In this article, we discuss the 8 European coal stocks to buy as Russia squeezes gas supply. If you wish to skip our detailed analysis of the energy sector in Europe and its current situation, go directly to 3 European Coal Stocks to Buy As Russia Squeezes Gas Supply.
Russia decided to slow down its supply of natural gas to Germany through the Nord 1 pipeline on June 14, citing “technical issues” caused by the West’s crippling sanctions on Russia. The German economic minister Robert Habeck called this a “politically motivated” maneuver which instantly led to gas prices jumping 24% in the EU. Germany subsequently entered phase 2 of its emergency gas plan, which seeks to reduce gas usage and shore up the country’s reserves for the crucial winter months. Current gas storage stands at 57%, and Germany needs these levels to be around 90% in November to make it through the winter. The government has started preparations to restart its coal-fired power generation plants in order to ensure stability in the energy sector. It had previously pledged to completely wean off coal usage by 2038, but now seeks to meet electricity demand by firing up its 151 coal-based power plants again. Most of these coal plants were scheduled to be shut down permanently in the near future.
The United States has effectively banned Russian oil and gas imports, and the United Kingdom has said it would follow suit by end of 2022. In May, the European Union decided to cut 90% of its oil imports from Russia, barring the oil which comes from pipelines. This may not be as easy for Europe, given that it relies on Russia for 40% of its collective demand for natural gas, 46% of coal, and 27% of oil imports.
Amid tight natural gas supplies and soaring prices, utilities across Europe are turning towards coal to fire up their power plants. Without Russian coal, producers such as South Africa, Columbia, and the United States are expected to meet the demand in the near-term, and the market is constantly scrambling to secure supplies of the black metal. Coal prices went as high as $430 per tonne in May, and currently hover around $395 as of June 24. Rystad Energy forecasts that coal prices could likely cross $500 per tonne this year, driven by a lack of supply and growing demand.
In this article, we’ll highlight 8 European stocks which investors can buy to take advantage of the increasing relevance of coal in the current setup. If you wish to take advantage of the global rally in the overall energy sector, big players such as Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), BP plc (NYSE:BP), Shell plc (NYSE:SHEL), and ConocoPhillips (NYSE:COP) present good investment opportunities.
Photo by Stephen Philpott on Unsplash
Our Methodology
We studied the energy sector in Europe, and identified companies with exposure to coal, either in terms of mining or power generation. Most of these firms were originally scheduled to reduce their dependence on coal in the coming months, but are in the process of changing their plans to meet growing demand.
8. PGE Polska Grupa Energetyczna S.A. (WSE:PGE.WA)
PGE Polska Grupa Energetyczna S.A. (WSE:PGE.WA) is the largest energy producer in Poland. It is a state-owned entity with the Polish State Treasury holding the majority of its shares. BlackRock, the world’s largest asset manager, is the third largest shareholder of PGE Polska Grupa Energetyczna S.A. (WSE:PGE.WA). Given that it generates around 71% of its revenue from coal-based production and is the biggest supplier of coal-produced electricity in Europe, PGE Polska Grupa Energetyczna S.A. (WSE:PGE.WA) is one of the leading companies that stand to benefit in the current situation.
The Warsaw-based utility company possesses installed capacities to generate 15 GW from coal sources, around 88% of its total production. PGE Polska Grupa Energetyczna S.A. (WSE:PGE.WA) also runs the Bełchatów power station in Poland, which is the largest thermal plant in Europe and the biggest contributor to CO2 emissions on the continent. The firm operates a total of 40 power stations across Poland, mainly run by hard coal and lignite (brown coal). The energy conglomerate also owns and operates various electricity retail sales companies, distribution system operator companies, as well as an electricity wholesale company. PGE Polska Grupa Energetyczna S.A. (WSE:PGE.WA) has plans to achieve carbon neutrality by 2050, with an objective to limit its usage of coal. The company also aims to make investments in grid infrastructure, wind energy and solar energy.
PGE Polska Grupa Energetyczna S.A. (WSE:PGE.WA) is a good play on the energy sector, just like Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), BP plc (NYSE:BP), Shell plc (NYSE:SHEL), and ConocoPhillips (NYSE:COP).
7. RWE AG (ETR:RWE)
RWE AG (ETR:RWE) is the largest energy supplier in Germany. Following government policies on the transition towards green energy, the company aims to be carbon-neutral by 2040, and invest a gross amount of €50 billion by 2030 towards sustainable energy initiatives. The company’s portfolio consists of onshore and offshore wind farms, solar energy, battery storage technology and energy production from biogas. RWE AG (ETR:RWE) is also at the forefront of the global race to shift towards hydrogen as a source of energy. RWE’s conventional energy portfolio is made up of lignite, hard coal, nuclear power, and gas. The firm had unveiled plans to phase out its usage of coal and nuclear power, given that Germany is shutting down its last nuclear power plant in December 2022.
