If You Can Read This, You Won't See the End of Coal

While we in the U.S. can easily adopt the impression that coal is rapidly on the way out, a more detailed look at its use in other countries tells another story. The real question, then, is the extent to which the carbon that results from its burning can be captured and stored underground for perhaps centuries to come.

Apr 2, 2014 at 1:20PM

Maybe coal is considered a compelling subject for discussion as we move into spring and increasingly concern ourselves with the quality of our outdoor world. Or perhaps it's purely coincidence. Whatever the reason, my newly arrived April issues of both National Geographic and Wired include lengthy articles about the controversial black fuel, its future role on our planet, and whether the carbon that it produces can be effectively captured and stored below ground.

The two pieces devote considerable attention to the effects of coal as a predominant fuel in China. They also indicate that, regardless of the current plight of the U.S. coal companies, along with the increasing substitution of cleaner-burning natural gas in many of our nation's power plants, coal is here to stay.

Three names to scan
On that basis -- and I'll be more specific momentarily -- my investing interest in such major producers as Peabody Energy Corp. (NYSE:BTU) and CONSOL Energy (NYSE:CNX) has been tweaked. To that pair, I'd add BHP Billiton (NYSE:BHP), the Australian mining and petroleum behemoth. As recently as Tuesday, the big company announced that it's giving consideration to paring its output to a handful of products, i.e., petroleum, iron ore, copper, coal, and possibly potash.

For now, it appears that the reality of coal is at the top of the docket for at least a few science and environmental writers. The metrics that they note in the process can be staggering. As author Charles C. Mann points out in his Wired article, more than three-fourths of China's electricity comes from coal. The country's use of the energy source essentially equals that of the rest of the world. (Although Poland's coal usage accounts for 86% of its electricity production.)

China, in particular, has a vested interest in reducing its coal-spawned air pollution. And that's just for starters. The International Energy Agency predicts that China will double its number of coal-fired power plants by 2040. However, that almost can't occur without major advancements in mankind's ability to capture and store underground the vast amounts of carbon and other particulates that are byproducts of burning coal. Indeed, Mann tells us that already about 1.2 million premature Chinese deaths annually are tied to outside air pollution.

Can we turn to wind and solar quickly?
The optimum solution obviously would be the immediate shuttering of the world's 7,000 coal-fired power facilities, of which about 600 are located in our country. They could then be replaced by a massive increase of power from renewables, such as wind and solar. But that probably won't happen during most of our lifetimes. In fact, former Secretary of Energy (and Nobel laureate) Steven Chu maintains that such widespread use of solar and wind can't occur before the end of the current century.

It's also worth noting that, barring major changes in some manufacturing processes, coal will never completely disappear. Without it, and given current technology, the production of steel, cement, and certain fertilizers would be impossible.

So what to do? Both authors -- the National Geographic article was authored by Michelle Nijhuis -- devote considerable attention to efforts being made to capture the carbon and carbon dioxide that are unleashed when coal is burned and to store it safely underground. Unfortunately, the methods being tried -- much of the experimentation is surprisingly occurring in China -- indicate that the process of carbon capture and storage (CCS) is prohibitively expensive. And, at least in the minds of some environmentalists, it's still insufficiently effective.

Three investment possibilities
It's clear, however, that, despite the implicit picture we may be getting in the U.S., coal is hardly being shunted aside as a major fuel source. That, of course, means that neither are the companies that produce it. It therefore seemingly becomes appropriate for fools who haven't completely ( and probably prematurely) written off the industry to double back and take a gander at the trio of aforementioned stocks.

  • CONSOL draws attention because it's both a coal producer and increasingly a natural gas operator. While its shares are about 15% higher during the past two years (hardly making it a star performer), its 1.3 PEG ratio makes it worth attention, as does its average 2.0 (buy) rating from the analysts who follow it.
  • As to BHP, I'm somewhat eager to observe how its potential restructuring will unfold. From an initial perspective, the simplification makes sense, especially since it's unlikely that -- under its new management -- it finally isn't trying to buy every company not nailed down. It's 1.6 average analysts' rating places it nearly halfway between a buy and a strong buy.
  • I'm inclined to sit on my wallet and simply watch Peabody for now. While the analysts don't hate it (at 2.2), its PEG ratio is in the nosebleed section, and its shares many not have completed their slide.

The Foolish bottom line
Clearly, this group is not for the faint of heart. However, it's also not one that has sailed away, never to be seen again. I urge Fools to keep tabs on it.

OPEC is absolutely terrified of this game changer
If you prefer to limit your energy picks to oil and gas names, one company in particular has captured the hearts and minds of a host of investors, including Warren Buffett. An exclusive, brand-new Motley Fool report reveals the company we're calling "OPEC's Worst Nightmare." Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

David Smith has no position in any stocks mentioned, and neither does The Motley Fool. 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