India's Future in Coal

Keith Kohl

Written By Keith Kohl

Posted June 24, 2014

If you remember, a couple of weeks ago we talked about Nigeria…

Their national oil company — and the government it supports — panicked recently over losing the U.S. as a customer. We’re only a few years into a North American oil boom, and the Nigerian National Petroleum Company is already trying to find a new home for over 400,000 barrels of crude every day.

Luckily for them, it didn’t take too long to find a new market.

All of the oil the U.S. used to import is now sent to India.

After trouncing its opponents in a recent election, the Narendra Modi’s Bharatiya Janata Party is hoping to spur huge growth for the Indian economy.

Of course, the most important factor in meeting these goals will be energy, and recent reports suggest that the nation has been making up for gaps in the grid by using a bunch of diesel-powered generators.

chart1 6-24

As you can see from the chart above, India’s oil production has been relatively flat. Meanwhile, consumption is increasing steadily. And now that the new business-friendly ruling party is in place, there will likely be more consumption as they try to fulfill promises for economic growth.

According to Bloomberg, the market for diesel-fired generators will be as high as $2 billion by 2017, which almost ensures us that oil consumption will continue its trajectory for the country with 1.2 billion people.

And as you probably know, a nation of that size uses a lot of electricity — about 140,000 MW at last count.

So how should you play it?

Sure, there’s the usual slew of oil companies that help develop those Nigerian oil fields, but my veteran readers know there are much better opportunities out there than Big Oil.

Instead, if you take a look at this chart, you can see where the real value lies…

chart2 6-24

I know the Sierra Club would cringe at the thought, but the truth of the matter is that coal is the place to find growth in India, especially as the nation tries to end the long string of power shortages in recent years.

In fact, some of the best investments could end up being Indian coal companies with substantial assets, such as Adani Enterprises. There’s even potential in some American players, too, like Peabody Energy (NYSE: BTU), which has been on the ropes ever since Obama gave the U.S. coal industry the kiss of death a few weeks ago.

Until next time,

Keith Kohl

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