Market Review Part 3: Coal Will Decline, Regardless of Politics
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Wall Street expectations for coal, oil, and gas as a result of the US pulling out of the Paris Accord.
Market Review Part 3: Coal Will Decline, Regardless of Politics

Nathan Dean: Michael, when Donald Trump announced they were going to pull out of the Paris Accord, I read some reports from energy analysts saying it may not be that big of a deal on the coal industry. Can you give us your outlook of this mentality, and does it have an impact?

Michael Roomberg: There's not a single analyst on Wall Street that's changed, even a rounding error of a number, in relation to their forecast for the expectation for coal, oil, and gas as a result of pulling out of the agreement. I think, to Henry's point, it is more about a global leadership issue.

To speaking to coal, I've said this in the past. At current gas prices, clean coal is a fiction. There's one plant that's being built right now by Southern Company, called the Kemper Plant. And that plant is three years, I'm sorry, six years into a three-year construction project. It's three billion dollars over-budget, and can't make any money at sub-five dollar natural gas prices. Well, natural gas prices haven't been above five dollars in 10 years. So the wisdom of going back in that direction seems pretty misguided, in our opinion.

If you just look from a jobs perspective, a policy perspective, there's three and a half times more people employed in the oil and gas industry than there are in the coal industry. In fact, there's 50,000 people employed in coal. There's about 70,000 employed at Arby's. So the ranking of coal in the continuum of importance is, I think, is probably going to decline. If we think about, most of these things, most of the decisions, are made at the state level. And so, the regulators at the state level all have their own individual objectives, and it's unlikely that they're going to comport with the federal government's policy. But at the end of the day, I think that no investor is going to put a large capital investment that may have a seven to 10 year payback period, simple cash on cash return, in a coal plant when you have an administration that, at its longest, is only going to be here for seven years. So I just don't see that as being a major factor.

© 2018 Miller/Howard Investments.

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DISCLOSURE

Investment products: are not FDIC insured - May lose value - Are not bank guaranteed

Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs and changes to any assumptions may significantly affect the economics of any transaction. The information and analyses contained herein are not intended as tax, legal or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns, past, hypothetical or otherwise, are not indicative of future performance. Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance and investment time horizon.

Past performance does not guarantee future results.