Investing in Coal Stocks - Why Coal Should Be Part Of Your Portfolio
A Coal Sector Strategy Report
By Garry White
First Published: 23rd May 2007
Erm, no... It is not actually. In a way, coal is actually the future, if you don’t look too far ahead.
Coal still accounts for 25% of energy consumption worldwide, beating natural gas which supplies 22% of global energy needs. There are many advantages to using coal, if we ignore its "dirty" nature for one moment.
- Coal is cheaper than natural gas in power generation.
- It is easier to store and transport.
- 70% of global steel production depends on coal feedstock.
- Proven global coal reserves will last more than 150 years at current production levels.
I expect that coal will fill the energy gulf as oil prices rise and as the world rushes to build more nuclear power stations. I also believe that the construction boom in China and other Asian nations will underpin demand for steel significantly.
Indeed, China actually imported more coal than it exported in April this year. This is highly unusual. Coal imports in April rose 27.1% year-on-year to 4.92m metric tons in April, according to the Chinese General Administration of Customs. China's coal exports for April fell 18.5% to 4.46 million tons.
India's demand for coal may exceed 2bn tonnes a year by 2031-32, up from about 460m tonnes a year now according to the minister for coal Dasari Rao.
This is all very interesting, but in this new world of environmental consciousness isn’t coal too dirty to continue to use? Burning coal produces twice as much carbon dioxide than natural gas as well as an enormous amount of ash. The flue gases contain many toxins including sulphur dioxide, nitrogen oxides and even arsenic.
Investing in Coal Stocks:
Government Energy Strategy
I believe that most governments have accepted that coal will pay a part in their future energy strategy. The reason? Most governments have been useless in sorting their strategy out. This is particularly true in the UK.
France puts us to shame. The country gets 78% of its electricity from 58 nuclear power plants; which is way ahead of anyone else in the nuclear stakes. Whatever happened to our past glories at Waterloo?
This really is something else we can blame Tony Blair for. Our beloved soon-to-be ex-leader’s vacillation on the subject of nuclear power is going to cause us a nightmare in the future. It will be yet another one of this man’s nightmare legacies.
We still do not know for sure if any new nuclear power stations are going to be built - and it takes years to bring one into operation. However, we do have plans to build out first coal power stations in 20 years. And it’s not just one - but two. And they’re being built by the Germans - even they are ahead of us in the nuclear stakes!
In March, RWE Npowersaid it had submitted proposals to spend more than £1bn to replace its existing coal-fired station at Tilbury in Essex. The plant would be operational by 2013. E.ON is also hoping to replace its plant in Kingsnorth, Kent, by 2012.
Investing in Coal Stocks: Getting cleaner
There are two basic strategies with so-called Clean Coal Technologies (CCTs). The first is to clean the pollutants before gases are released into the atmosphere and the other is to develop more efficient systems which use less coal to generate the equivalent amount of power.
They are not 100% effective, but I believe that these technologies will bridge the gap as the oil price soars. It’s also cheaper to build and less technologically challenging to build a coal-fired power station that a nuclear facility. This means coal will be attractive in developing countries.
The American government has also been too slow in resurrecting nuclear power as an energy option in the US. This situation has been repeated all over the world, ensuring coal’s upcoming bull run.
The US Energy Information Administration forecast that world coal consumption will double between 2003 to 2030, with the non-OECD countries accounting for 81% of this increase.
So, coal is by no means the fuel of yesteryear - it will be around for a long time to come and demand is likely to soar. If you haven’t got exposure to a coal producer in your portfolio, I think you need to think again.
Regards
Get the day’s big financial news in one easy hit! Fleet Street Daily gives you the financial stories that matter. If you’re an investor, you’ll know the importance of staying on top of the news. Every day brings new events, and those events are what move the markets. With Fleet Street Daily you’re one step ahead of the crowd. Because we don’t just tell you what’s happened — we tell you what it means and what you should do about it. Fleet Street Daily is a lively, relevant and entertaining resource designed to help you make smarter investment decisions. Best of all, it’s 100% FREE! So sign up today!
Your capital is at risk when you invest in shares – you can lose you some or all of your money, so never risk more than you can afford to lose. Figures may refer to the past or be forecasts. Past performance and forecasts are not reliable indicators of future results. The FSA does not regulate certain activities, including the buying and selling of commodities such as gold. If in doubt about the suitability or taxation implications of any investment, seek independent financial advice.
Articles published before 1st May 2010 were published by Fleet Street Publications Ltd.
Article links
External links
IEA Clean Coal Centre
-
Providing unbiased information on the sustainable use of coal worldwide.
McCloskey's Steam Coal Forecaster
-
News, analysis and data on the international coal industry.
US Energy Administration
-
The latest news and data from the coal markets.