OREANDA-NEWS. The lowest natural gas prices in more than a decade and forecasts for a mild winter could increase the ability of power generators to switch from coal to gas-fired generation.

Coal-to-gas switching tends to be more prevalent during spring and fall months when electric demand is lower and not all power plants must run to meet demand. But even with this week's cold-weather rally, benchmark Henry Hub spot prices remain below $2.50/mmBtu, the level at which gas is considered competitive with coal. At $2.21/mmBtu, December's Henry Hub bid week price is 48pc below the year-earlier price.

"We've definitely seen a shift over to gas with the low prices and we anticipate that continuing into this winter," said Southern Co.'s senior vice president for commercial operations and planning John Trawick.

Southern expects gas to account for 47pc of its overall 2015 fuel mix and coal for 34pc, a dramatic shift from recent years when Southern's utilities serving four southeastern states counted on coal to supply nearly 70pc of their electric output.

Even though Southern has already increased its reliance on gas dramatically, Trawick said its utilities have the flexibility to burn more gas over the winter if the price is right.

"We can run our combined-cycle plants at higher levels and even see our CTs (combustion turbines) be economical to run for short peak periods," Trawick said.

A number of Southern's coal units were taken offline this month and those that continue to run are reduced to minimal output during low demand hours.

Looking ahead, Southern officials expect gas capacity to climb to 52pc by 2020 and coal use to slide to 29pc.

Depending on coal and gas prices, Southern estimated gas use could climb as high as 55pc in 2020 in a low gas price environment with coal use falling to 21pc. On the flip side, a high gas price could pare gas use to 27pc of the total fuel mix with coal use rebounding to 49pc.

Gas use is also increasing in areas of the country where independent system operators (ISOs) oversee the economic dispatch of power plants.

"Now that ISOs have more responsibilities, natural gas usage should increase in both absolute and relative terms," said Gelber & Associates analyst Aaron Calder.

Nationally, sustained low gas prices allowed gas to account for more than 32pc of US electric generation this year, up from 28pc in 2014, according to Energy Information Administration (EIA) data. Coal use is seen dropping to 34pc this year from nearly 39pc in 2014.

In 2016, EIA said gas' share of generation will ease to slightly below 32pc while coal is steady at 34pc.

Another analyst warned that utilities may have reached an upper limit on the amount of gas they can burn.

"At these price levels, every available gas-fired power plant that can burn gas for economic and grid availability reasons is doing so," First Energy Capital analyst Martin King said in a recent report "Additional gas burn with lower prices is unlikely."

While the outlook for a mild winter gives generators more flexibility, lack of cold weather limits overall power consumption.

Utilities that already have a significant amount of coal on hand may continue to burn it, Calder said. "One of the main benefits of coal-fired power generation is that it's relatively cheap to keep it going once you get it started," he said.

Power sector coal inventories in October were 28pc above the 2014 level and more than two-thirds of US power plants had more than 60 days of coal supply on the ground, according to EIA data.

Utilities that once purchased a set amount of coal each year must now manage coal deliveries amid fluctuating fuel prices.

Trawick said Southern looks at a variety of coal and gas price scenarios to determine how much coal it needs. "We can have a wide swing of 15mn tons, depending on gas prices."