The World's Most Hated Energy Source Could Make You a Fortune
It's the world's most preferred fuel for electricity generation, and people hate it... Even children don't like it. They're told if they misbehave, they could find a "lump of this" on Christmas morning.
If you haven't figured it out yet, I'm talking about coal. But before you tell me how the black rocks are the biggest threat to the planet since the last great meteor strike, hear me out.
There's no denying that coal gives off unwelcome pollutants. But plant efficiencies and technological advances have dramatically blunted the environmental impact -- and clean coal development continues to progress.
Still, many investors have been sold on the theory that coal is yesterday's energy source, not that of tomorrow. We're constantly told that fossil fuels are quickly becoming obsolete, and the future belongs to cleaner alternatives such as wind and solar power.
Don't believe it.
Don't get me wrong, I wholeheartedly support the pursuit of renewable energy sources (particularly those that are economically viable without taxpayer subsidies). But coal is still the king of the energy hill -- and it won't be knocked off for a long, long time.
Will coal eventually give way to other fuel sources? Probably. But it won't happen in the next quarter-century. In fact, the Energy Information Administration (EIA) is expecting global coal consumption to actually rise by 50% -- from less than seven billion tons in 2010, to 10 billion tons in 2030.
But before I get into the investment opportunity, let me briefly address the environmental aspect -- nobody likes the image of a factory belching pollutants into the sky.
I know coal isn't going to win any green awards. But much of the bad reputation is undeserved. The industry has actually made great strides in response to stringent air quality standards imposed by the U.S. Environmental Protection Agency (EPA) and other regulatory bodies.
Since 1980, U.S. coal consumption has risen by almost 80%, yet sulfur emissions have been slashed by 40%. The development of selective catalytic reduction (SCR) systems has eliminated 90% of nitrogen oxides (NOx). And there are all sorts of scrubbers to trap particulates and trace elements.
These and other innovations have greatly reduced coal's effect on climate change. And that's important, because the global economy would quickly shut down without coal.
Now, I've said before that affordable natural gas is displacing some coal-fired generating capacity. That's true in the United States, but that's not the case overseas. On a global basis, coal has been the fastest-growing fuel since 2000.
In China alone, coal is credited with providing power access to 450 million people in the past 15 years, according to the World Coal Association.
And consumption is projected to rise, not fall. Thanks to surging demand from Asia (which accounts for two-thirds of global usage), coal will meet 44% of the world's electricity needs by 2030, up from 40% today. And it's a thicker slice of a pie that grows bigger every year.
Europe is also becoming more reliant on coal in response to high natural gas prices and a backlash in some quarters against nuclear power. In India, imports of thermal coal soared more than 30% last year. And China is planning to build 600 megawatts of coal-fired power generation over the next 25 years. This increase represents more than the current coal generating capacity in the United States, Europe and Japan, combined.
Even 100 megawatts of additional capacity would require an additional 330 million metric tons of coal. China already burns far more than it can produce. In fact, the country had to import 182 million tons last year to cover the deficit.
And power generation is only half of the big picture...
Coal has several other important uses, most notably steel production. The world's mills produced 1.4 billion metric tons of steel in 2010. That production used up 720 million tons of metallurgical coking coal, which is used to make steel.
This means 50 pounds of this key raw ingredient are needed to make every 100 pounds of steel. And you can't build much without steel. The World Steel Association is forecasting 5% production growth in 2012, which would mean an extra 50 million tons of coal usage.
Add it all up, and you can see why the world is headed for a coal super-cycle over the next two decades. Global consumption reached a record 7.5 billion tons last year. And this number is headed higher. In fact, the IEA says the increase in coal consumption in the next 25 years will be more than double that of crude oil.
Action to Take --> This rise in demand will unlock numerous opportunities, from companies such as Fuel Tech (Nasdaq: FTEK) that help cut plant emissions to South Africa's Sasol (NYSE: SSL), a pioneer in the coal-to-liquid (CTL) fuel space.
So keep your eyes on what's going on in the coal sector. By the looks of it, the black rocks won't be going anywhere for some time to come.
-- Nathan Slaughter
P.S. -- Although he is an expert in the area, oil and gas is far from the only arena Nathan is profiting from. Scarcity & Real Wealth aims to profit from the rarest and most valuable assets on the planet -- precious metals, agricultural commodities, energy, and other natural resources. These critical inputs are in short supply, yet worldwide demand is on the rise, making these assets some of the best investments on Earth. You can learn about one important supply/demand imbalance Nathan has found that will be making headlines next year by visiting this link (and without having to watch a lengthy video).