Coal Plant Retirement

The mild winter in the U.S. thus far has created a balancing nightmare for the natural gas market. A freakishly warm December has meant below-average withdrawals and contributed to a record storage surplus over last winter’s levels. Not surprisingly, natural gas futures prices have been struggling under the weight of this surplus. However, a closer look at gas consumption over the past few weeks shows some underlying demand strength despite the warm weather. Today we take a closer look at where gas demand is coming from.

Natural gas has always had a yin-yang relationship with coal. When coal’s fortunes were on the rise, as they were only a few years ago, the long-term role of gas as a U.S. power plant fuel was being questioned—there simply wasn’t enough gas in the ground, some said. Now, with the shale revolution and a push to slash greenhouse gas emissions, coal is frequently portrayed in a death spiral, with gas the clear victor. But it is not that simple. Today, we examine the ongoing interplay between the electric industry’s two favorite fossil fuels, and whether coal is heading out or hanging on—and what it means for natural gas producers.

The sustained low price for U.S. natural gas is doing exactly what it is supposed to do – attracting new demand into the market.   Gas fired power generation, LNG exports, exports to Mexico and new industrial demand are all expected to contribute to demand growth for many years to come.  But is this a permanent shift in the market, or could the new demand result in increasing prices that would quash the coming Golden Age of Gas?  After all, the natural gas market has seen this movie before.  We explored this possibility in our recent series titled “I’m a Believer”.  But just because it is a possibility doesn’t mean it is going to happen that way, or even that it is likely.   Because the world has changed.  Today we begin a new series that explores the ways in which the natural gas world has changed, and why the gas market is very unlikely to repeat its roller coaster ride of the past three decades.  It certainly doesn’t have to.