If the EPA has its way, it will be nearly impossible to build a new coal-fired power plant in America. The same can't be said for China or India, as voracious demand for power means coal will still have a future overseas.
In fact, according to energy research firm Wood Mackenzie, the nearly insatiable demand for energy in those nations is likely to mute the impact of the carbon policies we are trying to put in place. William Durban, Wood Mackenzie's President of Global Markets, went so far as to say that, "China's demand for coal will almost single-handedly propel the growth of coal as the dominant global fuel." What that means is that overseas demand for coal-fired power is really good news for U.S.-based coal producers.
He noted that China and India just don't have the same latitude to focus on carbon emission, because powering their economies comes first. Looking ahead, Wood Mackenzie sees coal actually overtaking oil as the world's number one fuel by 2020. This is led by a 25% growth in coal consumption, with two-thirds of that growth coming from Chinese coal-fired power generation.
This is why coal producers like Arch Coal (NASDAQOTH: ACIIQ ) and Peabody Energy (NYSE: BTU ) are turning more attention to increased access to export markets, in an effort to power an increase in revenue and profits. Both companies have signed deals for increased access to export capacity. In fact, Arch Coal's goal is to quadruple its coal exports over the next decade. That's why it has now signed several agreements with ports on the West and Gulf Coasts. For Arch Coal, the strategy is to boost exports to make up for the volumes it's losing as the U.S. becomes less friendly to coal.
Peabody Energy, which, likewise, has signed on to increase its export capacity, took increasing its access to Asia one step further. In late 2011, the company acquired Australia's Macarthur Coal, which put it in close proximity to Asian customers. It's a long-term bet that should pay off for Peabody Energy as Chinese coal demand continues to increase.
All that being said, one coal producer is actually taking both sides of the market. Coal producer CONSOL Energy (NYSE: CNX ) owns a coal-export terminal, ensuring its access to coal-export markets; however, at the same time, it's increasing its output of natural gas. Overall, CONSOL Energy is clearly shifting more toward natural gas, as it's not planning to invest to grow its coal volumes in the future, once its BMX mine is complete. Instead, it will turn all of its growth capital to power natural gas production growth.
One of the reasons for this is that, over the long term, it appears that natural gas will overtake coal as the world's No. 2 fuel by 2040. It's the short-term market, however, that will be powered by more coal, thanks to demand in China. Coal's best days in the U.S. are likely over as natural gas looks like the fuel that will power our future. If it wasn't for export markets like China, coal likely wouldn't have much future at all.
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