The Market Vectors-Coal ETF (NYSEArca: KOL) has lost nearly 55% of its value over the past 12 months and the ETF hit an all-time low Wednesday, indicating that things could get worse before they get better for coal equities.
The coal industry is weakening as U.S. power plants switch to natural gas, environmental restrictions take hold and the world makes a stink eye at heavy greenhouse gas energy sources, reports Tom Randall for Bloomberg.
The ongoing shale oil boom has pressured natural gas prices and made natgas a cheap alternative to coal. Additionally, new environmental regulations have forced coal-fired power plants to close, and many are being replaced with natural gas.
Natural gas is starting to take over. According to the Energy Information Administration, natural gas represented 32% of U.S. electricity generation in April, compared to 30% from coal. Electricity generation from natgas has jumped 20% since year-over-year while coal experienced a similar percentage plunge.
Moreover, China, the world’s largest consumer of coal, is beginning to diminish its reliance on coal in favor of alternative renewable energy sources as pollution becomes a major concern and clean energy becomes cheaper.