Coal's Dirty Secret

We’ve got a dirty secret to tell you. Concern is growing that power plants could soon dump coal for nat gas. Why? There are really two issues here.

One is that power plants are facing new regulations concerning clean energy and coal generates huge amounts of carbon dioxide when it burns, which in turn leads to global warming.

And two is the cost of nat gas. It’s plunged to 6-year lows. When nat gas was more expensive, coal was considered a cheap alternative but now that's not the case.

“Nat gas has slipped below $4.40 and at that level it becomes beneficial for power generators to switch,” explains Joe Terranova..

All the traders suspect that both factors could put pressure on the price of coal. What’s the trade?

“I don’t think this is a straight long trade,” says Terranova. Instead he suggests a pairs trade.

"I would get long natural gas producers such as Apache and EOG Resources and short coal,” he suggests.

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Trader disclosure: On Mar. 16th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (GE), (GS), (MS), (SDS), (MOS); Macke Is Short (BRK.b); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Terranova Owns (KCE), (JPM), (X), (POT), (WYNN), (XBI), (HESS), (INTC), (BRCM), (DELL), (JOYG), (FXC), (EOG); Terranova Owns (IBM) & (IBM) Calls; Terranova Owns (DIS) & (DIS) Calls; Terranova Owns (COP) Calls; Terranova Owns (AMGN) & (AMGN) Puts; Terranova Owns MACI Oil Futures; Karabell Owns (BHP), (CSCO), (FCX), (FXI), (GOOG), (GLD), (GE), (JPM)