Coal gets a bad rap. Environmentalists call it a dirty fuel, while Santa Claus uses it to punish naughty little boys and girls. That really is a shame because coal has the power to produce a lot of energy, as well as high-paying jobs. Not only that, but coal produces some really good pizza.
My wife and I stopped by a pizza place the other night which is known for baking it in coal-fired ovens. Believe it or not, coal was the fuel of choice for pizzerias early last century. This restaurant goes back to those roots and uses coal because it delivers a unique flavor and consistency that's not possible from wood or gas ovens. I can certainly agree with that statement; the pizza was fantastic.
The coal used in the process is called anthracite, and the company sources it from Pennsylvania and has it delivered by railroad. Each restaurant uses about 100 pounds of coal per day, which it says burns cleaner and is more eco-friendly than gas or wood-fired methods. All that being said, at 100 pounds per day and just a handful of locations across the country, coal-fired pizza ovens won't be a big future driver for Appalachian basin coal producers like CONSOL Energy (NYSE:CNX) or Alpha Natural Resources (NASDAQOTH:ANRZQ).
That's especially true when you consider that this particular variety of coal, anthracite, is among the hardest to find and makes up a very small component of coal production worldwide. Most of the reserves in the U.S. are located in Pennsylvania, and the overall U.S. market is limited to about 5 million tons per year. What is produced is burned as either a domestic fuel or to make great pizza. Unfortunately, that's simply not enough to move the needle.
What has been moving the needle for coal producers is to look outside our borders to export other more prevalent forms of coal. China and India are two top destinations. CONSOL Energy, for example, ships its coal through its wholly-owned Baltimore coal export terminal, while Alpha Natural Resources has been working with Kinder Morgan Energy Partners (UNKNOWN:KMP.DL) to export coal through its dry bulk terminals along the Gulf Coast. All three companies have been expanding export capacity to take advantage of demand from markets abroad. Exports really are crucial to the coal business as U.S. coal consumption has been plummeting, and last year alone our consumption dropped by 11.9% over the previous year.
In addition to exports, the coal industry has been working to clean up its image so it can reverse that trend. Overall, more than $12 billion is being spent on research across 43 states on clean coal projects thanks to funding from the Department of Energy. Even more recently, President Obama has called from $8 billion in federal loan guarantees to support "advanced fossil energy," which includes clean-coal-fired power plants. These funds are being used to not only make coal a cleaner-burning fuel, but to create and keep jobs.
The current problem is that most of the solutions either aren't yet commercial or not very economical, especially when going up against cheap natural gas. Utilities like Duke Energy (NYSE:DUK) and Southern Company (NYSE:SO), for example, have spent billions on projects to turn coal into cleaner-burning gas. These projects have been very costly to build and aren't able to completely capture the carbon dioxide emissions. However, what's most promising is that Southern's project in Mississippi will sell the carbon dioxide it captures to oil companies to use in enhanced oil recovery methods in the the Gulf of Mexico. It's one indication that these projects really do represent a step in the right direction.
Further, it's likely that we will continue to take steps forward in the future because the stakes really are quite high. We have such an ample supply of coal in our country, which produces very high paying jobs, that we can't simply abandon it completely. It also provides our nation with fossil fuel diversity, which could help keep natural gas prices in check. So, while the future of coal might not be in pizza, its dual future of exports as well as cleaner-burning technologies do look rather appetizing.
Fool contributor Matt DiLallo 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.