King Coal or King Saud?

That's the choice America needs to make. You can sugar-coat it any way you like, you can tell me there are scores of other "nuances," you can wail that neither are good choices environmentally -- then you can leave your well-heated office, get in your SUV and drive to your well-heated home where you can turn on your computer, watch television, do the laundry, read a book by incandescent or that god-awful fluorescent light that Congress has decided we must buy, or any of a dozen other activities that require electricity or fuel. Americans are not going to live in unheated igloos. We are not going to take public transportation powered by solar panels on the roof (at least not this year.) We are not going to stop computing, watching television, reading, or doing the laundry.

Coal prices have been tumbling even more than oil and gas prices. The common wisdom is that since the President-elect said during the campaign that he would destroy the coal industry, then we'd all better sell our coal stocks and buy solar and wind energy companies. I say "horsefeathers."

Let me put it this way: "When a President with a reputation for sweeping reform meets an industry with a reputation for being essential to the well-being of the country, it is the reputation of the industry that will survive." (Apologies to Warren Buffett!) If we are serious about weaning ourselves from smarmy foreign sources of energy, then we must proceed with all haste to exploit our 200 years worth of coal. It may be dirty today, but by extending existing technological research, we could have clean liquefied coal way faster than we could put a man on the moon, something we did, ah, yes, some 39 years ago… I would ask our new President a simple question: "Do you want King Coal or the Kingdom of Saud?" There is no other choice this year, this month, this day.

Solar is, thankfully, becoming cheaper and more efficient. But with the umbrella of high oil prices fast fading into distant memory, there will be less incentive, and less profit, in continuing this essential research. Ditto for nuclear. Wind power is becoming cheaper, too, but wind, hydroelectric, biomass and geothermal will never supply more than a fraction of the energy we need. Still, politicians have an affinity for hot air so expect them to continue to bloviate endlessly about wind power.

If we really want to do something about energy efficiency, we should spend our research dollars and innovation in the area of storage and transmission. The wonder of it all is that you can be served by a utility fired by natural gas that has a peak overload when you go to turn on your computer at 9 p.m. on the Pacific Coast and you'll never know it. That's because your utility is tied in to a rickety patchwork of electrical grids that allows them to buy 5 seconds or 5 hours of power from a utility across the continent where it is now midnight and everyone there has shut down for the night.

It doesn't matter if the power plants that create this electricity create it from nuclear, solar, gas, wind, geothermal, biomass or oil -- once it is converted into electricity it is readily transported at a speed and cost taking the raw material via truck or railcar cannot begin to compete with. Rather than regulate utilities county by county and state by state, we could locate wind-generated power plants where the wind is, solar plants where the sun always shines, coal plants next to the coal fields, etc.

To do this requires taking the crazy-quilt patchwork utility executives have stitched together out of necessity and creating instead a true national grid. One of those massive power lines you see as you drive about can carry about 1% of the nation's average electrical load. If we were to string them together in a truly national grid -- and add another 20,000 miles or so to reach into every nook and cranny -- we could have a remarkably efficient way to generate electricity and tell Venezuela, Iran, Nigeria and even our dear friends the Saudis, "No thanks, we don't need as much oil this year as we did last year."

Which brings us back to King Coal. Since coal is used more than any other fuel to provide electricity, and electricity is the most efficient way to move power around the country, and since the US has more coal than any other nation in the world, I say we'd be particularly stupid not to play to our strength. Hence my decision to double down on our investments in companies like Natural Resource Partners (NRP) and Penn Virginia Resources (PVR). Neither have any liability for operations since they don't operate but merely own or lease the land on which others extract the coal. They collect royalties which allow them to pay great double-digit dividends, and enjoy earnings that will increase every year that we continue to use electricity. I'm OK with that. But then, I'm a geopolitical analyst by training and experience as well as a financial analyst.

I know how I answer the question, "Do you want King Coal or the Kingdom of Saud?" King Coal, thank you.

