The East Coast is Treating Coal Much Better than the West

Although coal exports in 2013 weren't nearly as robust as U.S. coal miners may have hoped, that hasn't dampened their hopes for the future. Unfortunately, new ports on the West Coast are facing stiff opposition. The East Coast appears to be having better luck with export expansion efforts, which could give eastern miners an added boost.

Not in my backyard
Coal is a dirty fuel. Getting the dusty material from the mine to a port and onto a ship is certainly no clean affair. So it's understandable that there would be opposition to new coal ports and expansions at existing facilities. For example, Arch Coal (NYSE: ACI  ) just found out that Washington state regulators are taking the most extreme environmental view of a new port it's backing, the Millennium Bulk Terminal.

Instead of looking at just the local impact of the coal port, regulators will also take into consideration the impact of the coal's use in its final destination. That's a big hurdle for the 44 million ton capacity port. Fellow Powder River Basin (PRB) miner Cloud Peak Energy (NYSE: CLD  ) is also waiting on ports to be built. If Washington's broad environmental view starts a trend, it's going to be harder for all PRB miners to get more coal on the water.

That would be a big problem for Cloud Peak, which has limited port capacity right now. It's waiting on the 46 million ton capacity Gateway Terminal, which is scheduled to be built in 2018. It has a third of that capacity locked up, but only if Gateway gets built.

Easier going in the East
Things seem to be going a little easier on the East Coast, where coal terminals around New Orleans appear to be increasing capacity without much trouble. For example, Foresight Energy looks set to double the capacity of its Convent Marine Terminal, to 25 million tons. United Bulk Terminals is also expanding, even though its shipments were roughly flat between 2012 and 2013. And the new Burnside Terminal just recently started operations.

That's good news for East Coast miners like Alliance Resources Partners (NASDAQ: ARLP  ) and Alpha Natural Resources (NYSE: ANR  ) . Of the two, Alliance is the better positioned since it operates almost exclusively out of the Illinois coal basin (ILB). This area has been taking market share from the higher cost Central Appalachia region (CAPP) for years. In fact, production out of the ILB was up 5% last year even though U.S. coal markets remain in the doldrums.

More port capacity means more markets into which Alliance can sell its low-cost coal. Alpha, where about 45% of its coal comes out of the CAPP region, isn't as well situated, but more export capacity will be a benefit as it looks for new markets for this coal.

Alpha, for example, just inked a deal to sell four million tons of its CAPP thermal coal into Europe. And it has opened up an office in London. Alpha's export moves, however, show part of the problem for East Coast miners—the West Coast is closer to Asia. That makes Asia a much better market for the West Coast miners to sell to, if they can get the added export capacity.

Winners and losers
Peabody Energy (NYSE: BTU  ) may be the best positioned of all, with notable operations in both the PRB and ILB. So additional export capacity in either region helps. Not to mention this globally diversified miner also has operations in Australia, so it already has direct access to Asian markets.

That said, if port expansion on the West Coast is slow, it would dampen the outlooks for Peabody, Cloud Peak, and Arch in the PRB. That tilts the export advantage to the East, where miners like Alpha could use a helping hand just about now. Alliance, which posted its 13th consecutive record year last year, doesn't need the help, but will gladly take it, anyway.

Coal isn't the only exportable fuel...

Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, 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. 


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2850392, ~/Articles/ArticleHandler.aspx, 12/19/2014 1:13:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement