BP Energy Outlook is bullish for coal

Despite the push to swap to cleaner burning fuels, the oil giant sees long-term growth for the coal industry.

By Benzinga Jan 22, 2014 11:08AM

BP sign in Europe © Image Broker/Rex FeaturesBy Jonathan Yates

 

Even though BP (BP), the London-based oil and gas giant is "Big Oil" in every way, its recent "BP Energy Outlook" is actually bullish for coal. BP projects global energy demand increasing 41 percent from 2012 to 2035.

 

Coal will continue to play a major role in meeting the world's energy needs, which is bullish for securities in the sector such as Market Vectors Coal (KOL), the exchange traded fund for the industry, and Peabody Energy (BTU), the blue chip firm of the group.

 

What makes this bullish for coal is that 95 percent of the growth in demand will come from emerging market economies such as China, India, Brazil, and other countries.

 

About the usage of coal, the BP Energy Outlook states that, "After oil, coal is expected to be the slowest growing major fuel, with demand rising on average 1.1 percent a year to 2035.

 

Over the period, growth flattens to just 0.6 percent a year after 2020. Nearly all (87 percent) of the net growth in demand to 2035 is expected to come from just China and India, whose combined share of global coal consumption will rise from 58 percent in 2012 to 64 percent in 2035."

 

Based on what has happened to the coal industry in recent years, that is actually quite bullish.

 

Over the past year, Market Vectors Coal is down by 26.30 percent. For the same time period, Peabody Energy is off by 27.98 percent. There are a variety of factors for that performance.

 

The Great Recession resulted in less coal being used. Growth in major coal users such as India and Brazil has been anemic. China is coming along, but nowhere near the double digit economic expansion of before.

 

Natural gas is also replacing coal as it is a cleaner burn. This and more has resulted in what is known as "The War on Coal."

 

While coal companies have gone bankrupt, the entire industry will not. Market Vectors Coal and Peabody Energy should offer upside for long-term investors. Each is up over the last week and six months of market action, so there are bullish buying patterns in the market for Peabody Energy and Market Vectors Coal.

 

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