Natural gas moves into coal country

Natural gas is poised to make big gains in traditional US coal country this year, spreading deeper into the power market in the Midwest, Texas and the Midcontinent, write Bob Yu, Senior Energy Analyst, Platts Analytics, and Rocco Canonica, Manager Platts Gas & Power. Low gas prices, new westward pipeline expansions out of the Appalachian Basin and continued high production levels are making gas the fuel of choice for power utility companies that have long relied on coal for the majority of their power generation. Coal-fired power plants are rapidly being pushed out of the market and shut down, while many gas plants are being built. The longer-term push toward gas and away from coal is well under way.

Economics are the major factor contributing to near-term fuel switching in the power sector. US gas-storage inventories are more than 30% higher than last year, with inventories in the Midwest up 55% compared to last year. As more cheap Appalachian gas has made its way west and south at a time when storage injection demand is limited, gas prices have tumbled to extreme lows near $2/mn Btu, making gas even more attractive than coal as a fuel source for power generation in areas previously dominated by coal.

However, storage levels and low prices are not the only factors influencing coal-to gas switching. Infrastructure changes are accelerating, creating a longer-term structural shift away from coal to gas. Coal-fired power retirements in the Midwest this year are expected to total 4,361 MW, or about 1,000 MW more than last year. Total US coal plant retirements between 2015 and 2021 could reach as much as 

39 GW of capacity, and by 2021 as much as 90 GW of new gas generation is scheduled to be built.

Platts Bentek expects total US natural gas demand from power generation to grow 2.3bn cf/d  over the next five years from 26.4bn cf/d in 2015 to 28.7bn cf/d in 2021. This summer, gas demand from power is expected to increase about 0.9bn cf/d compared to last summer. Nearly all of these gains will be in the middle of the country. Total US gas demand from power already has increased 1.4bn cf/d this year to date compared to the same period in 2015, and 2.5bn cf/d compared to 2012 levels. Some of the largest increases have been in the Midwest.