By Keith Williams

June 25, 2017 -

Summary:

Recent data from capacity markets suggest significant challenges for old coal plants.

Investment in energy now strongly biased against coal.

Propping up old coal and nuclear plants becoming controversial.

President Trump to exit Paris Agreement: little change for coal stocks.

In evaluating prospects for specific coal companies in a declining coal market, it is important to consider the above potential tipping points and how they impact a target investment.

Recent years have seen dramatic pullback from coal, with several major US companies filing for bankruptcy. These companies have shed much of their debt and reemerged in the public markets. Last year, there was a ray of light when China dramatically slashed its internal coal production. This led to resurgence in coal sales and price. Here I address what is happening in 2017 and seek to identify key issues that indicate the next direction for coal stocks.

The Latest Statistics

BP  has just released its annual Statistical Review of World Energy June 2017. While BP is not necessarily an unbiased observer, in that it hopes to benefit from substitution of gas for coal, statistics don't lie. The report makes the observation that "perhaps the most striking feature across the different fuels was the continuing rapid descent of coal… and the share of coal within primary energy declining to its lowest level since 2004." Even more depressing for the coal industry, the report makes the following observation:

"The turnaround in the fortunes of coal over the past few years is stark; it is only four years ago that coal was the largest source of energy demand growth. There may be further ups and downs in the fortunes of coal over coming years but the weakness in recent years does seem to signal a fairly decisive break from the past."

The statistics for coal are interesting. Proven global coal reserves are currently sufficient to meet 153 years of current global production. This is roughly 3x the reserve to production ratio for oil and gas. So there is no shortage of coal.