Forget Oil, Coal Remains King

WRIGHT, Wyo., Aug. 24, 2008 -- A mammoth shovel scrapes about 70 tons of coal shards off a 60-foot-high black wall like ice cream from a long, deep vat.

The power shovel's boom pirouettes and dumps its load into a truck bed with a resounding thud, kicking up a haze of black dust. Four scoops later, the outsized truck — think 12-foot-tall tires — brimming with a fresh dark mound, rolls off. Without missing a beat, the shovel dives back into the bounty, releasing its next load just as another truck backs in.

The scene — repeated around the clock here at the world's largest coal mine, Peabody Energy's North Antelope Rochelle Mine in the Powder River Basin — underscores both the abundance and the grimy nature of the USA's most plentiful energy resource.

As oil and natural-gas prices remain high and lawmakers agonize over whether to drill for oil in environmentally sensitive areas, coal looms as an antidote — still relatively cheap despite recent price surges because of a boom in exports.

While coal-fired power plants generate half of U.S. electricity, coal is the biggest carbon dioxide producer, accounting for 40% of worldwide emissions. CO2 is the chief culprit in global warming. To environmentalists, coal is public enemy No. 1.

Peabody, the world's largest coal company, sits squarely at the vortex of these countervailing forces.

Until recently, it was a bright spot in a bear market, its shares up more than 40% the first half of the year. Falling oil and natural gas prices have pushed them down about 30% since early July, but shares are still up about 700% since 2003. Peabody closed at $57.09 Monday, up 1 cent.

Pointing to robust overseas sales, analyst David Khani of Friedman Billings Ramsey predicts shares will more than double in a year. Foreign markets deliver more than half of Peabody's profits, up from 1% in 2003.

In the USA, Peabody is perhaps the staunchest opponent of stringent regulations to cap greenhouse gas emissions even as stalwarts such as ExxonMobil and American Electric Power have softened their stances.

A bill to curb global-warming gases fizzled in Congress in June, partly because of opposition from Peabody and the coal industry. It would have forced utilities and others to buy permits to emit carbon, passing the costs to consumers and boosting electric rates up to 45% by 2020.

About 30 coal-fired power plants are under construction around the country, the most in a generation. Peabody, along with partners, is building a $3 billion, 1,600-megawatt coal generator in Illinois, the biggest U.S. coal plant in 25 years.

Peabody is "the large, unrelenting, unrepentant poster child for the coal industry," says Sierra Club director Bruce Nilles.

Yet the likelihood of climate-change legislation after a new president takes office has prompted U.S. utilities to cancel or delay about 60 coal plants the past year. That has injected at least a sliver of uncertainty into the coal industry's future: Some experts say its prospects are bleak if technology to capture CO2 at coal plants and store it underground — preventing its release through the smokestack — proves too expensive for utilities.