Seeking Alpha
Profile| Send Message|
( followers)  

Coal, as measured by KOL, is up over 15% since the start of 2012, outperforming the S&P 500 by a wide margin -- SPY is up just a bit over 7%. Can these gains last?

The short verdict: I'm bullish on coal, though I do think it is susceptible to disruption from natural gas and perhaps even oil if fracking can put an end to peak oil. In terms of what constitutes the best investment opportunities and what takes the world to a place of energy abundance, though, nuclear is king; the others are just competing for second place.

Here's a run down on coal:

1. Peak Coal: True or False? Debates as to whether or not we have reached "peak coal" - the point at which the supply of easy-to-extract coal has reached its peak, thus suggesting that the price of coal will need to rise over a periods of decades, run wild on the internet. Has the peak come, or will a new technology - like what fracking has done for natural gas - come to coal? I'm not sure I can believe either side on this one, so the supply question is a draw for me. With that said, I do think the odds are favored towards the peak being here - it's a question of whether the technology that saves the day will emerge soon or not.

2. Emissions. Regardless of whether or not one believes CO2 emissions are a legitimate concern, the powers that be seem determined to make it a relevant issue. Carbon trading is a big business, but still, arguments are rampant that it is not enough to protect humanity from the alleged horrors of carbon emissions. Coal emits a whole bunch of nasty stuff in addition to higher CO2 emissions than other any virtually any other fuel, and so concerns about emissions will decrease demand for coal.

3. Chinese Demand for Coal Wavering. China is a huge consumer of coal, but its demand is wavering: there may be short-term oversupply as well as growing protests from its population due to pollution concerns. China also has more nuclear power plants in construction than any other nation, suggesting it has other plans in mind.

4. India Positioned to be Leader in Coal. While China's interest in coal may be hesitant, India is poised to become the largest driver of the coal market. For coal bulls, I think India is the "smart money" to remain focused on.

Ultimately, due to dollar devaluation and the rise of China and India, I consider it likely that coal will continue to rise, and that the US will increasingly find itself as a coal exporter. But because of the concern surrounding emissions and the need for cleaner forms of energy, as well as the ability of fracking to create new opportunities in natural gas and possibly oil, I think the better opportunities for investors lie in value networks of the nuclear and natural gas industries.

Source: Coal Up 15% Thus Far In 2012 - Trend Likely To Continue, But Are There Better Opportunities?