Old King Coal Will Rise Again
According to BP plc(LON:BP), the fastest-growing fuel in the world is coal. Yes, despite the White House’s war on coal, last year it had the biggest share of demand worldwide since 1970. From China to Germany, coal’s use is expanding, not contracting. Consumers are choosing cheap fuel over reducing greenhouse gases. It is that simple.
Developing nations drove most of the increase in demand, which was 3% last year. Natural gas saw only a 1.4% increase in demand and that is down from the historical average of 2.6% growth.
And coal’s share of worldwide energy use hit 30.1% last year. Oil is only 32.9%.
Coal is 67% of China’s energy demand, and that is the lowest on record for the country.
As we all know, coal is the dirtiest fossil fuel, but it is not going anywhere, and that means the beating coal stocks and bonds have taken here at home is a gift in disguise.
Take your pick, from the most secure, Peabody Energy Corporation(NYSE:BTU); to the riskiest, Walter Energy, Inc.(NYSE:WLT); to the middle of the road, Alpha Natural Resources, Inc.(NYSE:ANR) or Arch Coal Inc(NYSE:ACI). This may be one of the best buying opportunities since February 2008.
The White House’s war on coal has driven prices way down. But the world’s increased demand for it has made this unloved fossil fuel a hot commodity. Excuse the pun.
Just don’t go hog wild with this one. These are still considered speculative plays, and the road back will be filled with bumps and bruises… but they will be back. It is just a matter of time.
Natural Gas Is Set to Move Up
Gas stockpiles are at 11-year lows and that is just before the peak demand summer season when cooling pushes electric demand through the roof.
Cold weather nationwide is to blame for the shortfall, and most analysts do not think the stores can be beefed up enough in time for the increased electrical demand in the summer or the winter heating season.
July delivery prices were up 4.3% this month alone. And as gas approaches $4.70 per million BTUs, power plants shift to coal. Many have made the shift already.
But as summer demand ramps up, power plants will have to burn both coal and natural gas. So expect demand for gas to continue to increase as stockpiles stay well below average. And that means higher prices.
And we haven’t even begun to think about heating demand this coming