ore than any other energy source, coal increased its share of production, consumption and exports in energy markets during the last two years. The analysis of the current trends and policies in the energy industry suggests that a revival of coal is destined to last for the foreseeable future, which will have important consequences for both political decision-makers and investors.

The Drivers Behind the Coal Revival

Coal's success as a power generator -- especially for electricity -- has four main reasons. First, the rise of China and India as major industrial powers has resulted in a continual increase in energy demand. Second, coal is abundant and is present in more than 50 countries, but particularly in the United States (27.1 percent of world reserves), Russia (17.3 percent), China (12.6 percent), India (10.2 percent), Australia (8.6 percent), and South Africa (5.4 percent). Such a geoeconomic distribution reduces political risk in this energy source, contrary to the high risk found in oil reserves, which are located in politically unstable areas. Third, decisive advancements in technology promise to reduce drastically the environmental risks linked to coal's industrial and commercial use.

The fourth reason is the present convergence of high geopolitical risk in oil- and natural gas-rich regions with extreme difficulties in rapidly implementing an alternative energy security strategy based upon renewable and nuclear power, although the prospect of a combination of the two is an increasingly popular solution among energy planners. Renewable energies still have high costs and suffer from difficult usability at the industrial and commercial levels. Their use will continue to rise in the coming years, but in no way will wind power, solar power and bio-fuels be able to replace fossil energy fully any time soon.

As for nuclear power, its popularity is also on the rise after decades of being practically taboo, especially in Europe. However, political problems linked to its desirability, security, and potential military use will continue to hamper its full potential in the coming years.

Therefore, with new technologies starting to consistently reduce environmental risks linked to the use of coal, the latter appears as one of the few viable solutions available if major powers are to reduce the extreme dependence upon oil and natural gas.

The Coal Market Today

Today's coal market has specific characteristics that reinforce financial operators' optimism about its chances to continue the current expansive trend. About 90 percent of current coal production is not destined for export but, instead, to generate electricity in the very same countries where it is extracted. This share of coal production is controlled by giant state-owned enterprises in countries like China, India, and Russia.

The remaining 10 percent -- a quota which is increasing -- is controlled by global-oriented multinational corporations such has BHP Billiton, Rio Tinto or Xstrata. During the last year, the performance of such groups has attracted the attention of financial analysts and the specialized media which both underlined the growing importance of the coal market.

The key to coal's success, however, is the capability to produce it and use it in a safe manner. New techniques used to transform coal into fuel via syngas (synthetic gas), as well as various technologies aimed at capturing the harmful emissions before they are freed in the air, are attracting huge investment.

The Bottom Line

Contrary to the expectations of the past decades, coal has not only avoided being thrown into the dustbin of history, but is experiencing a second golden age because of geopolitical, financial and technical reasons.

Since investments in clean coal technology are increasing worldwide, expect its momentum to continue in the coming years. Investors and political decision-makers will need to rethink their strategies accordingly.

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