Last summer, a tight coal market in the eastern United States made an already tight natural gas market even tighter. Low coal inventories, declining production, and transportation constraints led to exorbitant premiums for Appalachian coal and limited coal consumption in the East, leading to record gas demand for power generation, even as gas prices rose to 14-year highs. Now, gas markets are considerably looser, storage inventories are high, and gas prices signal the need for more demand (or less supply) to balance the market and avoid storage constraints this injection season . But the coal market has also relaxed. Coal production is up, coal inventories are up, and Appalachian coal prices have fallen in recent months. What will this mean for energy burn and gas market balance this summer? In today’s RBN blog, we look at the latest developments in the coal and gas markets, the potential shift from coal to gas, and how these dynamics could affect gas balance sheets.
When we looked at the economics of coal versus gas generation and fuel switching around this time last year, see I can’t stop now and ours Speaking of my generation series: The gas market was in the midst of what turned out to be one of the most bullish years in more than a decade. Prices rose above $7/MMBtu for much of the injection season, reaching nearly $10/MMBtu in August. Despite the highest gas prices in 14 years, however, energy consumption (that is, the demand for gas for power generation) reached record highs, and gas’s market share in generation d energy increased year-on-year to 40% by 2022. This, despite increases in wind and solar generation. Because? While gas prices were high, coal prices were even higher on a MMBtu basis and it was coal that gave up its share of the power generation pie as renewables increased.
That’s partly by design: The economy and environmental regulation have largely favored gas plants and pushed hundreds of coal-fired plants into retirement over the past decade, reducing price-driven fuel-switching capabilities among two fuels However, tight coal supplies in the eastern United States, marked by low inventories, strong export demand and record prices, further limited the switch from gas to coal last year, making made the burning of gas for power much less sensitive to price signals.