RWE is currently receiving only 40% of the total quantity of natural gas it is contracted to receive from Russia. As supplies from Russia are halted, the German government has unveiled plans to ramp up its coal energy production to meet the growing gap in demand and supply. The company recently announced that it would halt early retirements in order to retain manpower at three of its 300 MW coal power plants which are currently on ‘security standby’, and can be reopened at the federal government’s request. These power stations rank among the highest CO2 emissions producers in Europe, and look set to resume full-scale operations as Germany reels from an energy crisis which has seen its green energy pledges roll back for the time being.
In 2021, RWE AG (ETR:RWE) produced 160,773 GWh of energy, as compared to 141,204 GWh in 2020. The company’s 2021 free cash flow was recorded at €4.56 billion, up from €1.13 billion in the previous year. As of June 23, the company pays a 2.33% dividend yield, and its EPS for FY21 was recorded at €1.07.
6. Uniper SE (ETR:UN01)
Uniper SE (ETR:UN01) is an energy company which was formed after German electric utility giant E.ON spun off its fossil fuel business into a separate company in 2016. The firm has operations in 40 countries around the world, with electricity production operations throughout Europe and Russia. It also operates a Russian subsidiary called Unipro. Finnish power giant Fortum is a majority stakeholder of Uniper, with a 75.01% stake.
Uniper SE (ETR:UN01) boasts power generating capacity of 33 GW, through its portfolio of natural gas, coal, nuclear (all plants outside Germany), and hydroelectric sources. In 2017, hard coal was the second largest source of power for the company, generating 24.3 TWh as compared to 61.9 TWh generated through oil and gas. One of the most prominent coal power plants run by Uniper is Ratcliffe-on-Soar power station in Nottinghamshire, England, which has a 2,000 MW capacity and is one of the three coal power plants left in the United Kingdom. It is set to close by end of 2024. The company also provides natural gas storage services across Europe on a massive scale, boasting 7.4 billion meter cube in gas storage capacity.
In April, Uniper SE announced that it would start paying for Russian natural gas in roubles, giving in to Russia’s demand which would help it avoid EU sanctions. The company is also one of the financiers of the Nord Stream 2 pipeline project, which was suspended by the German government after Russia invaded Ukraine.
In 2021, Uniper SE (ETR:UN01) posted annual revenue of €68.76 billion, beating estimates by €63.88 billion and showing a massive boost of 225% in comparison to 2020.
5. ENEA SA (WSE:ENA)
ENEA SA (WSE:ENA) is based in Poznań, Poland, and is the fourth largest energy conglomerate in the country. 70% of Poland’s electricity comes from coal, which is the highest figure in the European Union. This makes a company like ENEA SA (WSE:ENA) a good stock to buy in the current environment. The firm was founded after the merger of five coal-fueled power plants, and later went on to make further additions to its portfolio. Its prominent coal plants include the Połaniec, and the Kozienice power plant, which ranks among the highest CO2 emissions producer in Europe.
ENEA SA (WSE:ENA) also owns and operates several coal mines in Poland, which ranks 9th in the world for coal reserves. The country had about 28.45 billion tons of proven coal reserves as of 2016, amounting to 2% of global coal reserves and equaling 191 times its yearly consumption. ENEA SA (WSE:ENA) also has a separately-run electricity distribution operator named Enea Operator, and sells electricity to retail and wholesale customers across Poland.
4. TAURON Polska Energia S.A. (WSE:TPE.WA)
TAURON Polska Energia S.A. (WSE:TPE.WA) is up next on our list of the best European coal stocks to buy. The state-owned company is the second largest producer of electricity in Poland, and owns interests in coal mining through its subsidiaries, mainly in south-western Poland. It has a vast network of power generation and distribution across the country, and offers comprehensive energy solutions for households, businesses and industrial customers. TAURON Polska Energia S.A. (WSE:TPE.WA) also offers photovoltaic (solar panel) installations to its customers, and digital solutions to track and analyze electricity usage.
In 2019, TAURON Polska Energia S.A. (WSE:TPE.WA) announced plans to replace most of its coal-powered plants with renewable sources of energy within the upcoming decade, in line with the global push to phase out energy production from coal. Now with the European energy market in a tailspin, the prospects of power generation from coal stand different for a company like TAURON Polska Energia S.A. (WSE:TPE.WA).
Along with Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), BP plc (NYSE:BP), Shell plc (NYSE:SHEL), and ConocoPhillips (NYSE:COP), TAURON Polska Energia S.A. (WSE:TPE.WA) is a good stock to buy in order to take advantage of soaring commodity prices.
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