• 4 hours EIA Weekly Inventory Data Due Wednesday, Despite Govt. Shutdown
  • 8 hours Oklahoma Rig Explodes, Leaving Five Missing
  • 10 hours Lloyd’s Sees No Room For Coal In New Investment Strategy
  • 13 hours Gunmen Kidnap Nigerian Oil Workers In Oil-Rich Delta Area
  • 15 hours Libya’s NOC Restarts Oil Fields
  • 16 hours US Orion To Develop Gas Field In Iraq
  • 3 days U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World
  • 3 days Senior Interior Dept. Official Says Florida Still On Trump’s Draft Drilling Plan
  • 3 days Schlumberger Optimistic In 2018 For Oilfield Services Businesses
  • 3 days Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 4 days Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 4 days TransCanada Boasts Long-Term Commitments For Keystone XL
  • 4 days Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 4 days Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 4 days Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 4 days Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 4 days Venezuelan Output Drops To 28-Year Low In 2017
  • 4 days OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 5 days Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 5 days Kinder Morgan Delays Trans Mountain Launch Again
  • 5 days Shell Inks Another Solar Deal
  • 5 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 5 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 5 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 5 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 6 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 6 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 6 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 6 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 6 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 6 days Norway Grants Record 75 New Offshore Exploration Leases
  • 6 days China’s Growing Appetite For Renewables
  • 6 days Chevron To Resume Drilling In Kurdistan
  • 7 days India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 7 days India’s Reliance Boosts Export Refinery Capacity By 30%
  • 7 days Nigeria Among Worst Performers In Electricity Supply
  • 7 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 7 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 7 days Saudis To Award Nuclear Power Contracts In December
  • 7 days Shell Approves Its First North Sea Oil Project In Six Years
Alt Text

Federal Regulators Deal Huge Blow To The Coal Industry

The Federal Energy Regulatory Commission…

Alt Text

The Death Of Europe’s Coal Industry

A recent report suggests that…

Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

More Info

Morgan Stanley And General Electric: There Is Hope For Coal

Coal mining

Events have been so bad in coal for so long that it is easy to lose hope on the sector. Most of the publicly traded coal companies have lost 95 percent of their market value. Events are so negative that the dominant mining equipment maker in the sector, Joy Global, has agreed to sell itself to Japanese construction equipment firm Komatsu at a price that is a fraction of what Joy’s stock fetched a few years ago.

Against this backdrop, it is little wonder that investors are bearish on the industry. Yet in the last week there have been two separate events that suggest there may still be hope for the coal sector – but with a catch. Coal looks like it may have a future primarily outside of the U.S.

First, there are signs of coal shipments among the railroads. Following meetings with Union Pacific management, Morgan Stanley announced last week that coal and agricultural shipments appear headed for a stronger outlook. The upturn in those areas would benefit UNP and its peers with sector exposure. Railroads have been in doldrums for almost as long as coal has been. If coal volumes improve, that will boost profitability across the sector as cargo-volume growth would be immediately profitable due to current excess capacity.

Morgan Stanley noted in their analysis last week that while "visibility remains low, management expressed confidence that any volume rebound in 2017 would likely come with strong incremental margins and minimal service disruption". To be clear, Morgan Stanley is not looking for an immediate improvement. The sector may have bottomed, but recovery will still take time. The bank says that utility coal stockpiles remain large, but they are improving and that growth in coal shipments could arrive by 1H2017. Related: Goldman: The Rally Will Stall Regardless Of OPEC Freeze

The second positive event in the sector comes from industrial giant General Electric. GE is reportedly bullish on coal again the WSJ reports. GE sees opportunities in the space with executives citing opportunities to build long-term revenues through sales of equipment and services to existing coal plants. GE sees the chance to lock in decades of low-risk profits from current coal power plants. Those current plants are increasingly going to face a set of tightening emissions rules that require new pollution control equipment and installation. The regulatory environment shows no signs of changing, so that demand should increase consistently for the foreseeable future. Just as importantly, GE also sees potential from coal facilities construction in developing economies.

With demand for power rising in India and Southeast Asia, coal plant construction is booming. India in particular has a notoriously poor electrical grid that requires extensive upgrades. Southeast Asian economies have less of an infrastructure, but is growing quickly and looking to emulate the success of South Korea, Japan, and even China in developing. General Electric believes it can play a role in aiding those regions through coal power generation equipment.

None of this changes the outlook for coal overnight, nor does it mean that coal is likely to regain its former glory. But coal’s future may not be as bleak as many have assumed. Coal mining even within the U.S. is likely to continue under restructured and downsized coal miners. GE, Joy Global, and investors with the stomach for a stable but not growing industry can benefit from that trend.

By Michael McDonald of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News