(Wall Street Daily, May 16) – Many investors are operating under the assumption that President Obama’s so-called “War on Coal” has ended coal’s reign as a primary source of energy around the world.
Indeed, coal energy faces increasing regulation domestically, and its use in the United States is declining. Coal now generates only 39% of electric power in our country, versus 55% in 1990.
Outside the United Sates, however, the very cheapness of coal has only added to its reach.
Of course, I’m talking specifically about thermal coal.
Thanks to a surplus in supply, its global price recently fell to less than $75 per ton – versus nearly $200 per ton in mid-2008.
And that has set off a chain reaction around the globe…
U.S. Coal Export Boom
Some of that global excess coal is coming right from the United States, which benefits U.S. coal producers.
U.S. thermal coal is offered as low as $65 per ton, which has proven to be just too cheap to resist.
Indeed, U.S. coal exports this year are expected to exceed 100 million tons (mt) for the third consecutive year – a record run.
Our coal is finding a home all over the globe – including Europe…
The European Union imported 47.2 mt of U.S. coal in 2013, up from a mere 13.6 mt in 2003. The U.K. alone increased its coal imports from the United States by ten-fold in that time frame. Germany raised its imports of U.S. coal a good bit, too – from 1 mt in 2003 to over 15 mt in 2013.
That made the United States second only to Russia, in terms of coal exports to Europe. And with raised tensions between Russia and Europe, the United States may very well become Europe’s top coal supplier.
Japan’s appetite for coal has increased, too, following the Fukushima disaster. Its coal use jumped by 15% in 2013.
Japan plans to increase its coal-fired power capacity by 21%, to around 47 gigawatts over the next decade. That means Japan, already the world’s second-biggest coal importer, will import even morethermal coal.
That should also boost exports from the United States, considering that Japan was the 10th-largest importer of U.S. coal in 2013.
Coal Investment Opportunities
This boom in U.S. coal exports presents an opportunity for some coal companies poised to take advantage of the situation.
One company to consider is the world’s largest private-sector coal company, Peabody Energy (BTU). It exports coal from Powder River and other U.S. mines to Europe via ports on the Gulf Coast and the Eastern seaboard. Its coal mines in Australia are strategically located near Japan and other lucrative Asian markets, including China and South Korea.
Another company to consider is Alpha Natural Resources (ANR). It recently opened an office in London because of sharply rising demand in Europe for its coal. The company supplied 2.6 mt of thermal coal to Europe last year. Its port capacity is the largest of any U.S. coal producer.
Finally, another coal firm that opened an office in Europe recently isArch Coal (ACI). The company has major coal operations in the Illinois Basin. Its cheap coal has become very popular in Europe.
Bottom line: Coal is not dead. On the contrary, the International Energy Agency (IEA) expects coal to challenge oil for the top spot as the world’s biggest source of energy by 2017. Despite environmental opposition, coal plays a critical role in the global energy mix – and will likely do so for the foreseeable future.