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Gore Nightmare Wins as Europe Pays to Ship U.S. Coal (Update1)
By Christopher Martin
http://www.bloomberg.com/apps/news?pid=20601109&sid=aCDV150sCm1I&refer=home
Nov. 5 (Bloomberg) -- Now that the price of coal is at a historic low
relative to oil, there's no stopping consumers and producers alike
from embracing Al Gore's nightmare.
A ton of U.S. coal is so cheap at about $47 that European utilities
will pay $50 to ship it across the Atlantic, according to Galbraith's
Ltd., a 263-year-old London shipbroker. While oil and coal cost the
same as recently as 1998, West Texas Intermediate crude is five times
more expensive after climbing to a record $96.24 on Nov. 1.
Peabody Energy Corp., Consol Energy Inc. and Arch Coal Inc., the three
biggest U.S. coal companies, forecast the largest increase in exports
in 20 years, degrading the call for a moratorium on coal plants by
former U.S. Vice President and this year's Nobel Peace Prize winner Al
Gore. Coal use worldwide has grown 27 percent since 2002, three times
faster than crude, said BP Plc. U.S. East Coast coal has risen 71
percent, while oil tripled on the New York Mercantile Exchange.
``Coal is by far the cheapest fuel because there's no price on how
much damage it causes,'' said John Holdren, a Harvard University
professor of environmental science and director of the Woods Hole
Research Center in Falmouth, Massachusetts. ``Unless you get policies
to put a price on carbon dioxide and other emissions, no other plants
can compete.''
U.S. coal prices are equal to $1.98 for each million British thermal
units of energy, compared with $12.51 for fuel oil and $6.91 for
natural gas, data compiled by Bloomberg show. A million British
thermal units is the equivalent of eight gallons of gasoline.
Coal Companies
``There is a huge advantage with coal, and this will continue
indefinitely,'' said Gianfilippo Mancini, the head of fuel purchasing
for Enel SpA, Italy's largest power company, which is spending 4
billion euros ($5.8 billion) to convert oil-fed plants to run on coal.
Gore, 59, said five months ago the U.S. should adopt a ``complete
moratorium'' on new coal-fed power plants unless all of the carbon
dioxide from them can be buried underground. Government efforts to
subsidize coal as an alternative to oil would be a ``serious
mistake,'' he said in a June 1 interview on ``Conversations with Judy
Woodruff'' on Bloomberg Television.
U.S. coal exports to Europe for the first nine months of this year
were 11.4 million tons, up 15 percent from the same period in 2006,
according to the U.S. Energy Department. Coal generates 41 percent of
the world's man-made carbon dioxide emissions, blamed for the warming
of the Earth's climate, Gulf of Mexico hurricanes and rising sea
levels.
Stock Forecasts
The increased demand for coal boosted Peabody, Arch and Consol 36
percent from Aug. 3 to Nov. 2 in New York trading, according to
Bloomberg's U.S. coal index. Among Wall Street analysts, 76 percent
recommend buying shares of Peabody and 62 percent recommend Consol,
according to data compiled by Bloomberg.
Consol shares may gain 41 percent to $78, forecasts David M. Khani,
the head of research at Friedman, Billings, Ramsey & Co. whose call on
the stock last year provided 50 percent returns for investors,
according to data compiled by Bloomberg. He expects Peabody to
increase 25 percent to $64 and Arch Coal by 48 percent to $58.
``Consol is in a great position to take a big share of the new demand
from Europe,'' said Bill Wolf, an analyst at John T. Boyd & Co. in
Pittsburgh, which advises coal buyers and mining companies. Consol
operates a port in Baltimore that can handle more than twice the 6.3
million tons it shipped last year.
Pittsburgh-based Consol will open its largest metallurgical coal mine
by Jan. 1, with as much as 5 million tons of annual production
available to overseas buyers.
Climate Changes
More than 1,000 coal-fed power plants will be built in the next five
years, mostly in China and India, according to the U.S. Department of
Energy. China, the world's biggest coal producer, became a net
importer for the first time this year, taking supplies from Indonesia,
Australia and South Africa and reducing the amount available for
Europe.
``If those 1,000 plants get built without any controls on carbon
emissions, we will careen into unmanageable changes in our climate,''
the 63-year-old Holdren said in an interview. ``We need to motivate
carbon capture and storage through policy. We will still be using
coal, but in much smarter ways. It doesn't have to be an economy
buster.''
