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| Brought to you by The Oxford Club | Wednesday, June 1, 2016 |
Asia's Waning Interest in Coal: The End of U.S. Coal Exports?
 When I was 6 years old, I loved visiting my grandparents. My grandfather was a machinist at Ingersoll Rand Co.
Back in 1959, the company had a big plant in Phillipsburg, New Jersey. At the time, it was the largest manufacturer of pumps and compressors in the world.
Because of his profession, my grandfather liked to tinker at home. He had a big, old wooden workbench in his basement. I'd sit there for hours watching him fix something or make some sort of special tool he would use at work.
But the best part of my grandparents' basement - especially in winter - was the giant coal stove. It had two big doors in the front.
My grandfather would shovel coal from the giant pile in the basement's coal bin into the top door. There was a great bed of orange coal burning away inside. I would listen to it snap and pop as it heated up.
Sometimes I would be there when the coal delivery truck arrived. The driver would open a special loading door that led into the basement and tip the truck.
The coal would shoot down a slide into the bin in the basement. It was how everyone heated their homes.
Those days are long gone. I don't know of anyone who heats with coal today.
Today, utilities around the world use that heating coal, known as thermal coal, to heat water into steam to drive turbines connected to electric generators. In the U.S., utilities are slowly phasing out coal-fired generating plants.
Natural gas-fired plants, solar panels and wind farms are rapidly taking coal's place.
U.S. coal companies are hurting in a big way. Several have gone bankrupt.
So they've turned to Asia in hopes of increasing U.S. coal exports. Unfortunately, the U.S. isn't the only country in the world turning toward renewables.
The Final Frontier
The final frontier for coal has always been Asia, particularly China and India. However, that's quickly changing.
It's bad news for U.S. coal exporters.
China, Asia's biggest user of thermal coal, saw imports plunge more than 30% in 2015. Chinese utilities will import even less this year.
There are several reasons for the drop in imports. First, Chinese coal prices have dramatically dropped.
Second, the state wants to cut pollution and is steering energy-intensive industries to other energy sources. It turns out China's efforts to reduce coal use are moving faster than anyone thought they would.
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As the largest emitter of carbon pollutants (more than 25% of the world's emissions), China has a lot of work to do to meet its Paris climate commitments. However, it looks like China is going to hit its reduction levels well ahead of its 2030 targets.
In 2015 alone, China's carbon dioxide emissions fell by a record-breaking 2%.
That's impressive. That 2% amounts to more than the total emitted by Poland, Argentina or Venezuela. In fact, it's equal to all the emissions from the 100 countries that have the lowest emissions.
Another big reason for the drop in Chinese coal imports is China's switch to renewables. China is the biggest solar market in the world... and has been for three years running.
It's installing solar on factories, greenhouses and schools. Solar's effect on China's coal usage is nothing short of traumatic.
In 2010, coal-fired generating plants produced 68% of China's electricity. By 2013, that number dropped to 64%, and it's dropping more every year.
But China is not the only country in Asia where coal imports are dropping.
As Asia's second-largest importer, India is also seeing big drops in coal use. India's energy minister, Piyush Goyal, wants to completely stop coal imports by 2017.
That makes the International Energy Agency's 2015 forecast of India's continued thermal coal import growth look silly. It was outdated shortly after it surfaced.
That's not the first time the IEA has been wildly off on its future forecasts. So much for Indian coal exports.
Finally, Vietnam, which is rapidly moving into the 21st century, announced earlier this year that it's not going to build coal power plants as it previously said it would. Instead, it plans to rapidly accelerate its renewable energy investments.
From where I sit, it looks like the U.S. coal export market will flame out. Low prices around the world make it impossible for U.S. coal companies to make money by growing exports.
The bottom line is this: Coal's days are numbered. We knew that. But it looks like the demise of coal is happening much faster than anyone thought it would.
Good investing,
Dave The 100% Principal-Protected Way to Play Oil
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