Coal Rebounds: Short-Lived But Significant
BMI View: While we have long held the view that the glut of cheap gas in the US will drive the acceleration of gas-fired capacity expansion, we have also cautioned that an inevitable rise in gas prices would lead to fluctuations in coal-gas generation dynamics. With this in mind, it appears coal generation has rebounded in 2013 due to higher gas prices in the first half of the year. While we maintain that the biggest alterations to the US generation mix have already taken place and this short-term recovery in coal will dissipate as coal-fired capacity comes offline to comply with emission standards, we remain cognisant of the fact that gas prices are likely to rise as LNG export capacity comes online in 2016. This could mean that other forms of power generation become more competitive as prices rise over a longer timeframe - a point that crystallises when looking at the short-term resurgence in coal.
Although we have emphasised that the biggest alteration to the US' energy mix has likely already taken place, with natural gas-fired electricity generation having surged 21% in 2012, we anticipate that between 2014 and the end of our forecast period in 2022 - natural gas-fired generation will continue to gain traction as the fastest-growing type of traditional source of electricity generation. This view is underscored by US coal miner Consol Energy's October-2013 decision to sell a third of its coal business - so as to focus on gas (see 'Consol-idating Its Focus On Shale Gas', October 30).
Coal In Long-Term Decline...
|Coal Generation Rebounds On Spike In Henry Hub|
|Henry Hub Gulf Coast Natural Gas Spot Price (US$/mn BTU)|