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Natural gas likely overtook coal as top U.S. power source in 2015

Last year looks like it was an unwelcome watershed for the embattled U.S. coal industry.

Power companies in 2015 for the first time may have burned more natural gas than coal to generate electricity, according to analysts who attribute it to the cheapest gas prices in 16 years and a record number of coal-fired plants retired from service because of the high cost of meeting environmental regulations.

Data from the U.S. Energy Information Administration showed that power plants used more gas than coal to produce electricity in five of the first 10 months of 2015, including the last four months data was available - July, August, September and October.

While EIA does not forecast that gas produced more electricity than coal in 2015, some analysts conclude it did because gas in November and December traded at the lowest levels for the entire year, prompting more substitution in what was already an unrivaled year for coal-to-gas switching.

Coal has been the primary source of fuel for U.S. power plants for the last century, but its use has been declining since peaking in 2007, which is expected to continue as the federal government imposes rules to limit carbon emissions.

EIA said gas produced a record high 37 million megawatt hours per day of electricity on average during the first ten months of 2015. Coal, meanwhile, produced about 39 MWh per day. One megawatt is enough to power about 1,000 U.S. homes.

By December the price of gas had plumbed $1.92 per million British thermal units, the lowest level since 1998.

EIA does not yet have final figures for November and December 2015, but consultancy PIRA Energy Group said its preliminary estimates showed gas topped coal in both months.

"That had a lot to do with the collapse of gas prices during the last two months of 2015 due primarily to weak heating demand," said Greg Shuttlesworth, executive director natural gas at PIRA.

Thomson Reuters Analytics estimated economic coal-to-gas switching in November and December averaged 8.7 billion cubic feet of gas per day versus 6.1 bcfd for first 10 months of 2015.

Source: Reuters

"It's likely the power sector produced more electricity with gas than coal in 2015. But rather than focus on which fuel generated the most power last year, it's amazing enough that they are close to equal," said Chris Kostas, senior power and gas analyst at Energy Security Analysis Inc (ESAI) in Massachusetts.