Chronicle, 7 September 2008. Here's a link: http://www.chron.com/disp/story.mpl/editorial/outlook/5986462.html.

"To find anything comparable to crowds' euphoric reactions to Obama, you would have to go back to old newsreels of German crowds in the 1930s, with their adulation of their fuehrer, Adolpf Hitler. With hindsight, we can look back on those people with pity, knowing how many of them would be led to their deaths by the man they idolized. ... A leader does not have to be evil to lead a country into catastrophe. Inexperience and incompetence can create very similar results, perhaps even faster in a nuclear age, when even 'a small country'--as Senator Obama called Iran--can wreak havoc anywhere in the world, when they are led by suicidal fanatics and supply nuclear weapons to terrorists who are likewise suicidal fanatics. Barack Obama is truly a phenomenon of our time--a presidential candidate who cannot cite a single serious accomplishment in his entire careeer, besides advancing his own career with rhetoric. He has a rhetorical answer for everything. ... Those who studied the years leading up to World War II have been astonished by how many people and how many countries failed to see what Adolf Hitler was getting ready to do. Will future generations wonder why we slept? ... Yet what are we talking about? Taxing and spending policies, socking it to the oil companies and rescuing people who gambled on risky mortgages and lost. Are we serious? Are we incapable of adult foresight and adult responsibility? ... But what does Obama have besides talk--and adoring crowds?," Thomas Sowell (TS) at nationalreview.com, 16 September 2008.

Numbers? Call a CPA. Blackouts, how dare you? Racist! Why not? There's a movement afoot in Dallas to rename "black holes" since the name is racist. I kid you not. We should not expect more from Obama, a man who is "as non-scientific as the most muddled philospher", see my 22 December 2007 post, http://skepticaltexascpa.blogspot.com/2007/12/us-injustice-system-at-work.html.

Indeed, TS, what else does Obama have?

Natural Gas Flows

"A $3.3 billion joint-venture deal between Chesapeake Energy Corp, and Plains Petroleum & Production Co. is the latest sign that a long-obscure swath of north Louisiana and east Texas is emerging as the country's hottest area for natural-gas exploration. ... Chesapeake ... has said its leases could produce as much as 44 trillion cubic feet of natural gas--nearly twice what the entire U.S. consumed last year. ... The agreement with Plains values Chesapeake's Haynesville territory at $30,000 per acre, more than six times what the company paid. ... But the area's natural-gas potential was almost completely unknown until March, when Petrohawk Energy Corp. discussed it at an analayst conference. ... On Monday, Petrohawk said its first horizontal well in the Haynesville field was producing nearly 17 million cubic feet of natural gas a day, and Chesapeake on Wednesday said it expects its wells to produce an average of 4.5 to 8.5 billion cubic feet over their lifetimes. ... Discovery of the Haynesville field is the latest in a series of developments that have remade the U.S. natural-gas industry in recent years. Higher prices and new technologies have allowed companies to extract gas from dense rocks called shales, a process considered too difficult and expensive until a few years ago", Ben Casselman at the WSJ, 3 July 2008.

I wish Chesapeake, Petrohawk, Plains and any other oil & gas company that drills in Haynesville good luck. We can use the gas. As prices rise all sorts of new techonologies will become economically feasible in the extractive industries.

Oil Shale

"By some estimates, U.S. oil-shale reserves could yield 800 billion barrels of oil, triple the proven reserves of Saudi Arabia. ... Oil shale's fortunes have risen and fallen before. Interest spiked in the 1920s, the 1950s and the 1970s as high oil prices made oil shale's challenges seem worth trying to overcome. When prices fell, the investments dried up. ... Industry leaders argue that the price collapses that undermined previous efforts won't be repeated this time because of rising demand for oil from India and China and the increasing difficulty of finding new supplies. ... 'We can technically put a man on Jupiter,' says Houston investment banker Matthew Simmons, a well-known proponent of the theory that global oil production may have already peaked. 'Being technically practical and technically possible are two very different things.' ... But Shell's process is complicated. The company plans to insert electric heaters hundreds of feet into the ground to heat the oil shale to between 650 degrees and 700 degrees for more more than two years. ... 'We understand there are skeptics,' says Shell Vice President Terry O'Connnor. The company says it won't decide whether its project is commerically feasible until the middle of the next decade. ... ", Ben Casselman at the WSJ, 18 July 2008.

