Discussion - Oil & Gas

[Closed] DISCUSSION: How do rising US gas prices, gas-to-coal switching, and new rig counts influence each other?

For most of 2012, natural gas gained market share against coal for U.S. power generation. However, in recent months natural gas has given some gains back, due mostly to higher nat gas prices relative to coal prices.

Despite this, many view coal-to-gas switching as a long-term lasting trend.

Coal-to-gas switching is a term used for when power plants decide to use natural gas in place of coal as fuel. Given sustained low natural gas prices, and the fact that natural gas burns more cleanly than coal, coal-to-gas switching had been rising for most of 2012. This trend increases natural gas demand and provides some support to natural gas prices, therefore, helping upstream energy producers with significant natural gas production. Power producers are incentivized to use more natural gas and less coal when natural gas prices fall relative to coal prices.

via Natural gas continues to lose market share to coal year-over-year due to price gains » Market Realist.


  1. Clearly, rising gas prices are going to cause more fuel switching back to coal. The question becomes what happens when coal gets back to its baseline level of contribution to electricity supply. Temporarily, it is likely that prices will stay soft as electricity demand weakens, and further drilling will completely stop until well depletion catches up and causes prices to rise. Either way, the coal-to-gas phenomenon seems relatively short-lived.

    The fundamental question is “Is there a price for natural gas that is high enough to compel additional new drilling activity, but low enough to allow it to push out coal from the bid stack permanently?” If so, what is that price.


  2. Market prices will surely affect natural gas exploration and its attractiveness and use in electricity generation. But, given President Obama’s Climate Action Plan and its directives for the EPA to regulate carbon emissions at power plants, will this reinvigorate coal-to-gas switching?

  3. President Obama’s Climate Action Plan and directives to regulate power plant carbon emissions (as Brandon mentioned above), in addition to the sustained low natural gas prices (relative to coal) which created the coal-to-gas switching trend, will likely have given energy producers reason to close their aging coal-fired plants rather than initiating the costly retrofits they require.

    Given the lengthy start-up time required to bring a coal-fired power plant online after its shutdown, in stark contrast to the quick turnaround of natural gas turbines, are these coal plant closures likely to be permanent? How high would natural gas prices need to rise in order to see a reversal of this trend?

  4. Increased volumes have failed to offset the losses resulting from low NG prices. Some analysts have set a 2013 price target for NG at $3.50. Until natural gas is priced at the cost of the production of NG (currently $5-8 or more) we won’t see any increase in drilling action in the US. And, at $8 it’s hello coal! And then the question becomes a matter of what use we can find for NG at that threshold price. Incidentally, April 2013 saw total NG consumption reach 64.85 bcf/d which is around 16% off the 2012 figure.

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