India needs to add 40,000 megawatts a year, or 30 percent of current
capacity, to maintain its 8 percent economic growth, said Jayarama
Chalasani, director at Mumbai-based Reliance Energy Ltd., India's
second-biggest utility.
`Growth Is There'
``What we're seeing right now is just great,'' said Sipho Nkosi, chief
executive officer of Exxaro Resources Ltd., the South African coal and
zinc producer. The rally in prices ``will continue because if you look
at the projections in China, the growth there is just phenomenal.
Whether you're talking America, Europe, Africa, Australia, Asia, all
economies are doing well. The growth is there.''
To be sure, proposed U.S. coal plants may not be completed because of
regulatory and environmental opposition. Kansas regulators last month
rejected a permit for a coal-fueled plant because its carbon emissions
were deemed a health hazard.
New cleaner-burning technologies for coal, such as one that converts
the fuel to a synthetic gas, have been delayed or rejected as too
costly. Financing new coal plants may also become more difficult as
environmental groups step up efforts against lenders including
Citigroup Inc. and Bank of America Corp.
Coal producers in the U.S. say sales in emerging markets are rising.
U.S. Exports
``I didn't know how to get coal to Romania a month ago but I do now,''
said Michael McQuillen, chief executive officer of Alpha Natural
Resources Inc., the coal miner in Virginia formed by First Reserve
Corp., the largest private equity firm focused on energy assets.
Russia, Ukraine and Romania are all looking to buy from the U.S., he
said.
U.S. coal exports have increased 37 percent this year and will
continue to climb because of record global demand and a weaker dollar,
analysts and executives say.
Port operator Kinder Morgan Energy Partners LP, a U.S. pipeline
operator, plans to expand its capacity to handle more coal as China,
the world's largest producer, becomes a net importer and Australian
exports are delayed.
``We see increased interest in coal exports at all of our locations,''
said Emily Thompson, a spokeswoman for Houston-based Kinder Morgan.
To contact the reporter on this story: Christopher Martin in New York
at cmartin11@bloomberg.net .
--
The object of life is not to be on the side of the majority but to
escape finding oneself in the ranks of the insane. -- Marcus Aurelius
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
Joseph R. Darancette
daranc@NOSPAMcharter.net
By Christopher Martin
http://www.bloomberg.com/apps/news?pid=20601109&sid=aCDV150sCm1I&refer=home
Nov. 5 (Bloomberg) -- Now that the price of coal is at a historic low
relative to oil, there's no stopping consumers and producers alike
from embracing Al Gore's nightmare.
A ton of U.S. coal is so cheap at about $47 that European utilities
will pay $50 to ship it across the Atlantic, according to Galbraith's
Ltd., a 263-year-old London shipbroker. While oil and coal cost the
same as recently as 1998, West Texas Intermediate crude is five times
more expensive after climbing to a record $96.24 on Nov. 1.
Peabody Energy Corp., Consol Energy Inc. and Arch Coal Inc., the three
biggest U.S. coal companies, forecast the largest increase in exports
in 20 years, degrading the call for a moratorium on coal plants by
former U.S. Vice President and this year's Nobel Peace Prize winner Al
Gore. Coal use worldwide has grown 27 percent since 2002, three times
faster than crude, said BP Plc. U.S. East Coast coal has risen 71
percent, while oil tripled on the New York Mercantile Exchange.
``Coal is by far the cheapest fuel because there's no price on how
much damage it causes,'' said John Holdren, a Harvard University
professor of environmental science and director of the Woods Hole
Research Center in Falmouth, Massachusetts. ``Unless you get policies
to put a price on carbon dioxide and other emissions, no other plants
can compete.''
U.S. coal prices are equal to $1.98 for each million British thermal
units of energy, compared with $12.51 for fuel oil and $6.91 for
natural gas, data compiled by Bloomberg show. A million British
thermal units is the equivalent of eight gallons of gasoline.
Coal Companies
``There is a huge advantage with coal, and this will continue
indefinitely,'' said Gianfilippo Mancini, the head of fuel purchasing
for Enel SpA, Italy's largest power company, which is spending 4
billion euros ($5.8 billion) to convert oil-fed plants to run on coal.
Gore, 59, said five months ago the U.S. should adopt a ``complete
moratorium'' on new coal-fed power plants unless all of the carbon
dioxide from them can be buried underground. Government efforts to
subsidize coal as an alternative to oil would be a ``serious
mistake,'' he said in a June 1 interview on ``Conversations with Judy
Woodruff'' on Bloomberg Television.
