February 11, 2013 / 3:55 PM / in 5 years

U.S. utilities seen burning more natural gas as prices decline

Feb 11 (Reuters) - A recent increase in U.S. coal prices and a slight decline in natural gas is set to dent demand for coal as utilities use more gas to generate power, electricity traders said on Monday.

Prices of Central Appalachian coal have climbed to the highest levels since mid-December as prices and demand for coal remain strong in foreign markets and U.S. miners look to export more of their product.

Meanwhile, natural gas prices have declined to the lowest levels since late January, due in part to high storage from record shale gas production and mild end-of-winter weather forecasts. See

The relative price difference between NYMEX Central Appalachian coal and NYMEX Henry Hub gas has narrowed to less than $1 per million British thermal units (mmBtu) for the first time since early January, according to Reuters data.

Natural gas traded at $3.22 per mmBtu Monday morning, while Eastern coal was selling for about $2.25 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, it starts to make economic sense for generators to burn more gas rather than coal, according to traders.

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

Natural gas is historically more expensive than coal, but in April 2012 gas traded at a 10-year low of $1.90 per mmBtu due to oversupply while coal fetched about $2.12 per mmBtu. That 22-cent gap had not been seen since at least 2001, according to Reuters data.

As gas prices rebounded, surpassing coal, the spread between gas and Eastern coal widened to more than $1, making gas less of a bargain. But now, the spread has fallen to less than $1.

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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