King coal

King coal: It’s enough to make Al Gore weep. The dirtiest fossil fuel, coal, was also last year’s most popular. Global consumption increased 7.6 per cent, according to BP’s annual bible of energy data released on Wednesday.

As China and India industrialise on the cheap, coal may keep outpacing even cleaner natural gas. Yet, investors don’t seem to be giving the black rock full credit.

Greens will be sobbing into BP’s world energy report. The firm formerly known as Beyond Petroleum showed global carbon dioxide emissions rising at the fastest pace since 1969.

Coal was the primary culprit. Though often considered a dying relic of the industrial revolution, its use climbed more than twice as fast as oil.

Its share of the global energy market has jumped from 25.6 per cent to almost 30 per cent over the last decade. Renewable energy sources account for just 2 per cent.

Booming China accounted for two-thirds of the increase. But even rich countries are becoming ever more hooked on coal — with consumption by OECD nations rising at the fastest pace last year since 1979.

What is a serious problem for climate change advocates could be an opportunity for investors.

Neither the price of the commodity nor the value of the firms that dig it up fully reflects coal's red-hot outlook.

The price of Brent crude has risen three times faster than thermal coal over the past year. Even allowing for coal’s greater abundance, this seems anomalous to the wider trends.

US coal companies, meanwhile, have actually been getting cheaper. The sector is trading at an enterprise value to next year’s Ebitda of 4.8 times, down from 5.2 times in March and about 8.5 times in 2008, according to investment bank Brean Murray, Carret & Co.

Yet, Raymond James analysts reckon that $15 billion Peabody Energy and $11 billion Consol Energy — the two US giants — are braced for blistering earnings per share growth of 33 per cent and 24 per cent, respectively.

It’s easy to understand why coal might be unpopular in many circles — but investors shouldn't be so averse to it just yet.