U.S. utilities seen burning more coal due high gas prices

Thu Jan 30, 2014 3:22pm EST

Jan 30 (Reuters) - The recent increase in U.S. natural gas prices is expected to dent demand for gas as utilities use more coal to generate power, electricity traders said on Thursday.

The cold weather and heavy heating demand so far this winter has pushed gas prices to four-year highs earlier this week.

Prices for Eastern coal have also climbed higher to over $60 per ton, the highest since June 2013.

The relative price difference between NYMEX Central Appalachian coal and NYMEX Henry Hub gas has widened to more than $3 per million British thermal units for the first time since February 2010, according to Reuters data.

Natural gas traded in the $5.40s per mmBtu earlier on Thursday, while Eastern coal is selling in the $2.40s per mmBtu.

Energy traders noted the spread between Eastern coal and gas was wide enough to offset the estimated $1 per mmBtu cost to transport the coal from the mine to the plant by rail, and the fact that gas plants are about 25 percent more efficient than coal plants.

Most of the utilities that burn Eastern coal are located in the eastern half of the country though many Midwest coal plants can burn either Eastern or Western coal.

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

Those weak gas prices depressed power prices to decade lows in most regions and caused generators - especially those in the Northeast and Southeast with some of the biggest rail transport costs - to switch from coal to gas in record numbers.

Since 2009, U.S. power companies have shut or converted over 22,000 megawatts of coal-fired power plants and have plans to shut or convert more than 42,000 MW of coal plants over the next 10 years or so.

Before now, the relatively cheap gas prices have made it uneconomic for many generators to upgrade older coal plants to meet increasingly strict federal and state environmental rules.

See Factbox on coal units to retire

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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