Coal stock --- John Bridges
>> welcome back. with crude oil prices up 55% in the last 12 months, some investors have begun to take a look at other forms of energy which may have become more attractive in comparison to crude. take a look at one company. peabody energy, largest u.s. coal producer. share vs. rallied 74% in the last 12 months. second quarter sales were up by a third from the year before. console energy reported second quarter profrts that more than doubled from the year ago. its stock is up 74% as you can see in the last year. joining me with more on the prospects for coal in the light of record oil prices is john bridges. he follows peabody and console. comes to us from his company’s trading floor. thank you for being on the program. give us a sense of whether coal is a more―whether coal stocks are a more attractive investment in light of higher oil prices.
>> oil has a function here but the biggest drivers of this move we have seen in coal has been the really tight coal market within the u.s. what has happened is coal reserves have fallen in the east particularly in west virginia, permitting difficulties of limited access to the reserves that remain. and then the booming chinese economy, in particular demand for coal for steel manufacturers has siphoned off a portion of coal that would otherwise come into the market . that has pushed prices up. so the immediate driver really hasn’t been oil. it’s helped but it is primary a really tight u.s. supply situation.
>> i want to bring our viewers a look into the bloomberg terminal. john, i know you can’t see it. i will explain what i’m showing. you know the numbers quite well. very have three lines on the chart. i want to draw attention to the% pright side. the last if you months. we have the yellow line which is right here. that is crude oil prices that you see moving much higher, up to nearly $47 or more than $47 a barrel in the last couple of months. the white line here we have is coal prices, also moving up precipitously from around $50 to around $60 in the last couple of months. meanwhile, the red line moving down is natural gas. john, isn’t it the case that coal competes mostly with natural gas in terms of electricity production for u.s. utilities and with natural gas getting cheaper and coal getting more, that seems to be a win for coal stocks, right?
>> yes. the correlation is not directly between oil and coal. the correlation is indirectly oil competes with distolate.
>> if electric utility is going to burn something to make electricity for people’s homes, it will usually be natural gas or coal. we have natural gas prices moving down and coal prices moving up. if you are a coal producer, what does that mean?
>> i think the key thing is that gas is coming down but off a very high level. there was something like a break even when the gas price was $3. we now have a situation where it’s come down to $5. it’s still very expensive in terms of the cost of generating fuel and better to use coal.
>> to extend our conversation, we turn to alternative energy sources like fuel cells, wind and solar energy. i bring in a fuel cell stock. they develop fuel cells for large commercial buildings. they create electricity from natural gas or hydrogen without the efficiency losses that come from a mechanical turbine. fuel cell shares in the last six consecutive sessions have been up all six of the sessions amid repeat record oil prices and up 21% in the last six sessions, up 17% in five sessions. joining me with more on alternative energy investments is an analyst with adams, harkness, hill. you give perspective on higher oil prices and what does that mean for companies like fuel cells.
>> high oil price vs. boded well for the fuel cell guys. these are the development stage companies that are developing technologies now that can be used in the years to come for supplying our energy security or on a distributed generation model where companies and individuals want to produce their own electricity on site, whether a natural gas feed, a coal feed, whether that’s a gas or in some cases oil itself. folks are looking for security around their power supply, depending on their business.
>> the problem with some of the stocks in the past, people say it is not economical to pursue modern technologies like fuel cells, it’s too expensive. what you are saying is if oil becomes so much more expensive, maybe these technologies have a chance. that is why the stock is running up. is that it
>> it is partly that. also there is a risk premium for the cost of oil. we see manufacturing. we’d like to see adoption pick up. we see that especially in fuel cell energy with contract wins announced recently. partly a manufacturing story getting this technology in the hands of industrial users and having them comfortable with it. that’s a big portion of the story to see these take hold. so we see it more in that light.
>> well, we have a break coming up. i’d like to ask both of you to stick around through the break. we’ll continue this discussion with high oil prices and the effect on alternative energy sources when we come back after a commercial.
