Natural gas continues to gain ground over coal for electric generation

Recent forecasts from the U.S. Energy Information Administration show that natural gas continues to gain ground against coal.

The EIA, citing data from S&P Global Platts, said it expects the U.S. will likely set a new daily record for natural gas consumption on July 19 of 44.5 billion cubic feet (Bcf), beating the previous record of 43.1 Bcf set on July 16, 2018. The higher consumption is being driven by higher-than-normal temperatures and relatively low natural gas prices that contribute to increased gas consumption by electric generators.

In its Short-Term Energy Outlook (STEO), the EIA, an arm of the Department of Energy, noted that Henry Hub natural gas spot price averaged $2.37/million British thermal units (MMBtu) in July, down 3 cents/MMBtu from June. And, by the end of the month, spot prices had fallen below $2.30/MMBtu.

Based on the downward trend in prices combined with strong growth in natural gas production, EIA lowered its Henry Hub spot price forecast for the second half of 2019 to an average of $2.36/MMBtu, down from $2.50/MMBtu in its previous STEO. Longer term, the EIA expects natural gas prices to increase in 2020 to an average price of $2.75/MMBtu.

The EIA noted that gas prices were even lower in other parts of the country. Even during the mid-July heat wave, spot prices at the Henry Hub in Louisiana averaged $2.33 per million British thermal units (MMBtu) while prices at the Chicago Citygate, the regional benchmark for Midwestern states, averaged 19 cents/MMBtu lower than Henry Hub and spot prices in the Northeast have traded 30 cents/MMBtu lower than Henry Hub.

One of the drivers of lower natural gas prices is increased production. The EIA forecasts that U.S. dry natural gas production will average 91 billion cubic feet per day (Bcf/d) in 2019, up 7.6 Bcf/d in 2018.

The EIA expects gas production to continue to grow for the remainder of the year and then decline slightly in 2020 as low prices in the latter half of 2019 lead to less drilling for gas.

The other driver of lower natural gas prices is rising consumption of the fuel by electric generators. The EIA expects utility scale generation from natural gas will rise to 37%, from 34%, in 2019 and then decline slightly in 2020. Meanwhile, coal’s share of the U.S. generation mix will average 24% in 2019 and 2020, down from 28% in 2018, according to the EIA.

Other forms of generation remain relatively stable in the U.S. generation mix. The EIA forecasts the nuclear share of generation to remain at 20% in 2019 and in 2020 and hydropower to remain at 7% for 2019 and 2020, while wind, solar, and other non-hydropower renewable resources move from about 10% of U.S. generation in 2018 to 12% in 2020.

Generation from coal, however, is forecast to decline, according to the EIA. The agency expects electric sector demand for coal to fall by 2% in 2020, compared with an expected decline of 15% in 2019 as planned coal plant retirements continue to exert downward pressure on coal demand. Almost 13 gigawatts of coal-fired generation has retired this year or is scheduled to retire by the end of 2020, according to the EIA.

Meanwhile, more gas-fired power plants are coming online. EIA data show that more than 12 gigawatts of gas-fired generation has entered service in the PJM Interconnection region since the beginning of 2018, increasing gas-fired capacity in the region by 17% and accounting for 55% of the gas combined-cycle capacity added in the nation.