US gas steals market share from coal

OREANDA-NEWS. July 21, 2015. Natural gas in April surpassed coal for the first time, becoming the dominant source fuel used for US power generation.

The data from the Energy Information Administration (EIA)signal that a prolonged period of low gas prices and coal-plant retirements have boosted demand for cleaner-burning natural gas.

Coal has faced increased competition from low-cost gas resulting from the boom in shale production. Gas stole market share from coal in 2012 after prices tumbled to 10-year lows below \\$2/mmBtu, spurring electric utilities to dispatch more gas generation. This so-called coal-to-gas switching occurs more often in the spring and fall because low demand allows utilities to switch more freely between the fuels.

Gas prices at the Henry Hub have not dropped to the depths of 2012. But since late February, spot prices at the US benchmark have remained below \\$3/mmBtu, a level that supports more widespread gas use. Net generation from gas in April reached 92,516 GWh, compared with 88,835 GWh from coal, according to the EIA.

Gas already has displaced coal as the top generating fuel in Texas. Earlier this year gas made strong gains at the expense of coal in the supply mix of the largest US power grids: PJM Interconnection, the Midcontinent Independent System Operator and the Southwest Power Pool, which cover a large part of the eastern US. Fuel switching was especially strong in PJM, as mid-Atlantic natural gas prices dropped \\$2/mmBtu in April-May.

In addition, scores of aging coal plants are scheduled to retire this year because of the emissions-cutting Mercury and Air Toxics Standards, which went into effect in April. Duke Energy, American Electric Power, Southern Co, Xcel and Pacificorp are a few utilities that have shut coal plants or converted to another fuel.

A total of 115 units with 19.6GW will retire this year as a result of the federal mercury and air toxics rules. Most units retired between 16 April and 1 June.

The level of coal-to-gas switching will be closely watched during the injection season, when gas inventories are replenished to meet winter heating needs. Stockpiles have increased rapidly this year, despite increased demand from the power generation sector. But inventories in the second half of June increased by a smaller-than-average margin on hot weather and signs that production growth is slowing.

US gas inventories should exit the injection season at a near-record high of 3.919 Tcf (111bn m?), or 3.2pc below the five-year average, according to the EIA. Prices could receive a boost this fall, if injections slow and stockpiles fall to below-average levels.