Tough Times for U.S. Coal

Article: WSJ, Coal Strikes a Tough Vein Over Costs, Natural Gas, Kris Maher
The Economist, Natural Gas: Cleaner, Not Cooler

The above article in Friday's Wall Street Journal notes that coal company stocks are down 30% over the last three weeks.  As a shareholder in Patriot Coal (PCX) I can attest to that.  The article cites higher costs due to declining coal seams in Apalachia, as well as increased competition from an increasingly abundant and inexpensive supply of natural gas.  Although coal is still the U.S.'s leading source for electricity generation, it's share has been declining for years, while natural gas' share has been increasing.

from the Wall Street Journal

My main hope for the shares in Patriot Coal is demand from China which is much larger than any other country in the world, and which continues to increase (see my article, Global Coal Consumption and Production, Fun with Charts).

As far as the replacement of coal with natural gas, I think it is a positive development for the country, given that the U.S. has an enormous supply of gas, and it is much cleaner than coal.  There are three articles on natural gas  in last week's Economist magazine, with one noting that while the burning of natural gas is relatively innocuous for human health, especially as compared to coal, which releases harmful soot into the atmosphere, coal actually contributes slightly less to global warming than natural gas.  This is not because coal emits less carbon than natural gas (in fact coal emits almost twice as much CO2 per kilowatt hour as natural gas) but because coal also emits sulphates into the atmosphere, which actually block the sun, and has a cooling effect that partially offsets the warming caused by CO2 emissions.

Natural Gas: Fracking in Europe

Article: Wall Street Journal, Fracking Pioneers Pierce Europe, Guy Chazan

 El Mundo (Spain), The United States' Dirty Energy Revolution, Pablo Pardo

Chesapeake Energy natural gas well in Bradford County, PA
from www.csmonitor.com

One of the biggest stories of the last few years is the growth of unconventional sources of energy.  In the U.S., this mainly means petroleum from the oil sands of Alberta and natural gas from shale, the latter being retrieved via a process known as “hydraulic fracturing”, or “fracking” for short.

The following article from Spain’s El Mundo: The United States’ Dirty Energy Revolution --translated into English on the website WatchingAmerica.com-- gives a good overview of how unconventional energy is transforming the “energy panorama” in the U.S, mainly by making the country much less dependent on world energy markets, and poses the question of whether this “revolution” will spread to Europe.

The WSJ article talks about an early effort to explore fracking in Southern England.  At this time the drilling has been halted, as the result of a minor earthquake, which some say was caused by the drilling.

I have recently become very interested in where the world gets its energy.   This topic is vitally important economically, politically, environmentally, and most importantly, for my investment portfolio.

As far as natural gas and fracking go, I have learned the following:

• Natural gas burns very clean (think of a gas stove), though it does produce carbon dioxide (CO2), the main greenhouse gas.
• It is estimated that the U.S. has at least 100 years supply of unconventional shale-based natural gas.
•  Fracking is a highly controversial practice, as there is evidence that it can lead to polluted aquifers.
• Fracking has been temporarily banned in New York State, but continues in Pennsylvania, Texas, Oklahoma and other areas.
• In Europe, fracking has been banned in France, but is being attempted in Poland, Northern Germany, the UK, and according to the El Mundo article, in Cantabria, Spain.
• One think tank estimates that Europe has at least 60 years of energy reserves in extractable natural gas, though I understand this to be a very preliminary estimate.
• Natural gas can be used to fuel vehicles, but in the U.S. very little infrastructure to provide it (i.e., gas stations) exists at this time.  When I lived in Spain ten years ago I saw buses and taxis that ran on natural gas.
• Natural gas is generally transported via pipelines.  In the absence of such an infrastructure it can be converted into liquid natural gas (LNG), and transported in ships, but the process is currently expensive and difficult.  

Arctic Princess Natural Gas Carrier
Courtesy of  www.ships-info.info

Because of its abundance, cheapness, and the fact that it does not have to be imported, many see natural gas as the solution to the United State's  energy problems, at least in the short-to-medium term.  To the extent that we are concerned about global warming and CO2 emissions, other green energy sources (wind, solar, etc.) may be preferable, but these technologies are not yet economically viable.  Assuming the dangers of fracking can be addressed or mitigated, the use of natural gas to replace sources of energy such as coal and petroleum –and possibly nuclear power—seems highly probable.