The Dirty Truth About Coal

In last week’s issue of The Energy Letter, we took a look at the recently released BP Statistical Review of World Energy 2013. The focus then was on the production, consumption and reserves data for petroleum. Now let’s turn to the trends for coal, natural gas, nuclear power and renewables. In this week’s issue of The Energy Strategist, I will take a deeper dive into some of these areas and discuss the investment implications.


During the first few years of the previous decade, global coal consumption began to rise rapidly. Between 2002 and 2012, global coal consumption rose by 55 percent, from 2.4 billion metric tons of oil equivalents (btoe) per year to 3.7 btoe per year. This increase was overwhelmingly driven by increased coal consumption in China, which rose by 1.1 btoe per year (87 percent of the global increase).

coal consumption chart

China’s coal consumption increased by 6.1 percent from 2011 to 2012, and for the first time has exceeded 50 percent of the global total. China continues to build out coal-fired power plants at a rapid pace, and this will likely continue to be the single biggest contributor to global carbon dioxide emissions, which set a new all-time high in 2012.

Since the Fukushima Daiichi nuclear accident in Japan in 2011, a number of countries have announced or have begun to implement a phaseout of nuclear power. Two of those countries are Japan and Germany, and both have had to rely on coal-fired power in the short term to make up for the loss of nuclear power. From 2011 to 2012, coal consumption in Japan increased by 5.4 percent, and by 3.9 percent in Germany.

Coal consumption in the US has continued to decline as electricity production from natural gas and renewables rises. Between 2011 and 2012, coal consumption in the US fell by 11.9 percent. US coal consumption has fallen in four of the past five years, and is presently 24 percent below 2007 levels.

Natural Gas

China may be the biggest story in the coal sector, but the continued resurgence of US natural gas production is the biggest story in the world of natural gas. US natural gas production has risen every year since 2005, and 2012’s record production of 65.7 billion cubic feet (bcf) per day represented 20.4 percent of the world’s total.

Globally, natural gas production increased from 318 bcf to 325 bcf, a 1.9 percent increase from 2011 to 2012. The US was responsible for just under 50 percent of the global increase as the fracking revolution showed no signs of slowing down in 2012.

Global natural gas consumption also set a new record in 2012, with the US, China, Japan, and Saudi Arabia seeing demand grow by at least 1 bcf/day apiece. The 2.9 bcf/day increase in the US led the world, and was primarily a result of coal-fired power plants switching to natural gas.

Nuclear Power

The global picture in the nuclear power sector has been ugly since the Fukushima accident. World consumption of nuclear power fell by 4.2 percent in 2011, primarily due to the sharp drop in nuclear power production in Japan. But 2012 saw output fall in more than a dozen countries. The total decline in 2012 of 6.9 percent was the largest ever experienced in the history of nuclear power.

nuclear power consumption chart

China, South Africa and Pakistan bucked the global trend by notching double-digit increases in their nuclear power consumption from 2011. Other countries increasing nuclear power consumption between 2011 and 2012 include the Czech Republic, Spain, Sweden, Argentina, Russia, India and Brazil.


Global consumption of renewable energy has exploded over the past decade, driven by high oil prices and expanding government mandates. Growth across all areas has been strong, with wind power notching the most impressive gains.

Denmark was the world leader in this area, deriving 19.9 percent of its energy from renewable sources other than hydropower. Portugal, Spain, New Zealand and Finland all obtained at least 10 percent of their power from renewables. For the US and China, 2.3 percent and 1.2 percent, respectively, of all power was provided by renewable sources.  

renewable electricity chart

Yet when compared with total global electricity consumption, the contribution from renewables barely registers. Further, the total increase in consumption of renewable power pales in comparison to the total increase in electricity consumption.

Renewable electricity market share chart

However, the renewable fraction of overall consumption has nearly tripled since 2002. The phenomenal growth rate from the past decade will likely slow over the next decade, but I expect growth in this sector will continue nevertheless.

second renewable market share chart


Portfolio Update
No Joy in Mudville

We are selling Joy Global (NYSE: JOY) from the Aggressive Portfolio.

Though this pick preceded us by a couple of years, we considered selling it on a couple of recent occasions and each time found the stock too cheap.

What’s changed since? JOY has continued to sink, giving every indication that it’s a value trap rather than a bargain at the current levels. And the entire commodity space on which the mining-equipment manufacturer is heavily dependent is in bad shape as well.

Recent turmoil in the credit and currency markets threatens to aggravate and prolong the economic slowdown in the emerging markets that have been the principal drivers of commodity demand. This is especially true for China, where the recent credit crunch, enforced by the country’s central bank, speaks to the leadership’s commitment to reform the economy even at the cost of much slower growth.

Joy Global does have some positives, including a reasonable valuation and positive cash flow, which could be spent on share purchases early next year. But that’s too long for us to wait given the likelihood of slower global growth and further market turmoil in the near term.

If you’re a shareholder and decide to hold on here, do yourself a favor and devise a contingency plan for liquidating the stock should it continue to drop. How much pain is enough? Will $45 do it? $40?

Holding on to big losers is seldom a good idea, and after whiffing on the chance to sell at a higher price a couple of times before we’re not going to take a strike three. The upside seems much more modest than the downside in the medium term, and that’s a far more important consideration than the purchase price, always. Sell Joy Global.  

— Igor Greenwald

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