The war on coal has been a failure.
At least, that's how coal investors have seen it over the past few weeks.
Of course, you may remember last month (July 1, to be exact) when I told you to buy coal stocks after Obama began pushing his climate change agenda again, writing:
... the global demand for coal is not waning. In fact, it's growing quite rapidly. Look to the east and look to the west and you will see nations desperate to lock in long-term supplies of one of the most sought-after exports the United States has to offer: coal.
Bottom line: If you want to play coal, don't be scared off by Obama's climate change plan.
Instead, use this opportunity to pick up some fairly cheap coal stocks.
I even told you to check out the following plays...
Let's see how they've preformed since then:
- CONSOL Energy (NYSE: CNX) – Up 14%
- Arch Coal (NYSE: ACI) – Up 19%
- Alpha Natural Resources (NYSE: ANR) – Up 21%
- Peabody Energy (NYSE: BTU) – Up 21%
Of course, this doesn't mean coal-fired power generation isn't on its way out here in the United States. And it definitely doesn't mean coal-fired power plants aren't being squeezed out of the marketplace.
Truth is, in just five years, coal's total contribution to our energy mix fell from 48.5% to 37.4%. This was from 2007 to 2012. And by 2020, it is expected that coal will contribute less than 30%, with natural gas and alternatives picking up the difference.
So the question is: Is this a result of an actual war on coal — or instead, the very predictable results of a very disruptive market transformation?
A War on Coal?
There's no doubt that the EPA and the Obama administration have made few friends in the coal industry.
With the president getting a second wind on his climate change agenda — coupled with new limits on coal-fired power plant emissions — it shouldn't be surprising that so many folks do, in fact, believe there is a war on coal in America.
But it's much deeper than that.
Sure, this administration has made it very clear that it prefers to back natural gas and alternatives over conventional coal-fired power generation. But even if the president does have it in for coal, shoulder chips and philosophical differences alone aren't enough to damage such a powerful industry.
And while many of my environmentalist friends will scold me for my objectivity here, there is no doubt that coal's struggles are the result of both dirt-cheap natural gas and government pressure.
The Shunning of King Coal
Greenpeace demonstrations and Al Gore movies aside, only a fool would believe the natural gas boom has not been the primary facilitator in the shunning of King Coal (although political and public pressure has also certainly served as an instigator).
Of course, I'm not sure much of this really matters, anyway. The bottom line is that coal-fired power generation in the U.S. will continue to be phased out going forward.
And instead of worrying about why this is happening, I'm more concerned with how to profit from this reality...
For me, the most obvious has been — and continues to be — natural gas.
From up-and-coming shale producers to natural gas infrastructure plays... there's simply no better time to load up on natural gas, as it steadily continues to eat away at coal's domestic market share.
Another interesting way to profit from the coal industry's bad luck is by playing the companies that are now decommissioning all of these old coal-fired power plants.
According to a recent report from Navigant Research, the market for coal plant decommissioning in North America and Europe will grow from $455 million this year to $1.3 billion by 2016.
That's a pretty big jump in just three years. And cumulative revenue is expected to reach $5.3 billion by 2020. Not bad.
Now there are only a few major companies that can handle these types of jobs, and even fewer that are publicly-traded.
TRC Companies, Inc. (NYSE: TRR) is one — and its stock has been on a tear over the past few months, nearly doubling since June.
It has since retreated a bit, but I'd be hesitant about paying more than $7 a share for this thing right now. It should also be noted that this is not a pure play on power plant decommissioning and demolition, although I do like the company's multidisciplinary approach to energy and infrastructure markets.
In any event, regardless of why it's happening, there should be no doubt that coal-fired generation in the United States will continue to diminish going forward.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.