Why the world still needs coal

published 27 July 2007

When it comes to energy, oil hogs the headlines. Yet the world is also heavily reliant on coal, says Justice Little on The-rude-awakening.com. Coal accounts for a quarter of global energy consumption, behind oil at 39%. Over half of America's electricity stems from the dirty fossil fuel; in China and Poland, the figures are almost 80% and over 90% respectively.

Coal prices have been climbing over the past few years as demand has risen, and demand will keep rising, says FAZ.net. In Asia it has jumped by 61% in the past decade, while in America it is up by 9.1%. As so often when it comes to commodities, China is "the big fat soot-stained elephant in the coal boiler room", says Seekingalpha.com. China, despite being the world's biggest coal producer, is due to become a net coal importer in the next year or two, according to government officials. India, with its fast-growing population, will consume four times more coal by 2031, according to its government. "The world will not be going off coal anytime soon," says Little. That's partly because high oil prices are stimulating demand for the development of "clean coal" technologies, such as coal-to-liquid technology, whereby the environmental damage is reduced.

All this makes coal stocks worth a look. The best bet at present may be Peabody Energy (BTU,$48), a low-cost producer that is considered the best-managed firm in the sector, says Jon Markman on Moneycentral.msn.com. On a price-to-earnings-growth ratio of just over one, it is deemed a buy by UBS and Bank of America.