As gas prices rise, U.S. utilities to burn more coal

Thu Dec 12, 2013 9:07am EST

Dec 12 (Reuters) - A recent rise in U.S. natural gas prices is set to further dent demand for gas as utilities are expected to use more coal to generate power, energy traders said on Thursday.

The relative price difference between NYMEX Central Appalachian coal and NYMEX Henry Hub gas has widened to more than $2 per million British thermal units for the first time since early July 2010, according to Reuters data.

Since the beginning of December, NYMEX gas has climbed almost 12 percent to $4.434 per mmBtu early Thursday, the highest since early May.

Traders said gas prices are climbing on forecasts for cold weather over the next week or two, which is expected to boost heating demand.

NYMEX Central Appalachian coal meanwhile has gained 5 percent since the start of December to $57.25 per ton, or $2.39 per mmBtu.

The traders said coal was the cheaper fuel even though gas plants are about 25 percent more efficient than coal plants, and despite an estimated $1 per mmBtu cost to transport coal by rail from the mine to the plant.

In 2012, the price of gas, which has historically been more expensive than coal, dropped to a more than 10-year low due primarily to record shale gas production.

Even though that record shale gas production is continuing, traders noted power companies have used more coal in 2013 than in 2012 because gas has been more expensive this year.

The U.S. Energy Information Administration in December forecast that coal used for power generation will rise to 39.3 percent in 2013 and 39.9 percent in 2014, from 37.4 percent in 2012.

With the forecast rise in gas prices, natural gas used for power generation is expected to decline to 27.5 percent in 2013 and 27.2 percent in 2014, from 30.3 percent in 2012, EIA said.

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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