The U.S. International Energy Agency (IEA) reports that natural gas prices will see a steady rise over the next several years, reaching prices as high as $5 – maybe even $6 in the long term.
When that does happen, coal is all set for its big comeback in the U.S. And it should be no big surprise. The “Golden Age of Gas” that the IEA predicted just two years ago is facing some obstacles as the use of coal grows stronger every day around the world.
And coal has been sitting in the U.S.’s back pocket all along, waiting for the right moment for its revival in the states.
Nobody ever thought it would happen, but now, in 2013, the average price of natural gas has increased a fair amount, hovering slightly above $4 per million British thermal units.
That’s a huge leap from last year when it averaged $2.75. As production intensified with the U.S. shale boom, there was more supply than producers knew what to do with – the supply glut drove prices down, and many companies became unprofitable. And prices won’t stop going up.
The record low gas prices forced many drillers to cut costs and disassemble rigs that were losing money. In some cases, operations were completely halted. And now the U.S. energy mix is all shaken up, and coal could become a big part of it once more as the U.S. energy scene finds its balance.
Ready, Set, Go!
I hate to jump the gun, but the world’s largest economy is slowly itching to reach for that back pocket, and for the first time in years – after cutting back on coal consumption in favor of cleaner-burning gas – it looks like that time is steadfastly approaching.
Coal producers couldn’t be more thrilled with this upward swing of gas prices. It was the low cost of gas in the first place that eroded coal’s dominance as the leading source in electricity generation in the U.S. Last year, coal consumption in the electric power sector reached its lowest point since 1992.
Many never thought coal would be competitive with natural gas again as an electricity source in the U.S. Coal was thriving in the export trade market, reaching record highs in 2012, but here at home, natural gas was taking the reins.
But not so fast. According to the Pittsburg Post-Gazette, the U.S. Energy Information Administration (EIA) reports that coal’s share of electricity generation should rise in 2013 to 39 percent, up from 37.6 percent in 2012. It should reach 39.6 percent in 2014. In fact, for the first time since the EIA began collecting data, the two power sources tied in power generation when they both registered at 32 percent in April 2012.
So coal was never really that far out of the race to begin with, and now, with gas prices taking a hike, coal could easily regain the top spot for U.S. electricity generation.
The only thing likely to prevent this from happening is the list of regulations imposed due to coal's environmental impact and its less-desirable burning process. But barring any intervention from that, it should regain that top spot for the foreseeable future.
I’m not going to tell you that coal is here to stay. There is still an overall concerted effort to phase out coal for a cleaner-burning energy source like natural gas in the long-term. But it’s definitely here to stay for a while, especially through the coming years.
You might think of this as its farewell tour or its last hoorah – at least in the U.S. – kicking off in 2013. The demand throughout the world will still be stronger than ever.
And companies that have secured a strong footing in the global coal market, like Peabody Energy (NYSE: BTU), for example, will be able to come back home and reap the rewards here.
And when the U.S. finally does phase out the domestic use of coal, those same players will go back to what they’ve been doing – supplying the demand for the world’s growing coal consumption.
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