By 2017, coal consumption will nearly equal consumption of oil as the leading source of the world’s energy. The International Energy Agency (IEA) estimates that global coal consumption will reach 4.32 billion tons of oil equivalent in 2017, just shy of 4.4 billion tons for oil itself. Coal demand will grow everywhere except in the United States, where cheap natural gas will continue to push out coal burning.

The IEA’s executive director said:

[T]he world will burn around 1.2 billion more [metric tons] of coal per year by 2017 compared to today – equivalent to the current coal consumption of Russia and the United States combined. Coal’s share of the global energy mix continues to grow each year, and if no changes are made to current policies, coal will catch oil within a decade.

The growth of coal consumption will be greatest in China and India, with China assuming the role of the largest consumer of coal and India replacing the U.S. as the second-largest consumer. India will become the world’s largest importer of seaborne coal.

Coal burning to generate electricity will rise in Europe, where natural gas prices remain high because the continent imports so much expensive natural gas, primarily from Russia.

How this will play out for U.S. coal miners like Peabody Energy Corp. (NYSE: BTU), Arch Coal Inc. (NYSE: ACI) and others depends on their ability to get U.S. coal to export terminals for shipment overseas. That depends on expanding coal terminal facilities, currently a subject of heated discussion, particularly on the West Coast.

As we noted in our outlook for coal in 2013, there are a lot of risks in coal stocks. While a short-term rally is possible next year, betting on a longer term rally will take nerves of steel.

Paul Ausick

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