In Commodities Meltdown, Gas Emerges as Fleeting Bright Spot

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In a global meltdown, one commodity has gone against the grain -- for now.

While most everything from oil to gold has tumbled over the past three months, sending the Bloomberg Commodity Index to a 13-year low this week, U.S. natural gas is up 5.5 percent. That’s because shipments of the fuel are limited to North America, where hot weather has raised power plant demand.

That all changes when gas exports, starting as soon as this year, take the market global. The fuel has been eating away at coal’s market share at U.S. power plants. Liquefied natural gas exports stand to erode domestic supplies, giving coal a reprieve in the U.S. but thrusting the competition between the two fuels onto an international stage.

“North America has been a gas island while commodities like oil are traded worldwide,” said Charles Blanchard, an analyst for Bloomberg New Energy Finance in New York. “Exports of LNG from the U.S. will transform what’s been a very regional, balkanized market into a global marketplace.”

Gas has increasingly become the fossil fuel of choice for electricity generators over the past five years as record shale production and the lack of foreign competition kept prices low. Gas plants produced more power in the U.S. than coal for the first time ever in April, Energy Information Administration data show.

Rising Shipments

Natural gas futures for August fell for a second day, sliding 1.3 percent to $2.780 per million British thermal units at 11:31 a.m. London time on the New York Mercantile Exchange.

Coal producers are waiting for 2018, when sufficient LNG exports reduce domestic gas supplies, said Seth Schwartz, president and principal of Energy Ventures Analysis in Arlington, Virginia. The fuels’ roles will change in the seaborne market, Schwartz said. LNG prices will have to fall low enough to dislodge coal use at power plants.

“The competition that has taken place between coal and gas domestically will likely be exported, resulting in a more intense dogfight overseas,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said Wednesday. “Is this the end of cheap gas? That global connection will begin this year and will likely take shape next year.”

Europe will probably be the first battleground between gas and coal, then Asia, according to the International Energy Agency. Globally, coal will dominate as the cheaper alternative to electrify emerging economies in India, China and Africa.

“Gas is increasing and gas is competing, but there’s still a lot of coal left,” said Carlos Fernandez Alvarez, senior coal analyst at the IEA in Paris. “When you think about the 8 billion tons of coal that we burn, this is not going to change tomorrow or the day after.”