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Tickers in this Article: KOL, JOYG, PKOL, NRP, PVR, CNX, D, PBD, BTU
Natural gas's abundant supplies and low prices are having a powerful effect on how we generate electricity. The biggest price drop in over a year, coupled with the prospect of stringent pollution legislation, has eroded the market for coal and caused natural gas to move up the energy food chain. However, despite natural gas's new found prominence in America's energy pie, the worldwide demand for coal is going strong. The recent bullishness towards natural gas has created some opportunities for investors to add exposure to coal.

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The Main Source
Even as we shift towards a more renewable energy future, coal is still a major driver for worldwide electricity generation. Nearly 40% of the planets electricity is produced using coal and it is the dominant fuel source in China, India, United States, Australia and Europe. With power demand growing in the United States at nearly 2% a year and much of developing world growing at faster double digit rates, consumption of coal will only increase. The Department of Energy estimates that international trade in coal will grow to 47% of the fuel market by 2035 and still represent a dominant 28% of energy consumption.

Aside from electricity demand growth, coal is seeing another driver for its price; infrastructure development. As emerging nations build out their roads, sewer systems and communication towers, coal is needed to create steel. Seventy percent of steel is manufactured using coal. As demand for coking or metallurgical coal increases for steel production, some analysts see the prices for coal rising from its current $60 to $65 per ton to nearly $85 per ton. After all, shifting to more renewable energy future requires vast amounts of steel to build all those wind towers and transmission grids.

Coking a Portfolio
China only produces about 70% of the coal it consumes and net imported approximately 104.2 million metric tons of the mineral in 2009. The long term global drivers for both steel growth and steadily rising electricity demand make coal an interesting play for investors going forward.

The Market Vectors Coal ETF (NYSE:KOL) follows 38 international companies dedicated to coal production. The fund also includes allocations to mine equipment makers such as Joy Global (Nasdaq:JOYG). The fund has had an expressive run this year, up nearly 32% since July, but should great long term hold as China and India demand more coking coal. The fund charges 0.59% in expenses. Alternatively, the PowerShares Global Coal (Nasdaq:PKOL) is another broad play on the theme.

Offering a nearly 7.5% dividend yield, Natural Resource Partners (NYSE:NRP) offers an income play on the growth of coal. Rather than physically mining the black stuff, NRP owns the land and collects royalties on its properties. This enables the partnership to engage in the price of coal minus any liabilities relating to mine operation. Similarly, Penn Virginia Resource Partners LP (NYSE:PVR) offers another coal royalty firm and a 7% plus dividend yield.

CONSOL Energy (NYSE:CNX) could be the shape of what's to come from the industry. The coal producer agreed to buy Dominion Resources (NYSE:D) natural gas assets for $3.5 billion in cash last April. This shift from being strictly a coal producer to that of an integrated natural resource play should suit CONSOL well, both domestically and internationally.

The Bottom Line
Despite natural gas's recent rise and the popularity of alternative energy investments such as PowerShares Global Clean Energy (NYSE:PBD), coal will remain a part of our future. As energy demand increases as well as the creation of new infrastructure projects continues, the demand for coal will only rise as well. Investors with long enough timelines should allocate some capital, not only to renewable energy and natural gas, but coal as well. (For more, see The Industry Handbook: The Utilities Industry.)

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