Coal's Future Rides on Energy Bill

By Kevin Grewal, Contributing Analyst at www.smartstops.net

The future of coal is riding on the passage of the Waxman-Markey Clean Energy bill.

Supporters say it will produce cleaner energy while opponents argue it will result in higher taxes and unfriendly business practices.

Coal, the most abundant fossil fuel, has many things going for it. First, global demand is on the rise, fueled by the likes of China and India. Secondly, the weakness of the U.S. dollar could spark a jump in consumption. Thirdly, domestic and overseas demand for steel and electricity consumption is expected to grow in 2010.

Additionally, the passage of the bill may actually benefit coal for the following reasons: It has a cap-and-trade system which will not produce a carbon price high enough to get the wheels turning on the deployment of clean-coal technology anytime soon, and it guarantees carbon capture and sequestration will be a big player in the nation's energy mix.

Coal has its pitfalls. Inventories are at near all time highs. Analysts and experts say there are nearly 194 million tons of coal sitting on the sidelines. They say the surplus is being caused by weak demand from power plants, deflation in competitive fuel natural gas and a decrease in electricity generation for the first part of the year.

Moreover, major coal producers have announced production cuts that will result in a 12.6% cut in overall production. Lastly, coal prices seem to be depressed with spot prices down more that 50% from the previous year.