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Gas overtakes coal in the US power sector

EIA has released figures showing a major victory for natural gas producers

Gas producers notched up a major victory over rival coal producers in April. For the first time ever, natural gas overtook coal as the country’s top fuel for power generation, the US Energy Information Administration (EIA) said this month.

Persistently low prices – Henry Hub prices averaged just $2.95/m Btu in the first half of this year – were the main driver of natural gas’ rise. But ever more stringent regulations on emissions have also made coal more expensive and less competitive – especially where coal is costlier to produce, such as the Appalachians.

Natural gas took 31% of the US power generation mix in April, compared with coal’s 30% but this is likely to be a temporary phenomenon. The EIA expects coal to remain the largest source of electricity generation in 2015 and 2016, retaining a market share of just less than 36% against 30% for natural gas, while power demand is not expected to change.

In 2007, coal was responsible for about half of US power generation compared with just 21.6% for natural gas.

And the trend looks set to continue. New regulations on emissions of pollutants such as sulfur dioxide and mercury are forcing the closure of older coal plants, where retrofitting would be too costly. The EIA said earlier this year that coal plants with a combined generating capacity of 4.1 GW were retired in 2014, and an additional 13 GW of coal-fired plants will shut down this year, mostly in the Appalachian region where mines are deep. An analyst at the investment bank Barclays, Michael Cohen, calculates that is equivalent to around 1.2bn cubic feet/day (cf/d) of incremental gas demand.

While record demand from power generators has helped lift demand for natural gas over the first half of the year, it still hasn’t been enough to absorb all of the new supply hitting the market. Production is running at 2bn to 3bn (cf/d), around 5% higher than this time last year and inventory levels are around 30% higher than they were last year.

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