Natural gas prices reached their lowest level in more than a decade in 2012, prompting many power plants to switch from coal to cheaper natural gas. In 2013, gas prices are expected to rise nearly 35 percent. Consumption of natural gas for power generation will drop more than 10 percent, according to the US Energy Information Administration’s Short-Term Energy Outlook released in December 2012.
The largest US coal producer, Peabody Energy, expects the rise in natural gas prices to fuel a 40 to 60 million ton rebound in coal demand in 2013. The industry could regain nearly half of the 120 million ton loss in demand in 2012.
Consumption of coal for power generation will rise 5 percent in 2013. Coal prices will also rise slightly, according to the EIA’s Outlook.
However, US coal production and inventories will continue downward in 2013. Natural gas production is expected to rise, although just slightly.
Natural gas-fired electricity generation will decline in 2013, but gas “generation remains high by historical standards and reflects a structural shift toward using more natural gas for power generation,” according to the EIA. Long-term, the US coal industry may continue to lose out to abundant, cheap, and cleaner natural gas for electricity use.
Outside the US, however, coal’s future is brighter. Peabody Energy expects global coal consumption will increase 1.3 billion tons over the next five years. China, India, and other rapidly developing countries will drive coal demand and help it remain a dominant energy source, according to the BP Energy Outlook 2030 and analysis by my colleague Stuart Hampton.