Foreign Of all the widely used fuels in the world today, coal is a least environmentally friendly. by far. the burning of coal to generate electricity produces about twice as much carbon dioxide. As Natural Gas Besides carbon, dioxide, it also contains a whole host of cancer-causing chemicals which are dangerous for both the workers at the coal mines as well as the general population around the power plants.

Because of this, world leaders have invested hundreds of billions of dollars over the past decade to wean the world off of this dirty fuel. In recent years, it looked like these efforts were paying off as the global Energy Mix started gradually shifting away from coal in favor of renewable energy sources. In 2022, a variety of both man-made and Natural Factors turned the global Energy System on its head. Worldwide coal consumption is estimated to have reached record levels in 2022, and is expected to grow further still in 2023.

After stagnating for the better part of the past decade, the price of internationally traded coal has skyrocketed to roughly five times its 2019 level. This has catalyzed the monster Rallying coal stocks around the world. Many investors had written off the coal industry as uninvestable just a couple of years ago. Since then, many coal mining stocks have become 10 or even 15.

Baggers This begs two questions. Firstly, are we on the verge of a coal super cycle? And if so, does that mean we can expect to see the rally and coal stocks continue? This video is brought to you by MooMoo Mumu is a commission-free brokerage that provides the most comprehensive set of fundamental and technical analysis tools of any brokerage I've tried so far. Recently they added a stock screening feature which lets you create custom screeners for what types of stocks you're looking for. You can set criteria such as the geographic location of the company and other descriptive features In this example: I Want to find value stocks? So I said the price to earnings ratios to be less than 15 on both the last year and trailing bases I set the price to book to be less than two and the price of sales to be less than five.

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It's a commission free brokerage, so there's no reason not to check them out by clicking the link in the description below. Coal is formed from large plants that died hundreds of millions of years ago. The plants are buried underground and naturally compressed into an extremely energy dense, carbon-based substance which we call a coal. Because of its high energy density, it can burn at high enough temperatures to melt iron ore in other metals, making it a key component in steel production.

It can also be used to boil water, pressurized steam spins turbines to create electricity. Given Coal's abundance and efficiency at generating electricity, it has become a crucial part of the world's Energy System. Since the Industrial Revolution Theoretically, the world could get by without coal, there are many ways to generate electricity. natural gas, nuclear energy, and even renewable sources like wind and solar can do the job.

New technologies such as the electric Arc furnace can generate steel using electricity, reducing greenhouse gas emissions by up to 80 compared to Old coal-based methods. With growing concern about the environment, policymakers have made serious commitments to phase out the dirty fuel. The EU plans to completely remove coal from its energy system by 2038. China The world's largest consumer of coal has invested billions of dollars to develop alternative sources of energy, even during Pro Coal President Donald Trump's four years in office.

U.S Coal consumption decreased by almost 40 percent, largely being replaced by cheaper and cleaner natural gas. In the later half of the 2010s, coal prices were declining, which dragged down the share prices of publicly traded coal mining companies. The general consensus on Wall Street was that the entire industry was uninvestable in 2020. BlackRock, which is the world's largest asset manager, announced that they would divest from coal and all their actively managed investment funds.

That same year, the only coal mining ETF on the market was shut down down due to lack of investor interest. Given the rapidly decreasing costs of renewable energy, it seemed like coal was quickly becoming a thing of the past. In 2022, Putin announced his invasion of Ukraine. This led to a chain of reactions which ultimately led to almost all Russian gas exports to Europe being cut off.

This was a major disaster for many European countries which were dependent on Russian gas for their electricity. Supply Germany extended the life of coal-fired power plants that they had previously planned on closing to help replace some of this electricity. However, by this point, the EU only represented five percent of global coal consumption. The increase in European Demand only added marginally to worldwide demand, while the EU only accounts for five percent of global coal demand.

China accounts for almost 50 percent. In recent years, China has made a serious effort to decrease its dependence on coal by investing in renewable energy sources, including hydroelectric. In 2022, China faced a massive drought which saw water levels at many of its rivers decreased significantly. This was a major disaster as it decreased the output of their hydroelectric power stations.

This, along with the heat wave which increased air conditioning usage led to blackouts in many regions of the country. In response, the Chinese government announced that they had been increasing their use of coal power plants until 2026 to ensure energy security. Increased demand for coal from both the EU and China together caused prices to Skyrocket to record high levels Foreign to the International Renewable Energy Agency or Iryna, the vast majority of new wind and solar projects generate cheaper electricity than even the world's cheapest cool power plants. Advances in technology as well as economies of scale have drastically reduced costs.

So this begs the question. If renewable energy is cheaper and cleaner than coal, then why are countries like Germany and others turning to Coal? Wouldn't it make more sense to build wind and solar? Farms instead? It is technically true that wind and solar are cheaper than coal on a per megawatt basis, but as we will see, this cost comparison is largely irrelevant. The problem with wind and solar is that the sun doesn't shine all the time and the wind doesn't blow all the time. Even hydroelectric, which is considered one of the more reliable sources of renewable energy is not infallible.

