Why investors worship Old King Coal

Times staff writer Edward Silver filed this report on the burgeoning bull market in the coal sector:

Coal producers are riding high for an industry that a growing throng of Americans wish would just go away.

Year to date, shares of Arch Coal Inc. are up 41%. The biggie of the industry, Peabody Energy Corp., has waxed 24% -- and 94% from its August trough. A broader measure of the sector's stocks, the Market Vectors Coal exchange-traded fund, has advanced 26% since its January launch.

All this bullishness is based on the dark rock’s own surge in value. Benchmark prices for some grades of electricity-generating steam coal are more than $100 for a metric ton, double September’s price. Metallurgical coal, the type used in steel making, has tripled in some contracts.

Oil attracts the anger and the ink, but coal, mined here in the U.S., has joined the club of rudimentary resources blessed by the energy crisis.

What we are paying up for is the dirtiest fossil fuel in the ground, infamous for wielding a heavy hand in the planet’s warming. In Beijing they wear surgical masks to ward off the soot from coal-fired plants, which drifts across the Pacific to further foul the air over Los Angeles. That’s not all. Black lung disease, mercury and sulfur emissions and the ravaging of Appalachian mountaintops are part of the legacy that keeps our lights on.

Coal provides about half the electricity in the United States, though not in California, where natural gas, another fossil fuel, claims a larger share. Nuclear power contributes 20% of the U.S. power total. Hydroelectric has a small role, while solar and wind -- sorry, environmentalists -- thus far account for less than 1% of the total. These wannabes are doing everything they can, including stalking the halls of Congress, to outmaneuver the out-of-favor incumbent.

Coal’s edge, though, is that it’s still the low bidder when it comes to costs, despite the recent run-up in prices. Also, everything needed to radiate coal-fired power all over the map already is in place, not only the generating stations but storage, transit and integration with the grid. On both accounts, solar and wind have plenty of work to do.

Naturally, few Americans want to see a coal plant built in their backyard. In many cases, politicians want them far away too. Kansas Gov. Kathleen Sebelius, a Democrat, made news when she vetoed two power plants to spare her state 11 million tons of additional carbon dioxide emissions annually. Calls for legislation to bill emitters for their carbon-burning privileges are gaining traction. Even Sen. John McCain of Arizona, the presumed Republican presidential nominee, is on board. Likewise, interest is rising in hoped-for technological fixes, including a complex blueprint known as carbon capture and sequestration.

With so much resistance, coal plant construction has ebbed in the U.S. Be prepared for brownouts.

"Utilities know there will be some kind of legislation and a carbon-capture mandate, but there are no requirements yet or price tag associated with carbon," said Ann Kohler, an energy analyst with Caris & Co. "Regulators are looking at natural gas, renewables, nuclear. There are a lot of unknowns. Utilities that have started construction are moving forward, but otherwise, plans are on hold" for new coal-burning plants.

There are no such misgivings or hold-ups in nations that are in a hurry to catch up with the West. China and India have especially voracious appetites for coal’s cheap energy, and the supply deficit may persist for years. This winter, that imbalance suddenly became an emergency, partly the effect of Australian floods and Chinese blizzards that shut down mines. Charging into the breach, U.S. coal exporters are finding famished markets, happy to make hay on prices driven skyward by scarcity. The anemic dollar is a bonus for their bottom lines.

Fossil fuel investors, rejoice. But what an opportunity for renewables! Yet solar, wind and other renewables aren’t nearly ready to dethrone Old King Coal, particularly overseas. In fact, if green alternatives do eventually curtail coal’s dominion in the U.S., it’s not hard to imagine the industry thriving on the tobacco model: ostracized at home, welcomed around the world.

As for the stocks, Kohler rates Massey Energy Co. a buy for its concentration in metallurgical coal, the sweet spot of the market. She expects earnings per share to expand from $1.17 last year to $3.05 this year and $4.13 next year. Alpha Natural Resources Inc. and Walter Industries Inc. also are well-positioned in metallurgical coal.

Peabody’s shares, meanwhile, now may be too rich to risk money on, Kohler said, based on past valuation ratios.

The whole group, however, won’t for long be enjoying these lofty prices for their output, Kohler believes, and that may inject volatility into their financial results. Mining is recovering in Asia, and prices per ton are likely to settle back to elevated but not aberrant levels. Any shortages in China tied to this week’s destructive earthquake are expected to be short-lived. Furthermore, Kohler foresees a rebound in the dollar.

