Alpha Natural Resources (NYSE: ANR) is looking to the future of coal and adjusting to what it sees. That hasn't meant big changes for this well-positioned miner, but it has resulted in a shifting focus toward international sales despite ongoing earnings weakness.

The U.S. market
Alpha believes that coal use in the United States will be lower in the future than it has been in the past on a relative basis. To that end, American Electric Power (AEP 1.99%) more than doubled its use of natural gas in the two years leading into 2013. That fuel increased its share of AEP's power generation to 17%, with coal feeling the brunt of the share loss. This trend is going to continue, and AEP isn't alone in the shift.

However, the balance between coal and gas use will be about price, too. So, while the long-term trend is toward cleaner burning natural gas and renewable energy, when gas prices move higher, coal use will bounce back, at least modestly. The first six months of this year are a case in point. At AEP, gas use fell 37% through June while coal use increased about 4%. For a company like AEP, the ability to switch between fuel sources like that is vital to enhancing profitability.

So, as Alpha suggests, "Despite losing some market share to natural gas, coal will continue to be the first or second main source of power..." The company generated about 55% of its revenues in 2012 from coal used for electricity generation. Of that total, about 10% came from the ultra-cheap Powder River Basin (PRB) and the rest from its Eastern operations. The U.S. thermal coal, then, will remain a key foundation for the company's future efforts.

Growth around the world
Although domestic utilities drive U.S. coal use and sales, the United States isn't the only market for thermal coal. On that score, Alpha is already a major exporter, sending about 20% of its coal to customers on five continents last year. While metallurgical coal, used in steel making, made up the vast majority of the company's foreign sales, thermal coal made up about a quarter of the total.

With a slowing U.S. thermal coal market, the push to get domestic coal into foreign electric plants is going to pick up steam. And there's plenty of support for growth. According to Alpha, "...by 2017, the world will consume nearly 1.2 billion more tons of coal per year than it does today."

That's why Cloud Peak Energy (CLD) has been trying to get its PRB coal into key markets like Asia. To that end, Cloud Peak has increased its exports from nearly nothing five years ago to a projected 5.5% of total coal volume this year. That's an impressive trend, but the company is waiting on additional port availability that won't come on line for several years.

That will likely lead to a slow moving export effort and leaves the company reliant on U.S. demand, for the most part, over the near term. That's not such a bad thing, though, since PRB coal is relatively cheap and Cloud Peak has remained profitable throughout coal's recent troubles. 

Alpha already sends almost four times as much coal overseas, however, and has total port capacity of between 25 and 30 million tons. In other words, it still has plenty of ability to increase its exports today. That puts it in prime position to benefit from thermal export growth, but also to participate in met coal demand growth.

Building with steel
Infrastructure and other long-lived products, like cars and washing machines, require steel. As emerging economies continue their push upward on the socioeconomic scale, steel demand, and thus met coal demand, will head higher, too.

BHP Billiton (BHP 0.22%), a major iron ore and met coal provider, expects steel demand in China and the rest of the world to converge at around 3% or so over the next 15 years. That should provide plenty of opportunity for Alpha to grow its met coal exports, too. For China, however, that's a big drop from recent levels, which has led to a rebalancing of supply and demand that's taken a toll on met coal prices.

With plenty of port capacity, Alpha will be in prime position to benefit when the met coal imbalance straightens out. In fact, it claims to be the number three producer of met coal in the world and the number one U.S. exporter. However, in the near term, the company has been pulling back some to balance its own supply and demand picture.

That's meant reducing capital spending, with such costs in 2013 projected to fall between 35% and 45%. This type of retrenching is happening industry wide and should eventually lead to improved industry dynamics.

Not for the feint of heart
Alpha looks like it has positioned itself well for coal's future while balancing against the current market dynamics. However, the company has posted losses in eight of the last ten quarters and doesn't pay a dividend. Still, with the shares down about 90% from their early 2011 peak, investors looking for a turnaround play with notable upside potential may want to take a closer look.