U.S. coal companies are looking to diversify. Just a few years ago the industry enjoyed a boom in coal-fired power plant development, but growing concern for global warming and rising construction costs gave natural gas and renewable-energy plants an edge.
By Desmond McMahon—Exclusive to Coal Investing NewsU.S. coal companies are looking to diversify. Just a few years ago the industry enjoyed a boom in coal-fired power plant development, but growing concern for global warming and rising construction costs gave natural gas and renewable-energy plants an edge. But the future is looking even more tenuous with the possibility of a US-based carbon tax and tighter restrictions on surface mining and storage of coal waste on the horizon. In anticipation, utility companies are shutting down old coal plants and replacing them with generators fueled by natural gas, which when burned emits 50 percent less greenhouse gas than coal. Consol Energy [ NYSE:CNX] is leading the effort to diversify and mitigate the impact of potential carbon regulation. After purchasing Dominion Resources' shale gas assets this week for a reported $3.5 billion, Pittsburgh-based Consol will acquire more than 9,000 wells and plans to increase natural-gas production to 350 billion cubic feet in 2015 from 142 billion cubic feet this year. The company said it is also considering acquiring the 18.5% of shares of CNX Gas Corp. that it doesn't own. Consol's shares slipped to $47.43 at closing on Thursday. Other coal companies could follow Consol's lead. Massey Energy [ NYSE:MEE] has expressed interest in gas production. Alpha Natural Resources [ NYSE:ANR] has formed a joint venture to produce gas. And Walter Energy [ NYSE:WLT] for years has used wells to remove potentially explosive gas from its mines. But, unlike many major coal producers, Consol has been in the natural gas business for years and in 2005 formed a unit, CNX Gas [ NYSE:CXG] to explore for and produce gas. CNX Gas trades publicly as CXG on the New York Stock Exchange. "Gas is a perfect hedge against draconian moves on coal in the short term," Consol Chief Executive J. Brett Harvey said in an interview. Harvey doesn't plan to scale back coal production but will explore moving more coal to Asian markets then expand mining when domestic coal prices rise.