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While poverty is usually considered a financial issue, the International Energy Agency (IEA) highlights the role that electricity plays. It estimates that over 1.3 billion people live in energy poverty, lacking "access to modern energy services." As developing nations modernize their infrastructures, coal is playing a big part in alleviating this energy deficit.
You don't know what you have til it's gone
It's easy to forget how important electricity is because of both the reliability and accessibility of electricity in the United States. However, Hurricane Sandy was a good reminder. That storm played havoc with the electricity supply in many areas of the Northeast, with some people losing power for more than a week.
No power means no refrigeration, no air conditioning, and potentially no heat. It means that gasoline pumps stop working, limiting the use of cars. Computers don't work and cell phones can't be charged, and even if they were charged they might not work because the networks they connect to could be down. Now think about the implications this situation might have if it weren't an odd occurrence but a fact of daily life.
Where it's being built
That's scary. And 1.3 billion people live under those conditions, mostly in Asia and Africa. According to Arch Coal (NYSE: ACI ) there are 257 coal-fired electric plants set to be built in those two regions between now and 2017. That's 90% of the new coal plants being built over that span.
That's one of the main reasons why domestic ports are looking to expand. Arch projects that coal export capacity could increase by as much as 118% over the next five years. As an example, Westshore Terminals (NASDAQOTH: WTSHF ) , a pure-play port operation, expanded its capacity by three million tonnes in 2012 with plans for a similar increase over the next few years.
Those expansions should allow the company to handle around 15% more coal in the future than it expects to pass through its port this year. Most of the company's exports are headed to Asia so it is in prime position to benefit from this building trend. And most of its contracts are fixed-rate, so coal prices don't matter as much as demand.
Arch expects to export around 12 million tons this year and is projecting that it will export 30 million tons by 2020. That's within a projected 2020 seaborne coal market of some two billion tons—a doubling in size over a ten year span. If Arch only represents a small portion of that, then there's going to be plenty of room for others to participate, too.
CONSOL Energy (NYSE: CNX ) mines for coal and drills for oil and gas. Although largely hidden by its other operations, the company owns a coal port in Baltimore. That facility handles around 13 million tons of coal, leaving about two million tons before the terminal is operating at capacity. That's an easy way for CONSOL to push its coal into foreign markets as seaborne trade expands. Today, it uses around eight tons of the port's capacity. So, even without displacing other customers, it could easily expand its own exports by around 25%.
More than a thermal opportunity
Even metallurgical coal-focused Walter Energy (NYSE: WLT ) gets in on the export act, only the reason for excitement here is building the future coal plants. The problem is that met coal pricing has been weak of late, leading to a string of quarterly losses. However, the company highlights that around 60 million tons of met coal has been taken out of the seaborne market since the start of 2012. That's helping to balance supply with demand for the coal used to make steel.
That said, Walter intends to keep production roughly flat this year at 11 million tons but is capable of producing about 15 million tons. So, when markets turn, the company could expand production by over a third. Although times are tough now, that could provide notable upside to results for intrepid investors.
And with met coal comes key construction materials like steel and copper. The big players here are Rio Tinto and BHP Billiton (NYSE: BHP ) . Both generate the vast majority of their revenues from the trio of coal, iron ore, and copper. That puts them in prime position to benefit both from the building of power plants and the subsequent fueling.
If you are a conservative investor, it's worth noting that both Rio and BHP have remained profitable despite the near universal downturn in the mining industry. BHP, for its part, has been helped by its push into the strongly performing oil drilling space, which Rio doesn't offer.
Cheap and plentiful
At the end of the day, coal is cheap and plentiful. That makes it one of the best options for developing nations in their efforts to bring electricity to the masses. The implications of this trend will have a big impact on coal companies, port operators, and beyond. While it would be nice if every country in the world could afford to put the damper on coal, that just isn't possible. Look for the world's poor to be increasingly reliant on this dirty fuel for years to come.
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