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(Story updated to add that Enbridge confirmed its planned expansion of two major oil pipelines from Canada to the Gulf Coast.)
TheStreet) -- There's a shift in U.S. power-production resources from coal to natural gas. But don't write King Coal's obituary just yet.
And, on the other side of the equation, stronger demand for natural gas has created new investment opportunities, as seen by the jump in exploration-and-production stocks. But some of the best returns may eventually come from transportation and storage.
Coal shares have slipped across the board in recent days in the wake of a report that U.S. power plants are consuming about 22% less coal than last year, hurt by a warmer winter. And then on Tuesday, the Environmental Protection Agency proposed its first-ever standards to cut carbon dioxide emissions from new power plants, which is a blow for coal and a plus for plants fired by natural gas as they have low emissions.
Industry bellwether and the world's biggest coal producer,
Peabody Energy(BTU - Get Report), fell to a 52-week low this week and is down 58% over the past 12 months. Others in the industry have been hit hard as well.
S&P 500 is up 12.4% so far in 2012.
It looks bad for coal, but bailing out of industry stocks now might be a mistake, first, because many coal companies have guaranteed contracts that will get them through the current year without a major blow to earnings, and second, many of the biggest coal companies are multinationals, with mines and customers worldwide and the demand for coal outside the U.S., particularly from China, is booming.
Peabody's CEO said at an industry conference on Monday that "coal has been the fastest-growing major global fuel and is expected to become the world's largest energy source. The seaborne coal market has exceeded 1 billion tons for the first time, and the cost of coal is just a fraction of global oil and liquefied natural gas."
And he said that, as an example of that demand, in the last four months of 2011, China's coal imports rose 40% from the year before, while India's thermal coal imports rose 35% for all of 2011, and it is taking steps to eliminate its coal import tariff.
As for the EPA's proposals, they are seen mostly impacting new coal-fired power plants, although existing ones will have to retrofit their facilities to meet the new standards or convert them to burn natural gas instead of coal, which is an expensive undertaking.
But Sterne Agee analyst Michael Dudas said in a research note Wednesday that the EPA's rules will have "minimal impact on coal-fired generation in the foreseeable future."
He says coal stocks, which have been hurt by the big inventories on hand and the need for miners to cut back production, may now be undervalued. He has "buy" ratings on several, including Peabody and
Alpha Natural Resources(ANR). "We continue to believe coal equities are reflecting a much more onerous pricing and volume environment than we anticipate during 2012-2014," Dudas wrote.
The shift to natural gas and the proposed EPA standards are also having an impact on elecricity generators. Those that are relatively immune include
Exelon(EXC - Get Report), which is the nation's biggest nuclear plant operator, and
NextEra Energy(NEE - Get Report), which has diverse sources of energy generation, ranging from solar to nuclear.
On the other side of the energy equation, natural gas is so plentiful that some exploration-and-production firms are slowing output or putting caps on wells until prices improve.
Transportation and storage of oil and gas is one of the pricier parts of the equation, and those facilities take a long time to build. And the Interstate Natural Gas Association of America said in a study last year that the U.S. and Canada will need an annual average midstream investment of $10 billion per year over the next 25 years to accommodate growing oil and natural gas infrastructure needs.
So companies that perform those services now should benefit from the shift to gas by U.S. utilities. And there are two companies, both Canada-based, that are positioned for that:
Enbridge(ENB), as they already have a network of pipeline and storage facilities throughout North America.
seven undervalued energy industry stocks impacted by the shift from coal to natural gas listed in inverse order of "buy" ratings: