2010-03-24 00:00:01.11 GMT

By Reg Curren
March 24 (Bloomberg) — Natural gas prices near six-month
lows may prompt power producers to switch away from coal,
lifting gas demand by as much as 3.2 percent, said Cameron
Horwitz, an analyst with SunTrust Robinson Humphrey in Houston.
The CHART OF THE DAY compares the estimated cost for power
plants of Appalachian coal, converted to British thermal units,
with gas for delivery at the Henry Hub in Louisiana. The orange
line shows the highs and lows for gas over two years on the New
York Mercantile Exchange. The white line shows Nymex coal
futures adjusted for plant efficiency, emissions and storage.
Gas futures slumped 32 percent from early January to $4.079
per million Btu on March 22 on sluggish demand and a stockpile
surplus. Coal rose 0.4 percent over the same period. Gas was
last cheaper to burn than coal in September, when weak demand
during the recession sent prices to a seven-year low of $2.409.
Gas touched a 30-month high of $13.694 in July 2008.
Switching will probably “come back into play at these
kinds of price levels,” Horwitz said in a telephone interview.
Higher gas demand from power plants would help create a “a soft
floor” for prices because about 10 to 15 percent of coal-fired
electricity output is subject to switching, he said.
Coal in 2009 was the biggest source of fuel for power
generation at 45 percent of the U.S. total, according to the
Energy Department. Natural gas was second at 23 percent.
“With the recent acute gas price weakness, we expect power
producers to again favor gas over coal,” Horwitz said in a note
to clients last week.

For Related News and Information:
U.S. energy market: NI USNRGMKT
Natural gas markets: NI GASMARKET
Energy Department: DOE
Gas trading hubs: NGHB
Gas storage: NGST
Weather data: WETR
LNG data: LNG

–Editors: Bill Banker, Joe Link

To contact the reporter on this story:
Reg Curren in Calgary at +1-403-444-5595 or
rcurren@bloomberg.net

To contact the editor responsible for this story:
Dan Stets at +1-212-617-4403 or dstets@bloomberg.net

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