Rising natural gas prices boost coal production and summer coal-fired generation
Energize Weekly, May 19, 2021
A steady rise in natural gas prices since the start of 2021 has given the U.S. coal industry a boost as electric utilities, the nation’s prime coal consumer, are set to switch to coal-fired generation this summer.
The federal Energy Information Administration (EIA) is forecasting a 5 percent decline in natural gas-fired generation this summer to 420 billion kilowatt-hours (kWh), 37 percent of total generation, while coal rises 4 percent to 26 percent percent of total generation.
Spot natural gas prices, at the Henry Hub, the official delivery point for New York Mercantile Exchange futures contracts, started the year at $2.60 for a million British thermal units (BTUs). On May 11, it was $2.91 for a million BTUs, up from $1.70 a year ago.
EIA is projecting prices will rise even more. “The forecast U.S. cost of natural gas delivered to electric generators averages $3.13 per million British thermal units this summer, which would be 46 percent higher than during summer 2020 and close to the price during summer 2018,” the agency said.
BTU Analytics, an energy analyst and consultant, is estimating natural gas prices in the range of $3 to $3.49 for a million BTUs and a drop in demand for natural gas of 1.5 billion cubic feet a day (Bcf/d) due to utilities switching to coal.
The higher end price range could lead to a cut of 2 Bcf/d, and if natural gas prices climb over $4.00 a million BTUs, 3 Bcf/d of demand “could be at risk,” BTU Analytics said.
The fall in natural gas-fired generation this summer will leave it at about the same level as in 2018 – even though 17.6 gigawatts (GW) of new natural gas-fired capacity has been added to the country’s generating fleet in the last two years.
Since 2010, the U.S. has retired nearly 30 percent of its coal-fired capacity, to 235 GW in 2021. “The majority of coal plants retired in the past 10 years are those that are no longer economic to run, though climate-focused legislation in some areas has also contributed to retirements,” according to BTU Analytics.
Even with fuel-switch, EIA is projecting coal-fired generation in 2021 will still be 12 percent lower than it was in 2018.
Still, the rise in natural gas prices has primed coal demand and production. The EIA projects that coal production will be up 8 percent to 582 million short tons in 2021, with most of that coal going to power plants.
Coal-fired generation is already up 35 percent year-on-year in 2021, according to S&P Global. “We forecast U.S. coal-fired dispatch to remain firmly above year-ago levels for the remainder of 2021, with full-year 2021 up by 20 percent versus 2020,” the energy information company said.
Coal-fired power plants are operating at a 60.7 percent capacity factor – a 30-month high – compared to 51.5 percent in January and 36.4 percent in the year-ago month, S&P Global Platts said.
EIA said that growing renewable energy generation will also supplant some natural gas plants with wind, solar and other renewable sources, excluding hydropower, providing 138 billion kWh, 12 percent of the total and up from 10 percent last year.
