Coal news and updates

Higher natural gas prices, largely resulting from lower inventories, could displace 1-2 Bcf/day of power burn demand as generators switch back to coal from gas because of improving fuel economics, an S&P Global Platts analyst said at an the annual Benposium conference Monday in Houston. 

 

Gas-to-coal fuel switching will occur in the Midwest and Southeast, but not in the East, where near-term gas prices will remain low because of oversupply, said George McGuirk, a Denver-based analyst. 

 

"It's safe to assume about 1 Bcf/d of gas demand could switch back to coal," McGuirk said. "Henry Hub and Chicago city-gates should hit $3/MMBtu by the end of year. Dominion South should not hit $3[/MMBtu] until 2018 so we could see switching there going forward." 

 

The news should be welcome for a coal industry that has seen 41 GW of coal retirements over the last five years, largely because of environmental regulations. Another 15 GW of coal-plant retirements could be expected over the next five years, spread evenly across the US, and increasing if the Clean Power Plan goes into effect after courts work through current legal challenges, McGuirk said. 

 

One factor in coal's favor could be October gas inventories, which S&P Global Platts predict will be "significantly lower" than market expectations, said Mitchell Derubis, another Platts analyst. 

 

Platts projects stocks will peak at 3.9 Tcf in October, below market expectations of 4.1-4.2 Tcf. 

 

Coal and natural gas will duke it out for generation supremacy through the end of the year, when Platts projects a $2.47/MMBtu average Henry Hub spot price. 

 

That figure would be just short of the "sweet spot" for fuel switching which is around the $2.50/MMBtu mark in coal-heavy power markets, which could lead some generators to switch back to coal, said Jonathan Nelson, a Platts analyst also speaking at Benposium. 

 

Texas could lead in fuel switching, but also could lose coal-fired generation if environmental regulations take effect, Nelson said.

 

Dark spreads at the ERCOT North power trading hub in Texas have seen margins for coal on the decline since mid-2014. Off-peak dark spreads traded negative 264 days since January 2015, but have recently started to recover as gas prices increased, Nelson said. 

 

The lingering threat of the Clean Power Plan and other environmental regulations has left uncertainty for the coal markets, which should benefit from higher prices, but could still contract in size, Nelson said. 

 

"Next year, we expect gas prices to increase to above $3/MMBtu and that flips the balance back to coal," he said. "But the Clean Power Plan could be a force that pushes coal out of the stack as states turn their focus toward less carbon-intensive fuels."

 

Nelson noted the Environmental Protection Agency's Regional Haze rule, which could lead up to 9 GW of coal retirements across Texas, citing data from ERCOT's most recent Long-Term System Assessment, and called coal's outlook a "mixed bag" across the US. 

Source:Plats.com