CONSOL Energy, Inc. (NYSE:CNX.WI)
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5 Years : From Jan 2013 to Jan 2018
U.S. coal companies are poised to benefit from a move away from nuclear energy because of concerns raised by the severe crisis at reactors in Japan.
More coal from the Appalachian mountains in the eastern U.S. will be routed to European power plants to replace an electricity shortfall in Germany, which this week issued a three-month ban on operations at seven old nuclear reactors. Germany's move is part of a broad backlash against nuclear power after last week's earthquake and tsunami crippled Japan's Fukushima Daiichi nuclear facility, where spent fuel is emitting radiation.
Additional coal will also have be diverted from Europe as Japan's nuclear capacity remains offline.
Coal miners that export from East Coast facilities--such as Consol Energy Inc. (CNX), Alpha Natural Resources Inc. (ANR), Arch Coal Inc. (ACI) and Patriot Coal Corp. (PCX)--now have the chance to fill the gap as Europe's traditional suppliers from South Africa, Russia and Colombia have redirected shipments to Asia to meet burgeoning demand there.
"The market looks pretty good for Europe for the longer term," said Dan Zajdel, vice president of investor relations for Consol, which has around 20 million tons of export capacity at ports in Maryland and Virginia. "It could be very profitable for us to ship over there."
The company is determining how much coal it will sell in longer-term contracts to its European customers and how much it will offer to the market for immediate delivery, Zajdel said.
Such one-time deals that are struck for the short term are becoming increasingly lucrative amid the nuclear shutdowns in Japan and Germany. Coal for power plants in Europe has jumped to $132 a metric ton from $123 prior to the disaster, according to a note from brokerage Stifel Nicolaus. Prices on the New York Mercantile Exchange have risen above $75 a ton, from $71.
This year, Patriot Coal has already booked about a million tons of thermal coal destined for Europe, compared with almost no thermal exports last year, said Janine Orf, Patriot's director of investor relations. The company ships out of ports in Maryland, Virginia and Louisiana.
"We are getting more interest," Orf said.
The additional bump in power generating coal demand after the Japan disaster comes as foreign consumption of U.S. coal has already been rising. Recent flooding in Australia has crimped exports from there, and the so-called thermal coal is increasingly needed amid the global resurgence in manufacturing.
As nuclear-generated electricity production wanes, coal and natural gas are the only alternatives at the moment that can pick up the slack.
"We expect the increased reliance on thermal coal will likely encourage more exports out of the U.S., especially on the East Coast," said UBS analyst Shneur Gershuni.
Total U.S. exports of thermal coal could jump 29% to 33.3 million tons this year, UBS estimates. The figure could grow another 27% to 42.2 million in 2012.
"We think that nuclear power is going to take a step back," said Shawn Reynolds, portfolio manager of Van Eck Global Hard Assets fund. "We are definitely expecting thermal coal to pick up."
Japan already imports around 120 million tons of thermal coal a year and will probably have to take an additional 5 million to 10 million tons this year while its nuclear plants remain shuttered, Gershuni said.
That means less coal will be available to other regional consumers like China and India, creating a ripple effect where some of the global 700 million tons of thermal coal will be diverted from Europe to Asia.
Ultimately, U.S. producers could ship an additional 5 million tons across the Atlantic Ocean, said Jefferies & Co. analyst Michael Dudas.
"It looks like the U.S. is going to be the swing supplier to Europe," Dudas said.
-By Matt Whittaker, Dow Jones Newswires; 212-416-2139; firstname.lastname@example.org