EIA predicts continued strong natural gas prices, some coal rebound

The U.S. Energy Information Administration (EIA) expects total U.S. electricity generation will grow by 0.2% in 2013 and by 0.4% in 2014, the agency said in its latest Short-Term Energy Outlook, released on Sept. 10.

“Higher prices for natural gas delivered to electric generators push down natural gas-fired generation by 9.6% during 2013,” EIA added. “Much of this generation is picked up by coal generation, which EIA expects will grow by 7.1% this year. Nuclear generation during 2013 is expected to be 0.4% lower than generation last year, primarily as a result of unplanned outages this year. [G]eneration from renewable sources, particularly wind, increases in both 2013 and 2014.”

EIA expects the Henry Hub natural gas spot price, which averaged $2.75/MMBtu in 2012, will average $3.68/MMBtu in 2013 and $3.91/MMBtu in 2014.

EIA expects that natural gas consumption, which averaged 69.7 Bcf/d in 2012, will average 69.9 Bcf/d and 69.3 Bcf/d in 2013 and 2014, respectively. Colder winter temperatures in 2013 and 2014 (compared with the record-warm temperatures in 2012) are expected to increase the amount of natural gas used for residential and commercial space heating. However, the projected year-over-year increases in natural gas prices contribute to declines in natural gas used for electric power generation from 25.0 Bcf/d in 2012 to 22.1 Bcf/d in 2013 and 21.6 Bcf/d in 2014.

Natural gas spot prices averaged $3.43/MMBtu at the Henry Hub in August, down 20 cents from the previous month’s price. While prices have been declining since April, EIA said it expects this pattern will reverse in September as the weather becomes cooler and natural gas demand for space heating begins to become a factor.

Natural gas futures prices for December 2013 delivery (for the five-day period ending Sept. 5) averaged $3.87 per MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for December 2013 contracts at $2.98 per MMBtu and $5.04 per MMBtu, respectively. At this time a year ago, the natural gas futures contract for December 2012 averaged $3.20 per MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.20 per MMBtu and $4.65 per MMBtu.

Coal production showing some signs of renewed life

Based on preliminary monthly data for July, coal production totaled 88.9 million tons for the month, the highest level since August 2012 and up 3.0% from the previous July’s total. Coal production in the Appalachian and Western regions was up 3.0% and 4.8%, respectively. Although Interior region production declined by 2.8% year-over-year in July, Illinois Basin production did increase slightly. July also saw a significant reduction in coal inventories held by electric power producers.

Coal production in the first half of 2013 was 486 million tons, 21 million tons (4.2%) lower than in the same period of 2012. EIA projects higher production in all regions during the second half of 2013 compared with the same period last year, with total coal production of 1,013 million tons in 2013. Coal production is forecast to grow by 3.0% in 2014 to 1,044 million tons as inventories stabilize and consumption increases.

Inventory draws are expected to meet most of the growth in consumption in 2013. Total coal inventories fell by 19 million tons during the first half of 2013. EIA forecasts an additional 9 million tons of inventory withdrawals over the second half of 2013.

EIA estimates that total coal consumption for the first half of 2013 was 446 million tons, or 36 million tons (8.7%) higher than the amount of coal consumed in the first six months of 2012. The increase was primarily a result of growth in the electric power sector because of higher electricity demand and natural gas prices. EIA expects that this trend will continue in the second half of 2013 with total coal consumption for the year of 942 million tons (a 5.8% increase over 2012). Consumption grows at a more modest rate of 1.8% to 959 million tons in 2014.

EIA estimates that first half 2013 coal exports totaled 61.3 million tons, which was 4.9 million tons lower than the same period last year. Exports for the next six months are expected to continue to erode, with second-half exports totaling 54 million tons, down 6 million tons from last year. Exports are projected to total 109 million tons in 2014.

Continuing economic weakness in Europe (the largest regional importer of U.S. coal), slowing Asian demand growth, increasing supply in other coal-exporting countries, and falling international coal prices are the primary reasons for the expected decline in U.S. coal exports.

EIA expects nominal annual average coal prices to the electric power industry to fall for the first time since 2000, from $2.40/MMBtu in 2012 to $2.36/MMBtu in 2013. EIA forecasts average delivered coal prices of $2.39/MMBtu in 2014.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.