Where in the World Is All Our Coal Going?

Coal is no longer the fuel of choice here in the U.S. We have cleaner, cheaper natural gas to thank for that. Not to mention renewables. Clearly, coal's reign as the top fuel to keep the lights on is nearing an end. That's why it should come as no surprise that looking out over the next couple of years there isn't much coal-fuel generation coming online here in the U.S. Coal's story, however, doesn't end on that dour note.

Take a look at the following slide. Note that while the U.S. is currently only building about 1 GW of coal-fuel generating capacity, the rest of the world is in a building boom for coal-fueled power. That signals an opportunity for coal. 

Source: Arch Coal Investor Presentation (links opens a PDF)

Take special note of both China and India. Each nation is building well in excess of 100 GW of new coal-fueled generating capacity. The problem for these countries is neither produces enough coal to support current demand, let alone that future demand. That's opening up a huge opportunity for U.S.-based coal producers like Arch Coal (NASDAQOTH: ACIIQ  ) to offset its declines at home by exporting coal into the world's markets.

Over the past decade, net imports for both China and India have skyrocketed. In 2003 India imported 20 million metric tonnes of coal while China was a net exporter to the tune of 63 million metric tonnes. Fast forward to last year and India was importing 133 million metric tonnes, while China had switched to become a net importer of 233 million metric tonnes. While those two nations are driving the coal export market, demand is picking up elsewhere as well.

In South Korea for example, coal imports have jumped by 45% since 2007 to 141 million tonnes. Meanwhile, places like Vietnam, Taiwan and Indonesia are all adding coal-based generating capacity and will need more coal to fuel these plants. Finally, European coal demand is expected to pick up in the future as natural gas and nuclear are not a real viable option. Add it all up and the total seaborne coal market is expected to double by 2020 to about 2 billion tons.

That's a massive opportunity for U.S. based coal producers. That's why Arch and its peers are pushing to double U.S. port export capacity over the next five years to 247 million tonnes. Arch has really been proactively increasing its access to export capacity. Earlier this year it signed on with Kinder Morgan Energy Partners (UNKNOWN: KMP.DL  ) for capacity in Louisiana and Texas. It's also pursuing opportunities along the West Coast.

Arch isn't alone in pursing exports. Coal mining peer Peabody Energy (NASDAQOTH: BTUUQ  ) also has signed on with Kinder Morgan for coal export capacity. It's a move that will enable Peabody to have the capacity to export up to 7 million tons of coal per year. The list goes on with every major coal producer looking to secure access to world markets.

While coal has largely been left out of America's energy bonanza, its future isn't as bleak as it could be. Over the coming years an increasing amount of U.S.-sourced coal will end up on a boat to places like China and India. That trend alone should keep U.S.-based coal producers afloat.

How to Play the U.S. Energy Bonanza

Coal has been left out of the current American energy bonanza. Instead, its the record oil and natural gas production that is truly revolutionizing the United States' energy position. With coal's future clearly outside the U.S., those wanting to invest in our energy boom should look at oil and gas. That's why the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

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  • Report this Comment On September 20, 2013, at 11:52 PM, gerw10 wrote:

    Excellent and interesting report, Mr. Dilallo. Any thoughts as to which bulk cargo shipping companies might prosper as a result of this change?

  • Report this Comment On September 21, 2013, at 7:33 PM, TMFmd19 wrote:

    None really stand out. Shippers are very economically sensitive and several have debt issues.


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