April 5, 2013 / 4:10 PM / 4 years ago

U.S. utilities seen burning more coal as gas prices climb

NEW YORK, April 5 (Reuters) - A recent increase in U.S. natural gas prices and a decline in coal will continue to slow domestic demand for gas this spring as utilities turn to cheaper coal to generate power, electricity traders said on Friday.

Prices of Central Appalachian coal are near their lows for the year, while gas prices, which have more than doubled over the past year, hit a 19-month high last week.

The relative price premium for NYMEX Henry Hub gas on Friday over NYMEX Central Appalachian coal increased to more than $1.73 per million British thermal units (mmBtu), its widest in almost three years, according to Reuters data.

Natural gas traded at $4.07 per mmBtu on Friday morning, while Eastern coal was selling at $2.34 per mmBtu.

Energy traders said coal plants were now about 10 to 40 cents per mmBtu cheaper than gas units even though gas plants are roughly 25 percent more efficient than coal, and it costs about $1 per mmBtu to transport coal from mine to plant by rail.

Natural gas has historically been more expensive than coal but when gas prices last year dropped to a 10-year low, gas became the fuel of choice for power generators as they switched from coal in record numbers.

Gas prices have been under pressure for several years primarily due to record production of shale gas.

Since 2009, generators have announced plans to shut almost 50,000 megawatts of coal-fired capacity over the next several years. Weak power prices have made it uneconomical for them to invest in emission-control equipment needed to keep older coal plants compliant with stricter environmental rules.

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