Arch Coal Inc (ACI), Peabody Energy Corporation (BTU): Can Exports Save U.S. Coal?

West Coast terminals may be the key

Not willing to give up without a fight, the industry is working to expand its export opportunities by building terminals in the Pacific Northwest. Such facilities are essential to moving coal from rich deposits in Wyoming and Montana to Asia. Without them, only about 3% of the coal produced in that so-called Powder River Basin — responsible for nearly half the nation’s total — can be exported cost-effectively.

The industry says exports from the PRB could increase ten-fold with new facilities in Oregon and Washington. But fierce opposition from environmental groups, who say the negative effects of burning coal should not be expanded overseas, has resulted in lengthy delays.

The pitched battle has included lawsuits against railroads as well as coal companies and costly public and private lobbying efforts. The combination has raised serious concerns about the potential for the terminals and several investors, including Kinder Morgan Energy Partners LP (NYSE:KMP), have already dropped out of three of the six initially planned.

The industry still has hope, however. Environmental groups and supportive lawmakers have pushed the Army Corps of Engineers to review the remaining three terminals together, looking at their cumulative impact on burning coal overseas. But on June 18 the Corps announced it would not consider any climate change impacts in its environmental review.

The bottom line

No one knows whether these West Coast terminals will be built, or whether there will be enough demand going forward to allow producers to materially increase their exports using them. But those with significant positions in the PRB, including Peabody Energy Corporation (NYSE:BTU), Alpha Natural Resources, Inc. (NYSE:ANR) and Arch Coal Inc (NYSE:ACI), are banking heavily on it.

Most of these producers reported a substantial drop in profits in 2012. With domestic demand stagnant, their stock prices remain mired near 52-week lows. Increasing exports seems the only solution. Keeping an eye on the Pacific Northwest will offer a big clue on whether that will happen.

Howard Rothman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Howard is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Can Exports Save U.S. Coal? originally appeared on Fool.com is written by Howard Rothman.

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