Oil shale is like uranium, subject to a high oil price to make its economically feasible. I wish Shell good luck with its "in situ" process.

Mining Difficulties

"The world's major mining companies are operating with little slack in their production systems, making them vulnerable to interruptions and their customers subject to price spikes. ... 'We are in a period of extreme scarcity, which is uncomfortable,' says Marius Kloppers, chief executive of officer of BHP Billiton Ltd., the world's larget miner. 'Prices have risen basically because supply and demand is so tight.' This week, a strike in Peru is the latest threat to constrain the supply of copper, which alrady has been at record-high prices this year. ... 'This is an example of the tight-supply challenge; everything stays tight means everything is more vulnerable,' says Tom Albanese, CEO of Rio Tinto PLC, the world's third-largest miner. 'We should expect short-term supply shocks, because these supply chains are being driven by a range of complex issues.' ... Already, mines are battling longer-than-ever lead times to get equipment", my emphasis, WSJ, 13 June 2008.

"U.S. coal producers have been largely unable to meet growing demand because of a lengthy permitting process, lack of capital investment and a shortage of skilled miners, which will keep supplies tight and prices high. ... Paul Forward, a coal analyst with Stifel, Nicolaus & Co., expects demand for coal in the U.S. to outstrip supply this year by 15 million tons, in large part because of the increase in exports, which shot up 49% through April compared with last year. ... Up to 40 million tons of potential and anticipated coal production is being held back because of delays in obtaining environmental permits and new safety regulations, estimates David Khani, director of research at FBR Capital Markets Inc. in Arlington, Va. ... The spot price of Central Appalachian coal sold to both utilities and steelmakers has tripled in the past year. ... Industry officials say high operating costs are deterring small operators from opening mines to take advantage of high prices and help relieve supply constraints", Kris Maher (KM) at the WSJ, 24 June 2008.

Connie Yu, are you listening? Steve Waldman has a fine 25 June 2008 post at Interfluidity discussing oil prices and "Convenience Yield", www.interfluidity.com/posts/1214354098.shtml. Part of the oil price "mystery" is found here, real world "unabitrageable" problems. See also my 23 July 2007 post on just-in-time inventory.

KM, it would have been useful to tell us if the 40 million tons would be extracted over a number of years, or if you meant 40 million tons a year. Congress should look at this. Coal, like oil, does not just come out of the ground when one snaps his fingers, even if one is say, Nancy Pelosi.

King Coal Returns, to Japan?

"But after decades of seemingly terminal decline, Japan's coal country is stirring again. With energy prices reaching record highs--oil settled above $135 a barrel on Thursday--Japan's high-cost mines are suddenly competitive again, and demand for their coal is booming. Production has jumped to its highest in nearly four decades, creating a sensation rarely felt in these mining communities. ... While Japan's coal industry remains tiny, its revival is an example of how higher commodity prices are driving a search for resources even in some of the world's most urbanized and developed nations. In recent months, South Korea has experienced calls to create a domestic coal industry in order to reduce dependence on imports. ... For example, in Bibai, the city's last two mines, produced just 34,961 tons of coal in 2005. This year, they expect to surpass 150,000 tons, the highest production since 1973, when the city's last underground mine was shutting down. ... But the industry's long decline has made it difficult to gear up. There are almost no geologists left in Japan specializing in coal, or recent surveys of the region. ... Japan's coal industry needs cheering up: nationwide, production is down from its peak in 1961 when 662 mines yielded 55 million tons of coal. Last year, eight mines produced about 1.4 million tons, according to [Hirofuni] Furukawa [of the Japan Coal Center] and Japan's economy ministry. ... Many residents [of Bibai] doubt a real renaissance is even possible", http://www.nytimes.com/, 22 May 2008.

Ah ye of little faith. See my 2 November 2007 and 19 Janaury, 4 February, 4 and 28 March 2008 posts. Connie Yu, are you listening?

