The large-scale coal-to-gas switching that took place in the power sector during 2009 is unlikely to recur anytime soon, Bentek Energy concluded in a report released Friday.
“Last year’s unique confluence of market conditions that drove 1 trillion Tcf in coal-to-gas fuel switching in the power sector was a ‘head fake’ - a false market signal that appeared to promise that increased power-burn demand would help offset ongoing supply growth in the shales,” Bentek wrote. In fact, “while gas continues to make gains in the power sector, that rate of increase is expected to decline.”
From 2003 to 2008, Henry Hub’s cash price averaged $7.09 MMBtu. In 2009, after the recession ate into power and industrial demand, that average fell to $3.945/MMBtu, prompting utilities and merchant generators to shift from coal to gas.
But Rusty Braziel, Bentek’s managing director, noted that “the dynamics of coal-to-gas switching in 2010 have turned out much different. And when we look forward to the 2011-2015 time frame, the most likely scenario is for moderate levels of coal-to-gas switching” due to expectations of rising gas prices, increase power demand and “relatively high coal stockpiles.”
“Total power burn demand is expected to increase only 13% (2.5 Bcf/d) to 21.4 Bcf/d in 2015 from an average of 18.9 Bcf/d in 2009” – nearly 1 Bcf/d less than 3.2 Bcf/d growth the power sector saw between 2005 and 2009, the report said, citing a slowdown in construction of gas-fired generation.
That slowdown is likely to reverse itself over the next several years as gas prices remain low by historical standards, Bentek said. But in the next term, market fundamentals will discourage significant gas-to-coal switching through 2015.
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