The Challenges for Coal Stocks are Just Beginning

2012 hasn't been a good year for coal stocks, and if the U.S. Energy Information Administration is right, the next eight years aren't shaping up to be any better. The EIA said in its recent Annual Energy Outlook report that 49 GW of coal generation capacity could be retired by 2020 -- that's a sixth of the nation's coal plants.

The level of retirements is only the reference case for the EIA's analysis and will be affected most heavily by the price of natural gas and economic growth. The worst-case scenario for coal is that gas remains at a low price and economic growth remains slow. Under those circumstances, as much as 70 GW could be retired.

Drivers of coal's demise
The EIA says that older, more inefficient plants in the eastern U.S. will be the first to go, pointing the finger of blame squarely at natural gas. Natural gas is hitting coal not only from an environmental-impact standpoint, but also on the marginal rate for power generation, and with the low price of natural gas, this makes coal power plants less profitable.


This is bad news for companies that supply coal to the nation's coal plants. Alpha Natural Resources (NYS: ANR) , Peabody Energy (NYS: BTU) , James River Coal (NAS: JRCC) , and Arch Coal (NYS: ACI) have already plunged this year, but the future trends aren't looking any better. They'll need to ration even more capacity to stay in business, and I wouldn't be surprised if losses continued to mount in coming years.

Foolish bottom line
Some investors think that when a stock is down, it will eventually bounce back. For coal, all of the evidence points not to a mere short-term plunge, but rather to a long-term decline in the industry. I still don't think coal stocks are good buys, no matter how far they've fallen, and more will end up in bankruptcy, just like Patriot Coal.

Investors should avoid coal stocks, but there are parts of the energy sector that are thriving. Find out which stock our analyst think is the only energy stock you need in our free report found here.

The article The Challenges for Coal Stocks are Just Beginning originally appeared on Fool.com.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Gumby

We are shutting down coal powerplants so we can keep burning firewood because of more room to polllute air all the same , anyway.. If we stop both, then it makes sense... If only coal not firewood then it is senseless!!

August 10 2012 at 11:17 AM Report abuse rate up rate down Reply
Gumby

Fires is generally associated with macho meatheads wtih axes chopping split apart firewood and things like that we can do without.. Stick with clean energy!! whatever coming out of our electrical outlets or gas pipes.. Forget firewood and associated local smokes, cough cough .. !!!

August 10 2012 at 11:10 AM Report abuse rate up rate down Reply
Gumby

Replace firewood with coal will do wonders to our climate change issues!! Firewood is ignored as a major cause of global warming.. Why? You cannot turn on and off firewood as needed.. The fires goes on and on unitl it is spent ... unlike electircity coming from coal that you ahve a thermostat to control ... Firewood is an inefficient source of energy.. so wasteful and so polluting for little benefits... The world is crowded already , it is time for firewood to go.... We have no room for polluted firewood smoke around us... Most of forest fires are started from campfires ... it added unnecessary air pollution and waste so much water fighting forest fires.. Why we still allows campfires in campgrounds... I will never understand... Campers should use propane isntead as it is safer because you can turn it off much easier than campfires... Lingering smoldiering remains in campfires is what set off forest fires... What a inept safety policy we still have here!!! Harebrained!!!

August 10 2012 at 11:08 AM Report abuse rate up rate down Reply
Gumby

As matterly of fact,, firewood should be the highest priortiy fuel to be avoided above all ... Coal is dirty but firewood trumps all , as the worst air pollutant by way , way , way far up !!! Possibly hundreds of times worse than coal itself... I tore down my chimney and walled over the gaping hole ! Good riddance ! People have a funny idea of how fireplaces added value to home prices.. If you want a fireplace , fine, make it run on nat gas or electricity.. not firewood , anymore... EPA is going to crack down on firewood sooner or later.. We will have to own up to the fact that firewood smoke is not that healthy to breath ! Health costs soar !! We blame coal as if it is the worst offender of all which is patently false! I am not a far right wing nutcase,, I know that firewood is far worse than coal!! simple as that... The Third World consumes so much firewood that the average lifespan is only 40 years or so.. They are breathing smoke everyday... Building coal powerplants there will greatly improve their quality of life... Coal is not clean but far more cleaner than firewood by tens of times!! or hundreds of times or even thousands of times...

August 10 2012 at 11:01 AM Report abuse rate up rate down Reply
Joy

Were you the one who shorted ANR last week @ 5.75 ? Sorry, you didn't disclose your position , so guessing :)

August 01 2012 at 6:49 PM Report abuse rate up rate down Reply
1 reply to Joy's comment
Dicky McNuts

It's The Motley Fool, we can't expect much. I like how the writer says (by 2020) dude it's 2012. Alternative energy is the LAST thing on everyone's mind. Take a gander at the solar stocks.. yeah ok.

August 01 2012 at 9:28 PM Report abuse rate up rate down Reply