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Peabody Energy Corporation (BTU), Kinder Morgan Energy Partners LP (KMP) – Coal: The Fastest Growing Fossil Fuel

Coal may be unloved in the United States, but the rest of the world seems to like it well enough. BP plc (ADR) (NYSE:BP)’s annual World Energy Review states that “Coal remained the fastest-growing fossil fuel.” Despite the negative press, investors should be looking at the space.

Peabody Energy Corporation (NYSE:BTU)

A Record Year

BP plc (ADR) (NYSE:BP)’s review notes that “Coal reached the highest share of global primary energy consumption (29.9%) since 1970.” So, it is also increasing its share of the energy market. Demand has come from new power plants in China and India.

Peabody Energy Corporation (NYSE:BTU) is expecting these two nations to account for around two-thirds of the demand growth for coal over the next few years. Putting numbers on that, Peabody Energy Corporation (NYSE:BTU) believes China will increase coal imports by 200 to 250 billion tonnes between 2011 and 2016, with India slated for a 100 to 150 billion tonne increase.

The Opportunity

Increasing coal demand will mean more business for coal companies in the near future, particularly for exporters and those with properties in Australia. To highlight the point, the U.S. Energy Information Information Administration recently announced that the United States set a coal export record in March.

Peabody Energy Corporation (NYSE:BTU) is one of the best positioned to benefit. While it has material operations in the U.S. market serving domestic power companies, it also has a big position in Australia. That country’s proximity to Asia is a huge strategic benefit because it helps to reduce shipping costs.

While low natural gas prices in the U.S. market and slower growth in China have taken a toll on coal prices, Peabody Energy Corporation (NYSE:BTU) was able to grow its top-line in each of the last three years and increased its dividend twice. Sales have fallen off sharply so far this year, but that is actually a sign of a healing coal market.

Notably, in the face of a weak coal market, many companies have been shutting production. That helps reduce supply and supports prices. And natural gas prices have been heading higher, too, leading U.S. electric plants to switch back to coal. That’s reducing U.S. stockpiles, another supportive shift.

This year will be a transition year for coal, but Peabody Energy Corporation (NYSE:BTU) is one of the best companies in the space. Although the around 2.3% dividend yield isn’t high on an absolute level, it’s pretty high for Peabody. There’s plenty of turnaround appeal here.

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