Disclosure: Long NRP and PVR.

Comments

[WebWriter:]

I totally agree. You have to separate campaign talk and the reality of the situation. Coal is our best chance of bridging to the "alternative energy" technologies, or keeping our heads above water, whichever comes first. In addition to this being a great time for NRP and PVR, which have been beaten down unjustly, it is a good time for electric utilities. However you make it, electricity is what powers the country. With their prices beaten down way more than are justified, the yield on these through the roof. (Don't overlook that yield is the dividend divided by **what you paid** not the current price. So when their prices are back and the posted yield is back to single digits, you are still making double digits on your investment.). I like UTF as a great way to buy the utility group, with a current 20+% yield!

2008 Dec 08 11:10 AM

[User 315243:]

What Obama said was a new power plant that elected to pay carbon taxes to continue polluting instead of mitigating CO2 emissions via sequestration would go bankrupt. Oddly, it's exactly the same thing John McCain says.

2008 Dec 08 11:11 AM

[The Proclaimer:]

Those with an open mind have seen the light. Economical Clean Coal Technology has arrived and will bring 1) a cleaner Enviroment, 2) Economic Recovery, 3) Prosperity for all.

Merry Christmas and a Happy New Year to all

2008 Dec 08 11:14 AM

[Steven Ward:]

I am now considering my first investment in coal. Why? Because of all the negativity and the falling prices.
Congress has not treated coal well. If that's not contrarian than I don't know what is.

I love bankrupt utilities. Most recover and do well such as LILCO and Columbia Gas.
Obama can make us a fortune if we just think in reverse.

2008 Dec 08 01:35 PM

[epeon:]

First, what falling prices? I have been looking at the spot price of coal and it is still about twice what it was last year. Can't say the same about oil, can we? At best, spot prices are down about 10% the last few months.

Secondly, there are some excellent coal companies out there. My favorite is ARLP and AHGP. These pay you a solid 10%+ dividend as they go up in value. Yeee Haaaah.

As far as clean coal, if you mean coal sequestration, sure it be. and, by the way, I have some excellent swamp land to sell you in Arizona.

2008 Dec 08 04:35 PM

[fran:]

all we have to do is figure out "how to mitigate" in an affordable manner.


On Dec 08 11:11 AM User 315243 wrote:

> What Obama said was a new power plant that elected to pay carbon
> taxes to continue polluting instead of mitigating CO2 emissions via
> sequestration would go bankrupt. Oddly, it's exactly the same thing
> John McCain says.
>
>
>
>

2008 Dec 08 05:44 PM

[rrbatch:]

Sorry, geopolitical (and financial) analyst - leave the design of power sources and grids to the engineers and utility executives who know what the technical limits and possibilities are.

You're right that coal will be our dominant power source for years to come. It won't replace oil, because 80% of the petroleum we consume is used for transportation. We don't have many coal-fired trains left, and the Stanley Steamer went out long ago. Haven't heard of a coal-fired airplane.

The conversion of coal to liquid fuel is an interesting concept but not yet reduced to commercial practicality. Rocketdyne (now part of UTX) has an interesting project underway to apply rocket engine technology to the issue. CO2 sequestration may also be viable before long, when you consider that KMP has a profitable network of CO2 pipelines supplying the pressurizer for secondary oil recovery from old Texas fields. So don't write off "clean coal".

Extending the power grid to transmit energy from coast-to-coast (or even mid west-to-coast) is a pipe dream. Even if the Feds overcome the NIMBY/green crowd to allow more transmission corridors (which won't happen), losses in the power lines will limit the economic distance that energy can be transmitted. We'll still need coal, nuke, and gas power plants near the point of demand for a long time.

BTW, PVR hedges its exposure to coal by deriving about half its profit from a thriving mid-stream gas business. I've enjoyed their juicy dividends for years.

