Coal to Natural Gas Fuel Switching

Coal-to-natural gas fuel switching is likely to have the largest impact on natural gas demand in the next few years. Some fuel switching will be driven by low natural gas prices, but the remainder will be triggered by an aging coal power plant fleet and compliance with potentially stricter emissions regulations. According to the early release of the EIA AEO 2012, over the next 25 years, the projected coal share of overall electricity generation falls to 39 percent, well below the 49 percent share seen as recently as 2007.  

According to Energy Solutions, Inc., President, Valerie Wood, “Powder River Basin [PRB] coal is the cheapest source of coal in the U.S. and supplies approximately 40 percent of the nation’s coal needs. In the West and Midwest markets, at $2.50 per MMBtu, natural gas has reached a price point where it is cheaper to burn than PRB coal. This means a huge amount of potential demand could arise from coal-to-natural gas fuel switching.”

If natural gas prices remain below the price of PRB coal for an extended period of time, analysts say coal-to-natural gas fuel switching could cause natural gas demand in 2012 to climb by 4-6 Bcf/day. There is plenty of spare, idled natural gas-fired generation capacity to accommodate this increase in demand. The impact of this fuel switching will likely be most evident in the spring when both coal-fired and nuclear power plants are taken offline for maintenance. Plus, this year’s maintenance season for coal-fired power plants is expected to be longer-than-usual as states prepare to comply with a number of new Environmental Protection Agency (EPA) rules and work to retrofit more facilities with scrubbers.

According to the EIA, natural gas-fired electric generation accounted for 80 percent of all new capacity added over the past 15 years. This trend is expected to continue. As natural gas demand from the electric generation sector permanently increases, there will likely be a tighter correlation between the price of natural gas and volatility in electricity prices. Increased electric price volatility would likely be noticed more quickly in markets that have been deregulated. In addition, increased reliance on the use of natural gas-fired electric generation, combined with the potential to export natural gas, is expected to push natural gas prices back into a higher trading range.

Natural Gas Price Outlook provides you with the tools needed to implement a cost-effective natural gas strategy for 2012 and beyond.  This 59-page, comprehensive analysis evaluates numerous price drivers and is a must-read for those who want answers to what the future holds for natural gas prices.  To learn more and secure your copy, visit http://www.naturalgasoutlook.com.