OREANDA-NEWS. Natural gas was the top US generating fuel during this year's summertime peak electricity output period and it could for the first time displace coal in the US power supply mix for all of 2015.

Electricity generated by natural gas-fired power plants overtook coal-fired generation in May and June-October, based on the US Energy Information Administration's (EIA) latest Electric Power Monthly released today. US electricity generation typically is the highest in the third quarter, when air conditioning demand peaks.

The share of coal in US power generation exceeded that of natural gas during the first quarter, when gas prices reached their highest level for this year. But natural gas prices started a downward trajectory in spring as robust supply exceeded demand despite gains the fuel made in the power sector. US natural gas inventories reached a record high in November.

The shutdown of gigawatts of coal-fired capacity in April-June contributed to the supply mix shift. The coal plants shut down as a result of the federal mercury and air toxics rule. Some coal plants won a reprieve from the rule until April 2016. But more coal capacity will retire in the next decade as a result of the Clean Power Plan proposal to limit CO2 emissions from the US power sector.

Coal plants in October accounted for 31pc of US generation, down from 35pc a year earlier. The share of gas rose to 35pc from 31pc. Gas-fired generation in absolute terms increased by 13pc while coal-fired output fell by 12pc.

Natural gas in January-October accounted for 32pc of US generation, up from 28pc in the same period last year. Coal's share fell to 34pc from 39pc. Coal plants generated 12pc less electricity in January-October than in the year earlier period. Gas-fired generation increased by 18pc in absolute terms.

The trend likely will intensify in November-December. Coal-fired power plants in the Midcontinent Independent System Operator territory in November produced 22pc less electricity than a year earlier. That power grid is the second largest in the US.

The El Nino-induced moderate weather pattern has kept heating demand below seasonal norms. Electricity generation east of the Rockies since early November has trailed year-earlier levels by 2-9pc, Edison Electric Institute data show.

US natural gas prices fell sharply as a result. Coal prices have fallen as well, but by smaller proportions.

Spot natural gas prices at Chicago Citygates, a midwest benchmark, averaged $1.93/mmBtu so far this month, down by a third from the third quarter average and 42pc lower than in the first quarter.

The prompt quarter Powder River basin 8,800 Btu/lb contract — the largest US coal specification by sales volume — has shed 19pc so far this year, reaching $10.15/short ton this week.

Coal and natural gas producers are equally affected by the fall in the price of their commodities. But the increase in gas demand to a certain degree offsets the decline in the price for producers. Most coal mine operators do not have that cushion.

Coal receipts by US power generators in January-October were down by 8pc from the same period last year. Natural gas consumption in the power sector during the same period increased by 18pc.

Electric utilities cut coal demand by only 4pc year over year, as power purchase agreements and reliability contracts protect some coal plants from competition with natural gas. But merchant power plants cut their coal intake by 17pc, increasing their gas purchases by the same proportion.

US coal production has been falling throughout this year but the cuts in demand have been even higher. Coal stocks at power plants are piling higher as a result.

Power sector coal inventories in October reached 176mn st (160mn metric tonnes), up by 28pc from October 2014. Bituminous coal stocks were up by 10pc year over year to 76mn st and inventories of sub-bituminous coal — the category that includes Powder River basin output — were up by 55pc to 95mn st.

The EIA in its Short-Term Energy Outlook earlier this month expected coal-fired generation to rebound next year because it forecasts natural gas prices to rise.

But Argus calendar 2016 natural gas forwards in almost every power grid are at levels which make even the cheapest coal specifications uncompetitive in merchant generation.