A warmer-than-normal winter contributed to high natural gas working inventories that continue to set new record seasonal highs, with March 2012 ending at an estimated 2.48 trillion cubic feet (Tcf), about 57% above the same time last year.
The U.S. Energy Information Administration also said in its April Short-Term Energy Outlook released April 10 that its average 2012 Henry Hub natural gas spot price forecast is $2.51/MMBtu, a decline of $1.49/MMBtu from the 2011 average spot price. EIA said it expects that Henry Hub spot prices will average $3.40/MMBtu in 2013.
EIA also expects electricity generation from coal to decline by about 10% in 2012 as generation from gas increases by about 17%. EIA is forecasting that power generation from coal will increase by about 7% and generation from natural gas fall by 3% in 2013 as projected coal prices fall slightly while natural gas prices increase, allowing coal to regain some of its power sector share.
“EIA forecasts that electric power sector coal consumption will be well below 900 million short tons (MMst) in both 2012 and 2013,” said the report. “Power sector natural gas prices have fallen significantly, leading generators in several regions to increase the share of natural gas-fired generation.”
EIA projects coal production to decline by 7.6% in 2012 as domestic consumption and exports fall. Production declines greater than 20 million tons are expected in each of the three coal-producing regions (Appalachia, Interior and Western). EIA projects that secondary coal inventories will increase in 2012, with electric power sector stocks exceeding 200 million tons, and inventories will remain at these levels in 2013.
U.S. coal exports should remain strong this year but be below the 107 million tons exported in 2011, EIA said. Forecast U.S. coal exports are 100 million tons in 2012 and 98 million tons in 2013. U.S. coal exports averaged 56 million 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 expects the decline in demand for steam coal will put downward pressure on coal prices and contribute to the shut-in of higher-cost production. Several coal companies have recently announced the curtailment of operations, particularly in Appalachia, where production costs at some older mines are high. EIA forecasts the average delivered coal price in 2012 will be about 1% lower than the 2011 average price. EIA predicts the 2013 average delivered coal price to be $2.30/MMBtu, or 3.2% lower than the previous year’s price.