Arch Coal (ACI) and Peabody Energy (BTU)
This article from today’s Wall Street Journal explains the cost disadvantage of coal versus natural gas, a key concern surrounding coal producers like ACI and BTU. The facts presented in the article are not new information, but there is a good chance that the article contributed to today’s negative sentiment for coal producers.
Coal currently accounts for about half of the nation’s electricity, compared with 21% from natural gas. But, as the article notes, natural gas plants can be built more quickly and inexpensively than coal plants. Even more, natural gas plants release about half as much carbon dioxide as coal to produce similar amounts of electricity. This could put coal at a big disadvantage if Congress passes a climate-change bill that caps such carbon emissions.
The article also points out that power companies are beginning to ratchet back investments in coal-generated plants to take advantage of low gas prices and hedge against costly climate-change legislation. Gas generators are beginning to chip away at coal market share with lower prices. Also aiding natural gas’ cost advantage is the fact that gas-fired power plants can convert fuel into electricity more efficiently than coal units, and it is much cheaper to move natural gas than coal.
Peter J. Lazaroff
Monday, June 15, 2009
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