What happened
Shares of Peabody Energy (BTU 2.05%) are soaring 23.9% this week from where they closed last Friday, according to data from S&P Global Market Intelligence, as the war in Ukraine caused sanctions to be imposed on Russia, leading oil prices to run even higher.
While Peabody is a coal producer, higher oil prices are causing global governments to look for potential alternative sources of energy, and coal is a leading source.
Image source: Getty Images.
So what
Peabody is one of the world's biggest coal producers and is the largest reserve holder of coal in the Powder River Basin in Montana and Wyoming, with 2.3 billion tons. It notes that the world's largest coal mine, the North Antelope Rochelle Mine in Wyoming, delivers more coal each year than most companies and nations.
In 2021, Peabody produced 62.8 million tons of coal from North Antelope, some 13.5 times more than its next biggest mine.
Coal has been under attack from environmental activists and regulators looking to reduce or eliminate coal production because it is viewed as a dirtier form of energy, although it is quite plentiful. Peabody says U.S. coal production capacity has fallen by nearly a third since 2010.
It's also suffered because natural gas has become much more competitive. Novel drilling practices such as horizontal drilling have become more prevalent, and greater pockets of natural gas were able to be accessed.
But gas prices are soaring now, along with oil. The U.S. Energy Information Administration says between March 16 and 23, the spot price for natural gas rose from $4.67 per million British thermal units (MMBtu) to $5.26 per MMBtu, a 12.6% increase in one week.
Now what
Whether Peabody will actually be able to capitalize on this hunt for cheaper fuel sources remains to be seen. Even though gasoline prices are soaring, the Biden administration remains opposed to allowing oil companies to drill more on U.S. soil.
Instead it has asked Saudi Arabia to pump more oil (it refused), and is considering bargaining with outlaw nations like Iran and Venezuela to get more oil. It might be a stretch to think the administration will want to grant domestic coal producers greater access to the market.
