It’s no secret that China is very very hungry for energy as it seeks to grow its dragon-sized economy. The country has consumed a wide variety of energy sources to fuel that hunger, the bulk of which has been good old-fashioned coal. Exports to China have surged since 2002, and the nation has become the No. 1 stop for coal stocks’ long-term strategies.
After years of pricing disagreements, political tensions and logistical issues, China is moving ever closer to receiving natural gas imports from its neighbor and BRIC buddy Russia. Various compromises between the two emerging market giants continue and now several insiders say that a huge deal to pipe Russian natural gas into China could be coming sooner than later.
For investors, that sets off a series of opportunities, along with a few pitfalls for the coal stocks that are already China’s energy habit.
Benefiting Coal Stocks For Years
China’s energy use has surged during the past few years as it continues its modernization programs. Overall, the main emerging market has become world’s largest energy consumer, surpassing the United States back in 2010. What’s more is that China will see its energy demand surge to 220 quadrillion BTUs by the time 2040 hits.
So far, the main energy source fueling that rising demand has been coal, through coal stocks like Cloud Peak Energy (CLD). Chinese coal consumption is up a staggering 157% since 2002, and the nation now consumes more than 50% of the world’s coal stocks output. However, with China heavily drenched in smog and air pollution, Beijing has been working to add other energy sources — such as solar and wind — to its mix. Even with these advances, China is still betting heavily on fossil fuels like coal.
Which is where BRIC buddy Russia comes in.
Russia has the abundant natural gas reserves that China so desperately needs to fuel its future growth. And the Asian Dragon realized that ten years ago. Unfortunately, negotiations fell flat and China was still forced to move towards coal.
According to both Chinese and Russian insiders, the two BRIC nations have finally agreed on terms for a massive deal that would finally get Russian gas inside China via an enormous pipeline system. The key sticking point — which worked in the coal stocks’ favor — was the price at which Russia would supply natural gas.
That single issue had derailed the negotiations for more than a decade. But now it seems that Russia/China have agreed on a price.