Lately, I have been thinking a lot about coal and coal industry stocks. Coal is used to fire power plants, make steel, and to manufacture industrial chemicals. Coal is good stuff, but has its problems. The U.S. is blessed with a whole lot of coal; about 150 years' worth, according to industry analysts (see, for example, Doyle Trading Consultants.) However, coal is environmentally challenged. Modern surface-mining methods are highly invasive of the landscape, and the easiest-to-reach coal burns dirty, contributing to air pollution and atmospheric CO2 levels.
What is the future of coal as a source of energy, and, secondarily, as an industrial feedstock? Are coal stocks a good place to invest at this time? Coal stocks have been in the dumps, for good reason. Take your pick: the slow global economy, pricing issues, competition from natural gas, environmental pressures, intensified regulation, a hostile political environment. It's no surprise that coal consumption has been down.
I have been researching online information sources to get a bead on the future of coal, and I think I've got the picture. It's not pretty. But, it's very interesting, because the future of coal is tied to so many global, regional, and national economic issues.
So, the other day, while at Starbucks, which is named for the Pequod's First Mate in Herman Melville's Moby Dick, I thought to myself, what ever happened to whale oil? More specifically, why did people stop using the valuable oil and illuminant derived from the spermaceti organ and blubber of sperm whales? Yes, whale oil. As in "thar she blows!" The proximate answer may well have been the American Civil War, in which marauding Confederate ships drove New England whaling ships from the open seas.
Of course, the fundamental reason for the decline of the U.S. whaling industry was the discovery of petroleum and natural gas; energy sources which rapidly replaced whale oil as an illuminant in America's cities and homes (my source is a fascinating history by petroleum geologist and oil industry historian Samuel T. Pees, an oil geologist and oil industry historian, at the Petroleum Industry Institute).
Coal is not about to disappear like whale oil. The U.S. generates about 42% of its electricity from coal, China's and India's growing economies are powered by coal, and the rest of the world is not going to stop burning coal and consuming coke for steel production. Still, the future of coal as the dominant energy source for production of electricity is not exactly rosy. But, the future of coal stocks, at least within my investment horizon, looks promising.
The modern analogy to the Civil War's negative impact on the whaling industry in the 19th Century is our very own President Obama's war on the coal industry, with the EPA standing in for Confederate marauders. These days, coal operators are being blown out of the water by the EPA's regulatory broadsides. Coal may be embattled, but the war is not lost. The war will end in November, 2016.
Furthermore, if the history of fossil fuels and the positive forces of human ingenuity are a guide, coal mining and coal burning will become less of an environmental burden.
Considering the politics and the science, and considering my long time horizon, I am bullish on coal stocks.