EIA predicts marginally higher gas prices, stronger winter coal burn

Natural gas spot prices averaged $3.68 per MMBtu at the Henry Hub in October, up 6 cents from the previous month’s price, the U.S. Energy Information Administration reported in the Nov. 13 version of its Short Term Energy Outlook.

While natural gas prices declined from April through August, they began increasing in September in anticipation of winter heating demand. EIA expects the Henry Hub price will increase from an average of $2.75/MMBtu in 2012 to $3.68/MMBtu in 2013 and $3.84/MMBtu in 2014.

Natural gas futures prices for February 2014 delivery (for the five-day period ending Nov. 7) averaged $3.57 per MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for February 2014 contracts at $2.70 per MMBtu and $4.73 per MMBtu, respectively. At this time a year ago, the natural gas futures contract for February 2013 averaged $3.86 per MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.76 per MMBtu and $5.39 per MMBtu.

Coal production still down so far this year

Coal production for the first three quarters of 2013 was estimated to total 752 million tons, 15 million tons (2%) lower than in the same period of 2012. EIA projects total coal production of 1,012 tons in 2013. Coal production is forecast to grow by 2.7% in 2014 to 1,039 million tons as inventories stabilize and consumption increases. Inventory draws of nearly 30 million tons are expected to meet most of the growth in consumption in 2013.

EIA estimates that total coal consumption for the first three quarters of 2013 was 700 million tons, or 35 million tons (5.3%) higher than the amount of coal consumed in the first nine months of 2012. The increase was mostly a result of increased consumption in the electric power sector due to higher natural gas prices. EIA expects total coal consumption for 2013 to reach 930 million tons (a 4.4% increase over 2012). Projected consumption grows to 957 million tons in 2014.

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 $2.34/MMBtu in 2013. EIA forecasts average delivered coal prices of $2.36/MMBtu in 2014.

Coal generation expected to be up this winter

Electricity generation from renewable energy sources other than hydropower currently accounts for about 6% of total U.S. generation in all sectors, EIA noted. However, non-hydro renewables have experienced the highest growth of any power generation source over the last few years, averaging an estimated annual growth rate of 13% in 2012 and 2013. The share of generation supplied by non-hydro renewables has grown strongly in California in recent years.

EIA expects total U.S. electricity generation during the 2013-2014 winter months will be 0.7% higher than last winter. Higher prices for natural gas delivered to electric generators drive a projected 3.1% increase in coal generation this winter, while natural gas-fired generation falls by 3.0%.

Generation fueled by nuclear energy this winter declines by 0.9%, driven by the retirement of four nuclear units during the past year. Non-hydro renewable power generation rises by 3.6% this winter, which is a lower growth rate than in recent years.

EIA is projecting renewable energy consumption for electricity and heat generation in all sectors to increase by 4.4% in 2013. While hydropower declines by 1.2%, non-hydropower renewables used for electricity and heat generation grow by an average of 8.1% in 2013. In 2014, the growth in renewables consumption for electric power and heat generation is projected to continue at a rate of 2.6%, as a 0.6% increase in hydropower is combined with a 3.7% increase in non-hydropower renewables.

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.