Coal displacement by natural gas will remain a feature of the power
market for the next few years, barring a significant pullback in gas supply,
according to Standard & Poor's RatingsDirect credit analyst Aneesh Prabhu.
Prabhu's market projections were detailed in a RatingsDirect report
released on Wednesday. Standard & Poor's, like Platts, is a unit of
Based on the current shape of the US natural gas forward curve, the
market does not appear to be anticipating a cutback in gas supply.
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"Ominously, for coal-fired generators, spot gas prices are biasing the
forward gas curve to the downside," the report said. "In the absence of any
market contango (when long-term prices are higher than near-term prices),
even forward 'dark' spreads (gross margins for coal-fired generation) have
turned negative for eastern coal plants."
The negative margins are a more serious prospect for merchant plant
operators, which have gone from struggling to maintain market share to
struggling to survive, Prabhu added.
By region, anecdotal evidence of large-scale switching from Appalachian
coal to natural gas is emerging, Prabhu said.
"Generators have announced a wave of coal-plant retirements over the
past six months, most of which appear to have resulted more from economic
considerations than concerns about environmental compliance," Prabhu said.
For 2013, Prabhu is forecasting CAPP coal marginal fuel costs of
$41.72/MWh compared to $37.83/MWh for combined-cycle gas turbines.
For the CAPP coal fuel cost, Prabhu assumed a total cost of $88/st, or
$3.52/MMBtu. Coal plant heat rate was assumed at 11,000 MMBtu/MWh.
For natural gas, the delivered cost was estimated at $3.77/MMBtu, with a
CCGT heat rate of 9,500 MMBtu/MWh.
Prabhu noted that coal-to-gas switching is not between the most
efficient gas unit and the least efficient coa unit but instead units in the
middle of the dispatch curve for each fuel type.
"The capacity factors of CCGT units average 37% in 2011," Prabhu said.
"Should thisfigure increase to 50%, we expect natural gas demand from the
electricity sector to increase by an incremental 5 bcf/d relative to
--Charlie Noh, firstname.lastname@example.org
--Edited by Richard Rubin, email@example.com