U.S. coal exports to Europe for the first nine months of this year
were 11.4 million tons, up 15 percent from the same period in 2006,
according to the U.S. Energy Department. Coal generates 41 percent of
the world's man-made carbon dioxide emissions, blamed for the warming
of the Earth's climate, Gulf of Mexico hurricanes and rising sea
levels.
Stock Forecasts
The increased demand for coal boosted Peabody, Arch and Consol 36
percent from Aug. 3 to Nov. 2 in New York trading, according to
Bloomberg's U.S. coal index. Among Wall Street analysts, 76 percent
recommend buying shares of Peabody and 62 percent recommend Consol,
according to data compiled by Bloomberg.
Consol shares may gain 41 percent to $78, forecasts David M. Khani,
the head of research at Friedman, Billings, Ramsey & Co. whose call on
the stock last year provided 50 percent returns for investors,
according to data compiled by Bloomberg. He expects Peabody to
increase 25 percent to $64 and Arch Coal by 48 percent to $58.
``Consol is in a great position to take a big share of the new demand
from Europe,'' said Bill Wolf, an analyst at John T. Boyd & Co. in
Pittsburgh, which advises coal buyers and mining companies. Consol
operates a port in Baltimore that can handle more than twice the 6.3
million tons it shipped last year.
Pittsburgh-based Consol will open its largest metallurgical coal mine
by Jan. 1, with as much as 5 million tons of annual production
available to overseas buyers.
Climate Changes
More than 1,000 coal-fed power plants will be built in the next five
years, mostly in China and India, according to the U.S. Department of
Energy. China, the world's biggest coal producer, became a net
importer for the first time this year, taking supplies from Indonesia,
Australia and South Africa and reducing the amount available for
Europe.
``If those 1,000 plants get built without any controls on carbon
emissions, we will careen into unmanageable changes in our climate,''
the 63-year-old Holdren said in an interview. ``We need to motivate
carbon capture and storage through policy. We will still be using
coal, but in much smarter ways. It doesn't have to be an economy
buster.''
India needs to add 40,000 megawatts a year, or 30 percent of current
capacity, to maintain its 8 percent economic growth, said Jayarama
Chalasani, director at Mumbai-based Reliance Energy Ltd., India's
second-biggest utility.
`Growth Is There'
``What we're seeing right now is just great,'' said Sipho Nkosi, chief
executive officer of Exxaro Resources Ltd., the South African coal and
zinc producer. The rally in prices ``will continue because if you look
at the projections in China, the growth there is just phenomenal.
Whether you're talking America, Europe, Africa, Australia, Asia, all
economies are doing well. The growth is there.''
To be sure, proposed U.S. coal plants may not be completed because of
regulatory and environmental opposition. Kansas regulators last month
rejected a permit for a coal-fueled plant because its carbon emissions
were deemed a health hazard.
New cleaner-burning technologies for coal, such as one that converts
the fuel to a synthetic gas, have been delayed or rejected as too
costly. Financing new coal plants may also become more difficult as
environmental groups step up efforts against lenders including
Citigroup Inc. and Bank of America Corp.
Coal producers in the U.S. say sales in emerging markets are rising.
U.S. Exports
``I didn't know how to get coal to Romania a month ago but I do now,''
said Michael McQuillen, chief executive officer of Alpha Natural
Resources Inc., the coal miner in Virginia formed by First Reserve
Corp., the largest private equity firm focused on energy assets.
Russia, Ukraine and Romania are all looking to buy from the U.S., he
said.
U.S. coal exports have increased 37 percent this year and will
continue to climb because of record global demand and a weaker dollar,
analysts and executives say.
Port operator Kinder Morgan Energy Partners LP, a U.S. pipeline
operator, plans to expand its capacity to handle more coal as China,
the world's largest producer, becomes a net importer and Australian
exports are delayed.
``We see increased interest in coal exports at all of our locations,''
said Emily Thompson, a spokeswoman for Houston-based Kinder Morgan.
To contact the reporter on this story: Christopher Martin in New York
at cmartin11@bloomberg.net .
--
The object of life is not to be on the side of the majority but to
escape finding oneself in the ranks of the insane. -- Marcus Aurelius
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
Joseph R. Darancette
daranc@NOSPAMcharter.net