This was made painfully clear by China's droughts. Wind energy in particular is problematic because once you install a wind turbine, you cannot easily turn it off if the wind is especially strong. At a time when energy demand is weak, you generate too much electricity that has to be gotten rid of somehow in Germany. This phenomenon has led to a bizarre situation in which electricity prices sometimes become negative.

The wind farms have to pay utility companies to take their excess electricity as the wind farm has no way of safely disposing of it. The advantage of coal power plants is that they can be set up to provide the power grid with exactly the amount of electricity that it needs each day. Even though it is more expensive on a per megawatt basis, it can provide certainty of Supply in a way that wind and Solar cannot. One possible solution to the unreliability problem is large-scale battery storage.

The idea is that when you have too much wind or solar output, you can use it to charge massive battery packs. When the sun is not shining or the wind is not blowing, you can then use the batteries to power the electric grid. Currently, the market leader in this field is Tesla. They have a modular large-scale battery design called the mega Pack, which is already serving electric utility customers in Australia California Hawaii and other locations with abundant renewable energy sources.

The problem is: Mega Packs are expensive. According to Tesla's website, One mega pack with 3.9 megawatt hours of storage costs 2.1 million dollars plus an eight thousand, two hundred dollar annual maintenance fee. On top of that, there's also a two year wait time time for delivery. This equates to about five hundred thousand dollars plus a two thousand dollar annual fee per megawatt hour of storage.

To put these numbers into perspective, a recent academic paper estimates that Germany would need 59 gigawatt hours of battery storage to transition to a fully renewable electricity grid. This equates to a 29 billion dollar upfront investment plus 118 million dollars per year every year for maintenance. Remember that this is just the battery storage. It doesn't even include the cost of building the wind and solar Farms themselves.

Even if Germany had the money to pay for this, it would take many years. Tesla currently deploys mega pack capacity at an annual run rate of 6 gigawatt hours per year. Of course, Tesla is not the only company that makes battery storage solutions and their production is expected to grow significantly over the coming years, but this just goes to show the massive scale of the requirement to create a fully renewable power grid. Countries like Germany could theoretically afford to transition to a completely Renewable Energy System but most countries cannot.

For example, India has 17 times the population as Germany. If India wants to develop its economy to the same level as Germany is, it would have 17 times the electricity demand. 17 times the electricity demand would equate to half a trillion dollars worth of Mega packs. This is simply unaffordable for any developing Nation foreign ly per capita electricity consumption in the U.S is double that of China and 10 times that of India.

In developed countries like the US people use huge amounts of electricity to power their air conditionings, refrigerators, washing machines, and other electronic appliances. People in developing nations would enjoy these types of amenities just as much as Americans. They just don't have the money to afford it as Emerging. Markets.

Like China and India are becoming more wealthy, their electricity consumption is skyrocketing. If both China and India were to achieve the same per capita electricity consumption as the U.S that would be equivalent to adding six new Americas worth of demand. And that's not even considering the 1.2 billion people in Africa who have even farther to go in terms of electricity consumption. Over the past decade, Global Coal consumption has been about flat, increasing by just one percent.

The largest increase came from India which increased its consumption by 57 percent. China increased its consumption by 8 percent. The rest of the world decreased its consumption by 18, mostly driven by North America and Europe. During this same period, China increased its total electricity consumption by roughly 40 percent.

Because they invested so much into Renewables and natural gas, they were able to decrease coal as a percentage of electricity production, even while absolute coal consumption increased slightly. After the painful experience of the droughts and blackouts over the past two years, China has announced plans to accelerate openings of new coal-fired power plants, at least for the next few years. Besides coal, the only other viable energy source for developing countries is Natural gas. Natural gas can provide reliable electricity with less than half of the carbon emissions of coal.

However, after Russia's invasion of Ukraine, Europe has been scrambling to buy as much liquefied natural gas as they can to replace their lost Russian Supply This has pushed International prices up five times their previous levels, with renewable energy being unreliable and natural gas being unaffordable. China and India had no other choice but turning to coal, and this is responsible for the monster rally that we've seen in the coal price. Foreign countries continue to grow. They'll make up an ever increasing share of global electricity demand Until their technological breakthroughs that dramatically decrease the cost of battery storage Cove will continue to play an important role in the global.

Energy System The main question is whether we are on the brink of a coal super cycle, whereby increasing demand sustainably increases coal prices. Many investors seem to think so with coal mining stocks such as Console Energy increasing tenfold from their 2020 lows. While this video is not investing advice, I Personally am not a big believer in the coal super Cycle. While we have spent almost all of this video talking about demand, Supply is an equally important part of the story.

Whenever prices of any Commodities are high, producers have a massive incentive to increase production increased. Supply will eventually take prices down to more normal levels. In addition to being the largest consumer of coal, China is also the largest producer accounting for roughly half of Global Supply In 2022, China announced ambitious plans to drastic, basically increase coal production to prevent energy shortages going forward. The 2022 Coal rally was caused by multiple Black Swan events which turned the global Energy System on its head.

As Market participants adjusted to this new reality, it is unlikely that today's extraordinary coal prices can be maintained for very much longer. Alright guys, that wraps it up for this video. What do you think about the Coal Super Cycle? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.