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CORRECTED-UPDATE 3-U.S. utilities may return to coal as natgas prices rise
(Corrects spread between coal and gas due to faulty Reuters data.) In paragraph 3, read ... narrowest in seven months (not in more than a year) ... In paragraph 4, read ... the narrowest since December (not June) ... In paragraph 5, read ... spread peaked at 22 cents (not $2.196) ... and ... fetching about $2.13 (not $4.10) ... In paragraph 6, read ... dipped to about $2.10 (not $4.03) ... In paragraph 18, read ... In late March and April 2012 (not since July 2010), though, coal was briefly (not has been) ...
By Scott DiSavino
July 20 (Reuters) - The recent rise in U.S. natural gas prices is set to put a dent in demand for the fuel as some utilities resume the use of more coal to generate electricity.
Record-high natural gas production pushed prices to 10-year lows in April, luring power companies away from coal.
But the spread between NYMEX Central Appalachian coal prices and Henry Hub natural gas futures on Friday reached its narrowest in seven months as gas prices rebounded from lows plumbed earlier this year, making the fuel less of a bargain.
The relative price difference on Friday was about 95 cents per million British thermal units, according to Reuters data -- the narrowest since December 2011, and thin enough to discourage more use of natural gas in electricity generation.
The spread peaked at 22 cents per mmBtu on April 19 when gas, historically more expensive than coal, hit a 10-year low of $1.902 due to oversupply, while coal was fetching about $2.13, according to the Reuters data.
Since then, gas prices have rebounded to $3.08 per mmBtu, but coal, which is typically priced per ton, dipped to about $2.10 per mmBtu.
Some power plants are already moving back to coal, a trend set to increase with gas prices expected to continue rising.
Current levels of switching from coal boosted gas demand by about 5.1 billion cubic feet per day (bcfd) -- down from a peak in April of about 10 bcfd, according to Thomson Reuters Analytics.
Most switching was in the Southeast and Northeast where the dominant coal variety is Central Appalachian, with much less in the Southwest and Midwest where cheaper Powder River Basin coal from Wyoming is dominant, Thomson Reuters Analytics said.
In April, gas-fired power plants for the first time produced the same amount of generation as coal - 32 percent, according to U.S. Energy Information Administration data.
Reductions in gas demand losses so far have been small -- probably around 0.5 billion cubic feet per day. But if the spread continues to narrow, as energy analysts predict, generating companies could again start burning much more coal and less gas in their power plants.
Cash prices at Henry Hub climbed to just above $3 per mmBtu on Friday, near a seven-month high.
As recently as 2007, coal produced about 49 percent of the nation's total generation.
While coal is still the largest single fuel for electricity, its share declined to 36 percent in the first quarter from about 45 percent a year earlier because of the increased usage of efficient combined-cycle natural gas plants, the EIA said.
Genscape, which supplies real-time power supply information to the energy market, told Reuters the coal plants it monitors generated about 98.3 million megawatt-hours (MWh) of electricity in June 2011 versus just 86.4 million MWh in the same month in 2012, a 12.1 percent decline.
In its short-term energy outlook, the EIA forecast electricity generation from coal will decline by about 14 percent this year as that from natural gas increases by about 23 percent.
But the EIA forecasts that electricity generation from coal will increase about 1.3 percent in 2013 as prices fall slightly for that fuel and rise for natural gas.
Since 2001 when NYMEX started its Central Appalachian coal contract, gas has been mostly dearer per mmBtu than coal. In late March and April 2012, though, coal was briefly the more expensive fuel, according to Reuters data.
Most of the coal-to-gas switching and announced retirements of more than 30,000 megawatts of mostly small, old coal plants have occurred since the middle of 2010.
The EIA said it expected Henry Hub natural gas prices to average $2.58 per mmBtu this year and $3.22 next year. It forecast coal prices to average about $2.39 per mmBtu this year and $2.33 in 2013.
Because they cover Eastern, Central and Western coal prices, the EIA figures are much lower than the NYMEX Central Appalachian futures. Western coal, which accounts for more than half of U.S. production, is still much cheaper than natural gas.
The biggest U.S. coal-fired power companies include units of American Electric Power Co Inc, Duke Energy Corp , Tennessee Valley Authority, Southern Co, Xcel Energy Inc, NRG Energy Inc, GenOn Energy Inc and FirstEnergy Corp. (Additional reporting by Joe Silha in New York; Editing by Gerald E. McCormick, Lisa Von Ahn and David Gregorio)
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