Russia's Invasion of Ukraine Shows the Value of a Shunned Investment

With Russia playing hard ball on natural gas prices with Ukraine, the country is looking to make more use of coal—it may not be alone in that decision.

Apr 20, 2014 at 2:15PM

Russia's takeover of Crimea has had implications throughout the energy space. Now Ukraine, facing higher natural gas prices, is talking about coal. Since Russia supplies about 30% of Europe's natural gas, the country may not be alone in that decision—that's good news for East Coast coal players like Alpha Natural Resources (NYSE:ANR), Alliance Resource Partners (NASDAQ:ARLP), and CONSOL Energy (NYSE:CNX).

Russian natural gas accounts for about half of Ukraine's usage. That makes Ukraine hugely dependent on Russia at a time when the two have a tense relationship. And Russia hasn't shied away from playing the gas card, cutting supplies briefly in 2009 and hiking prices more recently. This is what led Energy Minister Yuriy Prodan to explain at a Ukrainian cabinet meeting that, "We are now reviewing our electricity and fuel balance for 2014 with a view of using as much domestic coal as possible at the expense of natural gas."


With 30% of their gas coming from Russia, our European allies have a real issue on their hands, too. It wouldn't be surprising to see them reconsider coal as a strategic fuel source.

West Coast/East Coast
That would be music the ears of domestic East Coast miners. The big story for years has been demand out of Asia, which is largely served by miners closer to the Pacific Ocean. If Europe picks up the coal mantle, that could lead to a pickup on the Atlantic Ocean side of the country.

One of the best positioned could be CONSOL Energy, which recently sold around half of its coal business so it could refocus around, somewhat ironically, natural gas drilling. However, CONSOL Energy's move could prove prescient. The company sold off its most expensive mines and kept its lowest cost and most efficient mines just as domestic demand for thermal coal has picked up. In fact, the company recently increased its 2014 coal production target by about a million tons -- approximately 3% -- because of thermal demand.

Thankfully, CONSOL Energy also chose to keep its Baltimore Terminal. This means that CONSOL has low cost coal and access to export facilities if the "Old World" comes looking for politically secure energy supplies. And since CONSOL isn't the only one shipping out of the Baltimore Terminal, it can benefit from other companies selling to Europe, too.

Another winner could be Alpha Natural Resources, which gets about 40% of its sales from Eastern thermal coal. The company recently opened a sales office in London, England. According to Alpha Natural Resources, its, "...objectives in the European market include increasing customer regard for the quality, reliability and dependability of the company's thermal coals and unsurpassed U.S. export capabilities."


(Source: ВО Свобода, via Wikimedia Commons)

With Russia saber rattling over natural gas, Alpha Natural Resources' "dependability" goes well beyond just the quality and value of coal. The company's sales pitch can now include the fact that Alpha Natural Resources operates out of the United States, a politically safe ally.

Good either way
One other miner that wouldn't mind seeing increased foreign demand for thermal coal is Alliance Resource Partners. Unlike CONSOL and Alpha Natural Resources, however, Alliance Resource Partners has been posting record results despite the domestic coal market downturn. Management expects 2014 to be the fourteenth consecutive record year. That said, the top line is only expected to be flat-to-up about 4%, reflecting the continued malaise of the coal market.

With domestic utilities increasingly switching to Illinois Basin coal, Alliance Natural Resource's specialty, the miner doesn't need European sales to make that happen. However, eventually, the coal basin switch will end and Alliance Natural Resource's growth will slow. That would make increasing demand from Europe a nice bonus.

The Russian effect
Russia's move to take over Crimea has affected the energy market from oil to coal. If you invest in the energy space, keep a close eye on this still developing story. If you've been looking at the out of favor coal industry, meanwhile, Russia could be the precipitant that gets East Coast miners back in the coal game. Alpha, Alliance, and CONSOL could all be beneficiaries.

But don't forget the really big U.S. energy change taking place today...

3 stock picks to ride America's energy bonanza
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 look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Alliance Resource Partners, L.P.. 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