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Investing in Coal
Investing in Coal:
Take a Little Trip with Me
A Special Report for Dynamic Market Alert
by Andrew Snyder
Editor, BreakAway Investor and Fear and Greed
Let's take a little trip in my time machine. I will punch in the numbers; you hold on tight.
Once the gears stop clanging, the floor stops shaking and the lights stop flashing, the doors will open to a breathtaking scene. We will be in northeastern Pennsylvania and the year will be 1906.
The region is bustling with activity as the nation's industrial revolution winds down. Courageously taking a step out of the time machine, we notice the wooded rolling hills on the horizon are dotting with rickety houses, small stores and busy factories, each has a dark plume of smoke rising from its chimney. It's from the coal they are burning.
Way off to the right, there is a distinct concentration of activity, lots of wooden wagons and what looks like a steam engine and an improvised railroad station. Every few minutes, a huge fog of black dust envelopes the scene and the ground shutters. It's a coal mine.
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If we had the guts to stray from the time machine, we would see scenes like this all over the state. Pennsylvania's vast anthracite coal seams propelled this nation through the industrial revolution. Figuring out how to get it from the mines to the power plants was a major hurdle. It fueled invention and made the railroad industry extremely powerful.
Investing in Coal: China's Dependency on this Alternate Energy
Now, let's get back in the time machine and head home. But first, I want to take you to present-day China. Again the lights flash, the floor vibrates, and something squeals (it must be the new fan belt I put on yesterday). After a few nervous seconds and good nudge, the door opens... most of the way. It's just far enough so that we can squeeze through.
This time when we get out, we see wooded rolling hills, with rickety houses, small stores, and busy factories, each with a dark plume of smoke rolling out of its chimney. It's eerily similar to the scene we just came from.
Within seconds, it is brutally clear China is where America was 100 years ago. Their industrial revolution is slowing down, commodities are getting expensive and scarce, and greed is running rampant.
China's Struggling Coal Industry
Just recently, The New York Times ran an article detailing China's struggling coal industry. The nation wants and needs to burn every ounce of coal it can get its hands on. But it lacks the infrastructure to get it.
The story discusses a 260-mile trip from the coal mine to the power plant that would take a day to complete here in the States. In China, it takes more than five days.
The trucks carrying the coal get caught for days in "inspection lines." They inch closer to their destination one trailer length at a time, moving forward only as the lead truck pays its $7 toll and moves onto the next local government bottleneck.
Miniature towns evolve alongside the coal lines. Attending to the truck drivers has become its own industry, a very lucrative one. With no other options, these trucks are the only way to get a desperately needed fuel to their final destination.
They may be moving only a mile or so a day, but these trucks are carrying the fuel that is feeding China's economy, one that is expanding by double-digit percentages each year.
The U.S. Dependency on Coal
The coal industry has been modernized in the United States, but our dependency is the same, if not worse. Train-load after train-load (18 miles' worth) leaves Wyoming's vast coal mines every day. Just one bottleneck brings the entire system to its knees.
Railroads like Burlington Northern Santa Fe (BNI:NYSE) and Union Pacific (UNP:NYSE) will spend billions this year shoring up their tracks and expanding the coal industry's capacity. They have to. Demand for their product is increasing by the minute. Ninety-nine percent of all coal is transported via the nation's rails.
And the Department of Defense complicated the problem. Over the last century, coal was used primarily as a fuel source to generate power, heat homes and make steel. Now the Air Force wants to use it to fuel its planes.
Within 10 years, the Air Force wants half of its aviation fuel to come from alternative sources. It is a figure that comes to 1.6 billion gallons of fuel, worth more than $2.35 billion dollars.
Right now, the main source of alternative fuel is coal. B-52s, C-5s, F-18s, they are all going to be running on coal. There are a handful of companies converting dirty, black coal into top-dollar jet fuel in the United States.
The Department of Defense loves what they are doing. It knows their technology is a great way to significantly reduce our addiction on foreign oil.
Across the globe, coal is the silent propellant feeding the global economy. If supplies were shut off, electricity would stop flowing, factories would shut down, and now, planes would fall out of the sky.
Mainstream media may be talking about oil, but the real story is happening in the coal industry. It's America's true addiction - an addiction so strong that we move mountains to get the stuff.
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Copyright 2006, The Taipan Group, LLC and Dynamic Market Alert, 808 St. Paul St., Baltimore, MD 21201
All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the publisher.
Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.