World Coal Investment Opportunities
It's not that I'm a huge fan of coal-fired power generation.
In fact, when faced with the choice between coal or any other form of power generation, I'll always choose the latter.
But no matter how you slice it, many of the conveniences we take for granted today exist because of a very “coal-centric” energy mix...
From powering our lights to fueling the systems that allowed this nation to produce steel to build bridges, trucks and ships, coal has served an extremely valuable purpose that helped elevate this nation — and the world — to a higher, more evolved way of living and doing business. That can never be taken away, nor can it be trivialized.
But the world is not static. As a global community, we change, evolve, and adapt to new challenges and demands. And while there are still plenty of old-school coal bosses who still think it's alright to chop the tops off of mountains... and there are still dirty politicians whose careers still live and die by how much coal money they shove into their campaign coffers...
The days of King Coal running the show in the United States are over.
Cheap natural gas, stricter emissions regulations, the rapid reduction in renewable energy production costs are slowly chipping away at coal's market share here in the U.S.
But on the world stage — well, that's a different story entirely...
The Coal Business is Booming!
A few weeks ago, a new study from the World Resources Institute indicated that there are currently about 1,200 new coal-fired power plants in pre-construction phases in 59 different countries.
China and India are the most aggressive, with 363 projects and 455 projects, respectively. It should be noted that on an “installed capacity” basis, China actually comes out ahead with about 558,000 megawatts — and that's just “proposed” plants, not including what's already in place and operational.
My friends, if there's ever been any concern about “peak coal,” China will expedite the whole thing.
Of course, that's just China. India, Russia, Turkey, Vietnam, and South Africa also have more than 661,000 megawatts proposed in addition to what China has on the books.
Believe me when I tell you with this kind of demand (and these are just six of 59 different countries gearing up to add more coal-fired power), anyone who thinks coal is dead is delusional.
Five Coal Realities
As an energy investor, here are a five important things you need to know about coal:
In 2010 China accounted for 46% of global coal consumption; the United States consumed 13%; India consumed 9%.
Of the 1,200 new coal-fired power plants proposed, totaling an installed capacity of 1,401,278 megawatts, 76% will be built in China and India.
New coal-fired power plants have been proposed in ten countries where there is limited or no capacity for domestic coal production. These countries include Cambodia, Dominican Republic, Guatemala, Laos, Morocco, Namibia, Oman, Senegal, Sri Lanka, and Uzbekistan.
Most of the new proposed coal-fired plants will be facilitated by state-owned power companies, particularly in countries like China, Turkey, Indonesia, Vietnam, South Africa, and the Czech Republic.
Due to a growing market in the East, Australia is expected to increase new mine and new port capacity by up to 900 million tonnes per annum. That's three times its current coal export capacity. And rest assured, the U.S. is also in the process of rapidly expanding its ability to export more of our coal bounty.
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This Ain't Chump Change
According to the Energy Information Administration, the United States is now on track to ship a record amount of coal overseas — so much, in fact, that these exports will surpass a previous all-time high set all the way back in 1981.
And despite continued opposition in port towns on the West Coast, I'm quite confident the five currently proposed ports designed to send U.S. coal to Asia will be built.
Bottom line: Between the unions and the lawmakers, the jobs and tax revenue that will be generated by these ports are just too much to ignore. We're talking about as much as $11 million in tax revenue and 1,250 permanent jobs. These days, that ain't chump change.
Of course, I don't have a crystal ball. And nothing's 100% for certain. But here's what I do know...
One way or another, more and more U.S. coal will be shipped and ultimately consumed in Asia. You can count on that. And it's going to be the railroads getting it to the ports.
I remain bullish on these rail outfits over the long term and also believe the coal business will do just fine... better than fine, actually.
Don't forget the Bureau of Land Management (BLM) still holds auctions where bidders get access to these coal resources for peanuts.
In fact, it wasn't long ago that Peabody Energy picked up a tract of land from the BLM for what equated to $1.11 per ton. It's not unreasonable to expect that Peabody can turn around and sell that coal to China for as much as $100 per ton. That's a pretty sweet deal.
Of course, some argue that cheap access afforded to these companies by the BLM is nothing more than another subsidy that costs taxpayers billions.
Energy analyst Tom Sanzillo actually released some data that indicated the BLM's leasing process has amounted to a $28.9 billion subsidy to the coal industry over the course of three decades.
Energy writer David Roberts summed up the whole thing by writing:
... You, the U.S. taxpayer, just leased another huge chunk of your land to Peabody Coal at $1.11 per ton of coal. Peabody will strip-mine that land and take the coal to China, where it will sell it for over $100 per ton. Peabody pockets enormous profits, the U.S. taxpayer gets devastated land, and China accelerates global warming. And it's all being pushed through by the Obama administration.
Of course, you may or may not disagree with all this. That's for you to decide.
But here's one thing I think we can all agree on: There will continue to be opportunities for investors in the coal game.
You just have to know how and when to play them. And early next year, we're going to have a new report for you that will outline the whole thing.
There's no way we're going to sleep on these profits.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor''s page.