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Asian Market Could Help U.S. Coal Companies Grow

Coal is an important part of global energy portfolios and holds an approximately 30% share in total global energy. In recent years, lower natural gas prices, strict environmental regulations and weak global economic growth have adversely affected coal demand and coal prices. The weak coal market conditions have weighed on the market values of U.S. coal companies. Going forward, despite the strict environmental regulations, I believe coal will continue to hold a dominant position in global energy portfolios and coal demand will continue to increase, mainly backed by a rise in coal consumption in Asia. I believe U.S. coal companies should target to increase their coal exports to tap the available growth potential of coal consumption in Asia; coal-fired electricity capacity in Asia is expected to double by 2035. If U.S. coal companies are able to increase their coal exports to Asia, this will help them offset weak coal demand in the U.S. and fuel future growth.

Opportunity for Higher U.S. Coal Exports

Despite the tough environmental regulations, the International Energy Agency projects that global coal demand will increase to 9 billion tons per annum by 2019, up 2.1% on average. The growth in the power sector will fuel growth in coal demand as coal-fired electricity generation capacity is expected to more than double in Asia from 2014 through 2035. Electricity generation capacity in Southeast Asia is expected to increase from approximately 700TWh in 2011 to 1,900TWh in 2035, mainly led by China and India. Due to its low cost and abundant supply, coal emerges as the fuel of choice for electricity producers. Coal is the cheapest source of electricity generation, as it costs $82 per MWh, as compared to the costs of natural gas and offshore wind being $84 per MWh and $189 per MWh, respectively.

Source: seekingalpha.com