Most Coal-to-Gas Switching in U.S. Permanent, Moody’s Says

Coal won’t win back much of the share of electricity generation that it has lost to natural gas in the U.S., Moody’s Investors Service said.

“Coal will regain a bit of market share as natural gas prices recover somewhat, but most coal-to-gas substitution to date will be permanent,” Anna Zubets-Anderson, a Moody’s vice president and senior analyst, wrote in the report. Production from shale has boosted gas inventories and coal has faced more scrutiny from environmental regulators.

The Energy Department forecast in its Short-Term Energy Outlook Aug. 10 that coal’s contribution to electricity generation will drop to 37 percent this year, down from 42 percent in 2011 and 49 percent in 2007. Gas’s share will climb to 31 percent from 25 percent in 2011.

Natural gas fell to a 10-year low this year as inventories rose to 60 percent above the five-year seasonal average. Today the price fell 1.5 percent to $2.661 per million British thermal units, up 40 percent from the low of $1.902 reached in April.

Environmental Protection Agency rules such as the Mercury and Air Toxics Standard and the Carbon Pollution Standard for New Plants also dissuade coal use and investment in plants that would burn the fuel, Zubets-Anderson said.

U.S. producers are also navigating lower prices for metallurgical coal, needed by steelmakers, because of tepid global demand for steel, Moody’s said.

“We see limited medium-term upside for met coal prices,” Zubets-Anderson said. “The prospects for the worldwide steel industry are not encouraging. The U.S. steel industry continues to cope with persistent capacity utilization rates below 80 percent, a level that would indicate healthy industry conditions.”

Coal on the New York Mercantile Exchange fell 70 cents, or 1.2 percent, to $56.68 a ton on Aug. 24, the lowest price since July 23.

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