Government Medling Could Determine 3 Companies' Futures

Government Medling Could Determine 3 Companies' Futures

Government regulations are making it harder to build and run coal fired electric plants in this country. And there's a move afoot to make it harder to export coal to other countries, too. If those rules take hold, operational coal ports will become increasingly valuable assets.

Waiting on the ports
Cloud Peak Energy is looking to build up its foreign exports. Currently it sends about five million tons of coal annually out of Westshore Terminals' Canadian port. That's close to Cloud Peak's max export capacity and represents about 5.5% of its total projected 2013 production.

What it needs is more port access. Speaking on the port topic, the company said, "...we'd like to think we'll get the permits and then there is a chance of the [Gateway Pacific Terminal] port being built in 2018..." However, "...the opposition to building ports is very well funded and well organized. And they will do everything they can to delay things."

Worse, the "opposition" looks like it could get a helping hand from the government. Several state senators recently wrote the president, concerned that new regulations could place a "climate change litmus test on exports" from new ports. In other words, the environmental impact of a new port would include the potential uses of what gets exported through that port.

What if ports don't get built?
Although Cloud Peak is optimistic that the Gateway Pacific Terminal will get built, it's worth considering what happens if such ports don't get built. In that case, Cloud Peak has a problem. Westshore Terminals, on the other hand, will be sitting pretty. Although it only owns one port, it is working on expansions that could increase capacity by around 10% over the next three to five years.

That won't fuel huge growth for Westshore, but it will support top and bottom line gains. And, if port access gets increasingly dear, it will be able to increase its rates. Both would help support the company's $1.20 in annual dividends, and, perhaps, allow for distribution increases.

CONSOL Energy would be in even better shape. This coal miner is also the owner of the Baltimore Terminal. In fact, it recently agreed to sell off coal assets intended to serve the U.S. market so it could focus on growing its natural gas and export coal businesses.

The big benefit for CONSOL of increasing regulations, however, is that it doesn't use all of the Baltimore port's capacity. For example, about 10% of the port's capacity wasn't used at all in 2012. And CONSOL's coal only accounted for about 60% of the total throughput. So, the company is well positioned to increase its export business with or without new port construction.

Kinder Morgan Energy Partners is another terminal owner worth watching. The partnership's port business includes 80 dry bulk facilities. Although, if enacted, new regulations could stymie the nearly $500 million in expansion projects in the works to support coal exporting; though, the terminals it has now might dramatically increase in value.

That said, Kinder Morgan Energy Partners' entire terminals business, which includes nearly 30 liquids terminals, only represents about 15% the top line. Like CONSOL, it's more of a broad play on growth across multiple energy sources. Still, it's worth monitoring the permitting process for coal terminals since it could have a notable impact on Kinder Morgan Energy Partners' assets.

A back hand benefit
Increasing valuations for existing coal export facilities is something of a "back hand benefit," to paraphrase an old saying. But that doesn't mean the issue is all bad. Companies like Westshore, CONSOL, and Kinder Morgan Energy Partners could find that demand for their facilities expands rapidly as miners like Cloud Peak scramble to find new ways to tap global coal demand.

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Reuben Brewer has a position in Kinder Morgan Energy Partners. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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