This Coal Giant is Fighting Back

Peabody Energy is starting to push back against the image of coal as an obsolete fuel.

Mar 14, 2014 at 10:33AM

Environmentalists would have you believe that coal is a bad fuel option. While there's no doubt that coal is a dirty fuel, Peabody Energy (NYSE:BTU) isn't ready to see its business pushed aside and is fighting back. Even if you don't agree with this coal giant's take, you should consider its side of the argument.

Not enough power
One of the lead issues of the Peabody-backed Advanced Energy for Life campaign is the fact that billions of people in the world lack access to reliable electricity. Coal is a cheap and plentiful resource that can help solve this problem. That's good news for miners, particularly those with coal operations in Australia, like Peabody, Rio Tinto (NYSE:RIO), and BHP Billiton (NYSE:BHP).


(North Korea compared to South Korea at Night. Source: NASA)

That's because Africa and Asia are two of the regions in desperate need of more power. Although developed nations are looking to reduce coal's percentage of the overall energy pie, developing nations don't have that option because they are still trying to build their pies. And that spells a huge opportunity for coal: According to Advanced Energy for Life if just China and India, "...used the per-capita energy of Europe, the world would use twice as much coal... than it does today."

With operations strategically located near these still developing countries, Rio, BHP, and Peabody are well positioned to supply the region. That said, thermal is a much bigger piece of coal-focused Peabody's business than at diversified miners Rio and BHP.

Sticker shock
Access to reliable energy is the really big picture, but it's not the only issue. Cost is increasingly important, and the U.S. market is a perfect example. According to Peabody, "The states that don't use coal pay electricity rates that are more than 50 percent above states that use substantial coal for electricity generation." No wonder developing nations like coal.

Natural gas is the fuel that has been displacing coal domestically because of relatively low prices, a situation not replicated in other regions of the world. However, this winter's frigid temperatures pushed up demand and prices for gas and electricity prices weren't far behind. Consolidated Edison (NYSE:ED) customer Jerilynn Mabry of Harlem told the New York Post that her bill jumped 17% between December and January, and is about double the norm. The 64 year old was angry enough to complain to AARP.

Con Ed passes on the cost of generating electricity via a supply charge. That charge was up over 80% year over year. Since Con Ed is just passing on its costs, it's hard to blame the company for spiking energy prices, but customers don't care why they are paying more and obviously see the utility company as the adversary.

Cleaner options
The biggest knock against coal domestically, however, is pollution, an area in which Peabody points out change is happening. For example, "Coal used for electricity generation has increased more than 170 percent since 1970, while key power plant emissions have been reduced by nearly 90 percent per unit of electricity." Now that carbon has taken center stage, there's no reason to believe that it, too, won't see a similar improvement.

Carbon Dioxide

(Source: ineligible, via Wikimedia Commons)

Southern Company's (NYSE:SO) Kemper plant is the test case. Kemper is using the newest coal burning technology and employing carbon capture. The plant is expected to be as clean as a similarly sized natural gas plant. Southern is the first to try this technology combination and is over budget. However, if the plant works as planned, it could be an important step toward cleaning up coal's image. That, in turn, would be a boon to the domestic coal producers; Peabody is one of the largest.

Vested interest
There's no question that Peabody has a vested interest in coal's future. However, its arguments shouldn't be disregarded out of hand. Demographics, costs, and technology could all work together to make coal more desirable the world over. While coal is still down and out, you might want to reconsider your take on its future.

Here's another way that technology is changing the energy landscape...

Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information