U.S. utilities to burn more natural gas as prices decline

Thu Jan 3, 2013 10:46am EST

Jan 3 (Reuters) - The recent decline in U.S. natural gas prices is set to dent demand for coal as utilities use more gas to generate electricity, according to electricity traders.

Natural gas prices have declined over the past week due to record high storage levels and mild winter weather forecasts. See

That decline in gas narrowed the relative price difference between NYMEX Central Appalachian coal and NYMEX Henry Hub natural gas to below $1 per million British thermal units (mmBtu) for the first time since September, according to Reuters data.

Natural gas traded at $3.18 per mmBtu Thursday morning, while Eastern coal was selling for about $2.20 per mmBtu.

Energy traders said it costs about $1 per mmBtu to transport Eastern coal. So when natural gas prices are less than $1 over coal, traders said it starts to make economic sense for generators to burn gas rather than coal.

In early 2012, a mild winter left a huge amount of gas in inventory and record-high natural gas production pushed gas prices in April to 10-year lows, luring power companies away from coal in record numbers.

Natural gas, which is historically more expensive than coal, traded at a 10-year low of $1.90 in April due to oversupply, while coal fetched about $2.12. That 22-cent discount was the lowest since at least 2001, according to Reuters data.

But by September, the spread between Eastern coal and gas futures widened back to more than $1 as gas prices rebounded, making gas less of a bargain for the fourth quarter of the year.

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 and FirstEnergy Corp .

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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