The Future of Coal

Robert Hsu, April 25, 2008

With oil prices heading for new record highs, cheap alternative energy has become a big topic of interest. But while investors talk about solar, wind and nuclear energy alternatives, they tend to do so from a pie-in-the-sky perspective. None of these energy alternatives have made a significant impact on energy production, regardless of the hype surrounding them. The truth is that good old-fashioned coal remains one of the cheapest and most efficient ways to produce energy.

Coal has been around for hundreds of years and was the main energy source for the Industrial Revolution of the early 19th century. And despite its widespread usage over the past few centuries, there is still enough coal in the world to supply energy for at least the next 100 years -- more than twice as long as what the supplies of oil or natural gas are expected to last.

With an abundant supply and oil and natural gas prices sitting at historical highs, more countries are turning to coal for power generation, making it the world's fastest growing energy resource. To keep up with the growing demand, a new fleet of state-of-the-art coal plants is being developed in 19 U.S. states. And around the world, plants with more than 156,000 megawatts of clean coal-fueled power generation are under construction, representing more than 500 million tons of coal use.

China alone added an estimated 96,000 megawatts of new coal-fueled power generation in 2007, representing more than 300 million tons of annual coal use. In fact, China has replaced 83 of its small coal-fired generators since the beginning of the year by the larger, more efficient plants. The country plans to continue closing smaller plants through 2010 to allow its larger plants to produce more coal more efficiently to keep up with China's heightened use of coal.

Because of this increase in coal use, China's net export position of coal declined significantly in 2007. In fact, the country became a net importer of coal for the first time last year, and it even recently halted exports due to critically low coal stockpiles.

And as the country builds out its energy supply structure, China's demand for coal imports will continue to increase. In the next 25 years, China is expected to invest $3.7 trillion to expand its energy infrastructure and add 1,300 gigawatts of electricity -- more capacity than is currently installed in the United States. India is following closely behind, as well. Energy demand in India is expected to more than double by 2030, with the country's coal use expected to triple. More than 80% of the growth in global coal demand is expected to come from China and India.

With emerging countries like China and India improving their energy infrastructure, the U.S. Energy Information Administration projects that world electricity demand could nearly double in the next quarter century. And that coal-fueled generation could account for half of all new capacity.

But as these countries continue to grow, they won't have the resources to meet their coal needs and will look to import much of their supply from other nations. China is already experiencing this. So, with coal demand already outpacing supply, the coking coal contract price tripled to $300 a ton in 2008. This price increase is really shocking, but it also provides us with an opportunity to profit from coal's supply/demand crunch. So this week, I'm recommending a global pure-play on coal that will help us benefit from soaring coal prices.

To profit from the increased cost of coal, I recommend investing in one of the world's largest coal companies. The company is focused on expanding its global platform in the highest-growth markets, like China. So while these markets increase their demand for coal and further tighten supplies, this company is perfectly positioned to profit. And just as I explained, since China is closing down many of its small coal-fuel power generation plants, the coal production will be shifted to larger plants, such as my recommended company. The company's growth projects have allowed it to maintain its position as a leader in the coal industry, and I look for impressive profits going forward. Join Asia Edge today to find out the name of this company, and my specific buy-below price!