Although today the market for the grimy mineral is ablaze, change is coming, so keep your eye on these canaries in the mine: Prices could ease along with the supply crunch. Emitting CO2 may get expensive, likewise the technology to capture it. Consumers are unhappy about their electric bills and foul air, and the political class wants to try out a host of new regulations. Cleaner alternatives are clamoring for their chance.

But for now, coal miners are doing business like there’s no tomorrow.

Photo: A coal mine in Trevorton, Pa./Associated Press

Comments

[Randy Riddle]

You should have made the "be prepared for Brownouts" in bold lage font letters.

I can see a coal fired power plant from my back yard and it does not bother me in the least, however if they build a Nuke plant that I can see from my back yard, I will be moving as far away as possible.

[Ivona Vujica]

Abolition of King Coal and Coal-Fired Plants Everywhere - No Nukes! No Uranium Mining!

Stop the Global Warming Machines!
Stop the Coming Genocides - Food/Water/Energy Chaos!
Divest from King coal
Weekly Vigil - presently May 18, 2008

Sundays Noon-1pm
Ottawa, Ontario - Canada
U.S. Embassy
490 Sussex Dr.

Paradigm Shift Environmental Alliance
psea4earth@gmail.com

Please see the following links or google “abolition of coal”
http://quebec.indymedia.org/en/node/28427

[Chip Seal]

A little "load shedding" today will cause American's concerns about a few degrees rise in temperature a generation or two in the future to vanish.

[J Essex]

Coal represents the monopolistic safety-valve that the oil and gas industry cannot stand. While coal exists, and is reasonably priced, they cannot get a true lock on the world energy market. Oil and gas prices would be even higher, were it not for coal.

[Otto]

Just turn off power to the green whiners when supply gets tight. That'll leave more than enough for the rest of us.

[Parts]

Just turn off power to the non-green whiners when supply gets tight. That'll leave more than enough for the rest of us.

[art marvin]

Concering the Coal industry---How about the Clean Coal Industry--
See www.Geo-tec.net
The future is upon us---

[art marvin]

http://www.geo-tec.net/

RE: Cleaning dirty coal and contaminated soil

“Geotec enzyme/proteins are a specifically blended liquid that will reduce hydrocarbons and organic metal compounds such as mercury, sulfur and arsenic upon contact when applied to impacted soils, surfaces and groundwater. These enzyme/proteins have been successfully used in the "catalytic conversion" of organic environmental contaminants with minimal effort and application techniques. When applied to impacted soil, a minimal reaction time renders the contaminant irreversibly altered and the contaminant, if hazardous, no longer possesses its chemical fingerprint. The compound that forms is an organo-protein residue with the consistency and makeup of equivalent to the soil or earth of any processed feedstock. Treated soils are rendered more amenable to reclamation.
Geotec enzyme/proteins are a blend of environmentally friendly compounds, which display no hazardous waste characteristics either by ignitability, corrosivity or reactivity. These enzyme/proteins are not altered chemically and will not form harmful intermediates when blended with hazardous chemicals. Geotec enzyme/proteins conform to "non-hazardous substances" defined under the Clean Water Act, RCRA, the Clean Air Act, and TSCA. It is not a carcinogen and is not listed on OSHA, IARC, or NTP Monograms. It also passes the 48-hour Acute Toxicity Bioassay for fingerling trout.”

[Pat]

The author's opinion that carbon is somehow linked to "global warming" is stated as a fact, not as opinion. Fact is, it's an OPINION. The Vikings used to farm Greenland. The earth is colder now than it was then. What melted the Ice Age, or the Little Ice Age? Certainly it wasn't SUVs or coal fired power plants since they did not exist. I doubt the author has ever contemplated these questions, just bought off on a left wing agenda that is dedicated to limiting freedom, economic progress, and controlling every aspect of our lives. Climate change has always been with us. Get ready for BLACKOUTS across the U.S., not just brownouts, since the geniuses like Kansas' Governor Sebelious won't allow construction of cheap, clean, and modern coal-fired power plants! Furthermore, carbon dioxide and mercury are naturally occuring substances, and the danger from coal is very much overstated. I may have to buy a generator if this attitude prevails. No wonder I read the L.A. Times so infrequently!