Coal-to-gas switching by U.S. power generators looking to take advantage of cheap natural gas prices is expected by the U.S. Energy Information Administration to continue at least through the first half of 2012.
“Recent data show that the trend in displacing coal with natural gas as a generation fuel has accelerated in response to the current low price of natural gas delivered to electric generators” said the agency’s March Short-Term Energy Outlook. “U.S. generation fueled by natural gas in December 2011 was 11.6 percent higher than in December 2010. In contrast, coal‐fired generation declined by 20.7 percent over the same period.”
EIA said it expects this fuel displacement pattern to continue at least through the first half of 2012, causing the annual average share of total generation fueled by natural gas to rise from 24.8% in 2011 to 27.1% for 2012. As the delivered natural gas prices begin increasing later this year in response to higher demand and flattening growth in production, EIA said it expects the trend in fuel displacement will reverse slightly in 2013, with natural gas’ share of U.S. generation falling back to an annual average of 26.1%.
Coal consumption by the U.S. electric power sector in 2012 is expected to fall below 900 million tons for the first time since 1996 as the electric industry increased its use of natural gas for power generation, EIA projected. Coal demand by the power sector is projected to decline by nearly 5% this year to about 884 million tons, the lowest level since 1995. The decline in coal consumption reflects, in part, the continued switch by the electric industry to natural gas. Power sector demand for natural gas is expected to grow by almost 9% this year to a record high of 22.7 billion cubic feet per day. Coal use by the power sector is projected to rise slightly in 2013 but remain below the 2011 level.
The share of U.S. power generation fueled by natural gas is projected to rise from 24.8% in 2011 to 27.1% this year. Conversely, the share of electricity generation from coal is projected to drop from 42.2% to 40.4%.
These projections include the prices of natural gas and coal, as well as assumptions about temperatures, that are key drivers in the need for electric generation. If prices or temperatures differ significantly from those included in the projections, then the amount of electricity generated by coal and natural gas would likely be different from these projections.
The power sector consumes about 92% of U.S. coal production. Other large users of coal are coking plants involved in the steelmaking process and industrial users such as cement and paper manufacturers.
EIA expects coal production to decline by 4.4% in 2012 as domestic consumption and exports both fall. Production declines are expected in all coal‐producing regions, with the largest occurring in the Interior region (19.3 million tons). EIA projects that secondary inventories will rise in 2012, but decline in 2013, primarily in the electric power sector, as consumption grows.
EIA expects U.S. coal exports to remain strong but be below the 107 million tons exported in 2011. Forecast annual U.S. coal exports are 99 million tons in both 2012 and 2013. U.S. coal exports averaged 56 million tons per year in the decade preceding 2011.
Delivered coal prices to the electric power sector have increased steadily over the last 10 years and this trend continued in 2011, with an average delivered coal price of $2.40/MMBtu (a 5.8% increase from 2010). However, EIA said it expects the decline in demand for coal to generate electricity will put downward pressure on coal prices and contribute to the shut‐in of higher‐cost coal production. Several companies have recently announced the curtailment of high-cost operations, particularly in Appalachia. EIA forecasts the average delivered coal price in 2013 will be about 3% lower than the 2011 average price.