2008 Dec 08 06:03 PM

[wallyjm:]

the germans in ww2 had the technology then to convert coal into diesel and oil to power subs, tanks, planes,trucks,etc. and they came close to getting an atomic bomb before we did. how come you never hear about that?

2008 Dec 08 08:25 PM

[Greg Pinelli:]

Steve Ward is another pretentious outlier I'd stay far away from....coal is going to have tremendous problems under an Obama administration..and if going opposite Obama appeals then I'd suggest you look VERY strongly at who has more heft..him or Steve whoever......
Nuclear...nat gas...oil..About coal..??? I'd be VERY cautious....

2008 Dec 08 09:39 PM

[NOWHEREMAN:]

Go for it Steve, Coal is the answer.

Whenever you get ridiculed by Georealist, you know you are on the right track. IMHO

2008 Dec 09 02:11 AM

[NOWHEREMAN:]

Hi Fran, ask JK for my email address. I know of a company which will interest you.

Take care.

2008 Dec 09 02:18 AM

[scfranklin94:]

wallyjim - look up Sasol in South Africa, their main business is coal to oil synthesis. It's about the highest polluting hydrocarbon process out there; no one that has seen the result would endorse building such a plant unless there was no other way to obtain crude oil.

2008 Dec 09 08:37 AM

[john s. gordon:]

rrbatch - conversion of bituminous coal to syncrude is more than an interesting concept, it was reduced to practice at wilsonville AL during 1982-85. then the program was killed by r.reagan in 1985.

watch out - the chinese will be doing it in commercial plants first.

sasol (fischer-tropsch) is a very roundabout inefficient way to generate diesel, wax, etc. plus lots of excess CO2 along the way.
> jack

2008 Dec 09 09:47 AM

[Ferdinand E...:]

The bottom line is adequate, inexpensive, and reliable energy. Now do the backward induction, and what you finally get is not turning your back on coal. Of course, nuclear is less expensive and has some other advantages, but there is no point in going into that...now.

2008 Dec 09 09:49 AM

[billp37:]

Coal combustion has unfortunate environmental consequences.

www.theoildrum.com/nod...

Mercury in New Mexico lakes is caused by Navajo, San Juan, and Escalante coal-fired electricity generation. This makes walleye and bass consumption risky - but we do it anyway, in moderation, of course.

If, in fact, electric shortages appear in the US within several years [see PNM FOIL 9 at website], then it will be interesting to see the widespread economic practical consequences.

2008 Dec 09 10:09 AM

[notsosmart:]

the author for some reason seems to ignore that 200years of coal becomes 50 years if it can be clean & liquified.who will invest in that equation? the saudis are now building solar energy plants(who has more sun than the desert) to sell electricity.also 2 new oil fields coming on line there.what are we building?whats coming on line here?

2008 Dec 09 12:51 PM

[The Proclaimer:]

Keep your swamp, my money is on Clean Coal/hydrocarbon Technology. Want to see a recent update? [e-mail]


On Dec 08 04:35 PM epeon wrote:

> First, what falling prices? I have been looking at the spot price
> of coal and it is still about twice what it was last year. Can't
> say the same about oil, can we? At best, spot prices are down about
> 10% the last few months.
>
> Secondly, there are some excellent coal companies out there. My favorite
> is ARLP and AHGP. These pay you a solid 10%+ dividend as they go
> up in value. Yeee Haaaah.
>
> As far as clean coal, if you mean coal sequestration, sure it be.
> and, by the way, I have some excellent swamp land to sell you in
> Arizona.

2008 Dec 14 10:35 PM

[The Proclaimer:]

To all of you that are too Sheepish to reply: You can now go to faqs.org/patents/a... and check it out for yourselves. [e-mail]
www.faqs.org/patents/a...


On Dec 14 10:35 PM The Proclaimer wrote:

> Keep your swamp, my money is on Clean Coal/hydrocarbon Technology.
> Want to see a recent update? [e-mail]

2008 Dec 17 09:43 PM