China's Coal Addiction: More Than Just a Pollution Problem (COP, LUKOY, APC)

Explosive growth in coal burning in Asia from 2003 to 2005 has displaced a whopping ten million barrels equivalent daily of oil and gas. Instead of jawboning China to revalue its currency upward, perhaps world leaders should encourage China to spend more on cleaner oil and natural gas thereby creating some good inflation that would help to realign the currency. Analyzing the latest statistics in the BP Statistical Review of World Energy 2006 released last week, we were startled by the sudden acceleration of coal use in the past three years (see chart below). Not even the polluters will want to tolerate the environmental disaster that has been created.

Meanwhile natural gas and oil at higher prices are ultimately the most widely available alternative, we believe. All that coal burned in China bolsters the long-term potential of natural gas and oil producer buy recommendations including ConocoPhillips (COP), Lukoil (LUKOY) and Anadarko (APC).