I am retired and take educated guesses on all things financial.

March 05, 2011

March 5, 2011: Coal, Not Yet A "Fossil"

Most of us know coal as a dirty, black, smelly fossil fuel that has made investors some clean, green and sweet profits recently. I believe that investment in coal remains bullish,and here's why:

1. While the media focuses on new energy technologies, the truth is that less than of power produced worldwide is through solar and wind. While there is obviously growth potential, the cost outweighs the hype in our present economic environment.

2. Natural gas supplies only 20% of electricity globally.

3. Steel production uses over 10% of world coal production. 70$ of the world's steel
production requires coal as the primary energy source. It takes approximately
1300 lbs. of coal (coke) to produce one ton of steel.

4. Over 40% of the world's electricity comes from coal-fired plants.

5. China,the worlds largest consumer of coal, with even more coal-fired power
plants coming online, is betting on fossil fuel even as it sells alternative energy technologies to the West.

6. Coal usage is expected to trend up over the next decade. Cleaner coal technology
is already showing improvements in carbon and other pollutant emissions.

Over 10% of United States coal production is slated for export. This figure may rise to over 20% over the next few years as China continues to grow, India begins to provide more power options and third world economies ramp up to satisfy the increasing power needs of their people. Michael Kijesky, a Senior Research Analyst for the closed-end fund Petroleum and Resources (PEO), continues to hold the following in PEO's portfolio for continued profits: Cliffs Natural Resources (CLF), Consol Energy (CNX),and International Coal Group(ICO). Some investors will recall that PEO is the other closed-end fund within the Adams Express(AEX) brand.

While coal is appealing, my view is investors should be selective about the companies in the sector they select for portfolio inclusion. The quality of reserves, type of coal and easy access to transport are important. This is why I do not subscribe to Market Vectors' Coal ETF (KOL) as the best coal investment vehicle at this time.