December 8 - As U.S. natural gas prices skyrocket, coal has regained its cost advantage as a power generation fuel. The extreme cold weather and record liquefied natural gas (LNG) exports are identified as primary drivers behind the natural gas price surge, making coal a more economical choice for power companies. Latest projections indicate U.S. natural gas prices could increase power plant fuel costs by 37% in 2025, significantly enhancing coal's competitiveness. The relative affordability of coal-fired power may prompt utilities to increase coal usage this winter.
Henry Hub natural gas prices have surged from $4.23 per million British thermal units (MMBtu) in early November to over $5 in early December. Nearby futures even reached $5.084/MMBtu, marking a three-year high. This price surge reflects both heating and power demand spikes from extreme cold snaps and record U.S. LNG exports. EIA data shows U.S. natural gas inventories at 3.923 trillion cubic feet, 5% above the five-year average but slightly below year-ago levels. Despite ample inventories, prices continue climbing due to weather and export demand. With 2025 LNG exports projected at 14.9 billion cubic feet per day (up 25% year-over-year) and expected to grow another 10% in 2026, natural gas power generation costs will likely remain elevated, potentially driving utilities toward cheaper coal alternatives.
U.S. coal production has increased this year, partly due to rising gas prices and delayed coal plant retirements. EIA forecasts power sector coal inventories will drop to 107 million short tons by late 2025 (down 17% from 2024 levels) amid growing demand. With sustained high natural gas prices and AI-driven electricity demand growth, coal may experience a modest resurgence. Some coal plant retirement timelines could be extended, providing additional support. Wood Mackenzie analysis suggests the projected decline in U.S. coal power generation may shrink from 60% to 39%, highlighting coal's ongoing resilience in the energy mix. In the current high-energy-demand environment, coal is expected to remain active in the short term, while natural gas price volatility may create related trading opportunities in forex markets.
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