Power Generation is Getting Cheaper – So Why isn’t the Economy Ripping?

Something has been bothering me lately. If all types of energy are falling why isn’t the economy more bullish? Okay Gasoline prices are still $4.00 per gallon. But look at everything else. Coal has been moving lower for over a year. The share of power generation derived from coal has been falling but it still accounts for about 40% of the fuel for power generation. The commodity and price of coal stocks have been falling too. Below is the Market Vectors Coal ETF, $KOL. A clear downtrending channel that shows no signs of moving higher.

Market Vectors Coal ETF, $KOL

The fall off in the use of Coal has been largely due to the rise in the use of Natural Gas. Natural Gas now is used to create over 26% of our power. And it is not hard to figure out why. The cost of the commodity has been making new 10 year lows. The chart below of the United States Natural Gas Fund, $UNG, looks like it is still on a fast track towards zero.

United States Natural Gas Fund, $UNG

These two forms of power generation now account for about 2/3 of all power generated in the US. This has to be helping with input costs in every business. Yet total electricity generation was down about 7% in December from the same month in 2010. Lower demand. I can only conclude that some other large input is causing the slow growth. It is not labor cost rises as that has stalled. It is not raw materials which have also been receding. What else could it be? Anyone in Washington have an idea?

Source: EIA data

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