Coal-to-gas switching likely contributed to last week’s spikes in cash prices and the strengthening of cash basis to the prompt-month NYMEX gas futures contract, according to several traders and analysts – at least one of whom expects the switching to continue, albeit to a lesser degree, throughout the winter.
BENTEK estimates the current coal-to-gas switching in the US at an average of 1.3 Bcf/d to 1.6 Bcf/d based on its model, which calculates actual and expected gas burn for power demand using temperatures and pipeline flows. The difference between actual and expected, if positive, indicates “extra” gas burn from fuel-switching, and with nuclear already accounted for, it effectively indicates a switch from coal-fired generation.
“It’s much more than we expected,” BENTEK analyst Ben McFarlane said. “It’s supposed to be mostly a shoulder-season event. We’re expecting it to decrease somewhat as temperatures go down, but we do expect it to continue through the winter.”
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