Oil Costs and the Price System-2

"More than 70% of energy companies expect their future operations to be hit by shortages of skilled personnel, according to a survey commissioned by the London-based Energy Institute. ... 'The risk of future serious shortages in science, engineering and technical skills has emerged, exacerbated by increasing global demand, large-scale downsizing leading to lack of recruitment into the energy sector during the 1980s, and a large section of the work force rapidly approaching retirement.' the report accompanying the survey said. ... The report said it is vital for the industry to raise its profile and convince young people that it offers exciting long-term careers", WSJ, 20 February 2008.

Long-term careers? Really? I'm sure most college kids considering an energy sector career spoke to their elders and were told how cyclical the industry is and that it offers little job stability. What will the companies looking to hire kids offer them? Pensions when they retire, which will never be paid? See also my 24 December 2007 post.

Coal and China

"China is doing for coal what it once did for oil: pushing prices to new highs, adding more pressure to the creaking global economy. ... China's need for coal is rising as other factors around the world are putting severe strain on supply for the fossil fuel. ... Demand is rising quickly elsewhere. Japan ... is burning even more coal since an earthquake damaged a nuclear reactor last year. ... Indonesia has been moving over the past year or so to divert more of its coal stores to domestic use, as the coal industry there has been depleting its higher-quality coal reserves. ... The China-driven coal boom has pushed up wages and created more jobs for U.S. miners as well as port and rail workers--a twist on recent trends moving industrial jobs from the U.S. to China. ... Chinese coal demand grew nearly 9% last year, raising its share to a quarter of the world's consumption. ... Coal was assumed by many in the energy industry to be immune to worries about the stability of supply that have helped push oil to record highs. ... Beijing began closing coal mines in 2005 to address a horrific safety record. ... But China was also adding hundreds of new coal-fired power stations", WSJ, 12 February 2008.

The US economy is coming to more closely resemble that of a third world country daily as agricultural products and natural resources are among the few things the US is capable of exporting.

Another Uranium Boom?

"It was the second boom for the central New Mexico town's uranium industry that started when a Navaho sheepherder, Paddy Martinez, picked up a bright yellow rock in 1950. ... With the price of uranium at $90 to $100 per pound--after a low in 2003 of $7 a pound--Grants is anticipating good economic times ahead. ... Other Grants residents say they've learned from the last boom-bust cycles. This time, things will be different, [Star] Gonzalez said", Houston Chronicle, 3 February 2008.

Yes, they will. The uranium boom is in part, another manifestation of the dollar bear market. Let's ask Goldman Sach's Jeffrey Currie what he thinks. As for things being different, I agree. I think uranium is going higher. At least in dollar terms.

Coal Shortages?

China is facing widespread, temporary power shortages that could affect global energy markets if they aren't resolved soon. The shortages stem from a number of factors, but at their core is a pricing and distribution system that is having trouble keeping up with the country's rising demand for electricity. ... It is unclear how bad this year's power shortages will be. But this time there is an additional worry: China is becoming a big coal importer. The world's biggest consumer and producer of coal, China relies on coal for 78% of its electricity. ... Starting in 2006, coal prices were liberalized, allowing them to rise 10% each year after. But at the same time, electricity tarriffs have been kept flat or lowered by government officials worried about inflation and social unrest if prices rise too high", WSJ, 24 January 2008.

"Mining giant BHP Billiton said it won't be able to meet its commitments to ship Australian-mined coal used for steel, potentially putting further upward pressure on steel prices", WSJ, 25 January 2008.

Coal demand looks insatiable for the time being. Given that China has power shortages, I expect coal prices to rise worldwide.

Coal in Asia

"Vast coal reserves in Asia are gaining attention as major energy consumers such as China and India grapple with the reality of oil prices around $100 a barrel and the risks they pose to their economies. ... Coal prices would have to rise nearly fivefold to match current oil prices on a unit-of-energy basis, [Jim Brock of Cambridge Energy Research Associates] said, and the difference between the cost of the commodities is 'actually widening'. ... Asia has a third of the world's proven coal reserves, which stood at 909.06 billion metric tons", WSJ, 4 January 2008.

Either oil will fall, or coal will rise in price.