Trump's Bid to Save Coal Will Kill It Faster
If you didn’t think Trump would actually run for office, you were wrong.
If you didn’t think he would manage to win the presidency, you were painfully wrong.
If you didn’t think he’d spend his first week as POTUS pushing his interests with all his might, including getting the U.S.-Mexico border wall started, you were downright dreaming.
And if you don’t think he’ll be able to save the coal industry from what is most assuredly a slow and painful end...
No, wait, I think you’ve still got that one locked down.
Bright as a Coal Mine
I understand where Trump is coming from, honestly. Coal has been the world’s provider of baseload energy since before that term even existed.
It’s cheap. It’s abundant. And to someone who isn’t much concerned with the idea of global warming, it’s the best source of energy we’ve got!
Moreover, it’s something that can be mined and used within the U.S. Even though the country imports millions of short tons of coal per year, the rate has dropped dramatically in the last decade, from more than 34.5 million tons in 2006 to just 9.6 million tons in 2015.
Coal bulls can rejoice that the Energy Information Administration has estimated these imports will increase again over the next two years, back up to around 11 million tons by 2018.
Of course, that may only be because natural gas, which has taken the top spot in the U.S.’s energy portfolio as of last year, is finally seeing higher prices. No doubt many energy providers will be sticking to whatever’s cheapest.
But like I said, coal’s death is going to be a slow one.
Even with the increased imports, coal isn’t expected to become the top energy provider again.
Between now and 2022, energy production from coal is slated to be about flat according to the EIA. From there, it drops from more than 16 quadrillion Btu per year to under 12 quadrillion Btu by 2050.
Meanwhile, use of natural gas is expected to jump from just under 28 quadrillion Btu per year to more than 41 quadrillion Btu.
Now, Trump may believe that this is due to government restrictions put on the fossil fuel industries in the past, and that lifting them will save coal from its fate.
He may, in fact, end up doing the opposite.
Thing is, Trump isn’t exactly for coal.
He can't be... not when he's so gung ho for deregulating the oil and gas industries, the latter of which is coal's primary competition in the electrical generation sector.
Moreover, he seems not to realize that opening this door effectively spells the end of the coal industry.
Already, U.S. production of both commodities is heading the same way as each source’s energy production: natural gas climbing, coal falling fast. The shale revolution started that trend, and no amount regulation-cutting is going to stop it now.
It’s also worth keeping in mind that the U.S. isn’t the only place setting coal on the back burner...
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The U.S. is only the second-largest consumer of coal in the world. China takes first place, and India is right behind us in third.
Right now, China still accounts for about half of the world’s coal consumption, even though its consumption level has fallen for the past two years.
Now, the country’s energy plan for the next five years does include a 19% increase in coal capacity. It’s pretty clear that the country needs the extra capacity to cover its ever-growing energy demand.
But this is far from the saving grace of coal. The plan also includes a cap on that capacity; it won’t get past 1,100 GW. Meanwhile, renewables and nuclear will get a 48% bump in the same timeframe, reaching about 770 GW total.
Coal won’t be the dominant energy source there for much longer if this keeps up.
Things aren’t looking better in India, home to the world’s largest single coal producer.
The country’s Minister of Power, Coal, and Renewable Energy has reportedly said that India’s coal industry will dwindle in the next 10 to 15 years.
Though the declaration specifically noted the overabundance of coal in China, no doubt the trends taking over the world are equally to blame.
Then again, with the combination of solar PV and electric vehicle technology, fossil fuels could lose as much as 10% of the world's energy market share in the next decade.
I can’t even say that’s just the beginning, because coal’s death march began decades ago.
The Last Spark
Let me be absolutely clear about one thing: we’re not going to stop using coal any time soon.
Trump isn’t putting all this effort into a dead market... but he is putting it into a terminally ill one.
The world’s coal demand is going to increase, but not nearly as fast as its clean energy capacity. Dropping prices in solar, wind, and energy storage technologies are making sure of that.
When the commodity’s biggest supporters are cutting their losses, it’s about time for investors to move on.
Given that solar and wind may take as much time to mature as coal will to die out, the best bet for investors now is natural gas.
Even countries looking to invest in more renewable capacity are also replacing coal with gas power, at least until solar and wind technologies mature.
Looking into LNG, the liquefied form that’s being shipped out from the U.S. as you read this, will offer much better gains under Trump’s changes than any coal investment could.
Until next time,
Energy and Capital