A New Deal Between Coal and Utility Heavyweights

By Taylor Muckerman and Joel South – Apr 10, 2013 at 11:38AM

OTC: BTU

Peabody Energy Corporation

Utilities are not ready to give up the fight for coal in the usage wars against natural gas. What does the latest deal involve?

After a rough year in 2012, coal companies hope that they could bounce back a bit this year. In the latest deal between utilities and the coal industry, Duke Energy (DUK 0.08%) has agreed to purchase between 1.7 million and 1.9 million short tons of coal from Peabody Energy (BTU).

Currently, Peabody Energy is the lowest-cost producer of coal in the United States, which should be a critical fact now that natural gas prices are above $4 per MMBtu. It is well-diversified geographically and is the leading player in the cheapest basins in the U.S.

If you are an investor looking for another coal company that could capitalize from rising natural gas prices, turn to CONSOL Energy (CNX -0.12%). This is a company that owns the largest export facility on the East Coast and has turned the majority of its attention toward natural gas production, a move that is likely to provide a nice hedge against any continued domestic coal weakness.

Joel South has no position in any stocks mentioned. Taylor Muckerman owns shares of CONSOL Energy. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.