Coal will gain some market share in the US power sector next year because of a tempered reversal of coal-to-gas switching, analysts at S&P Global Platts said Tuesday, but renewable sources will remain a headwind for both fossil fuels.
In an online webinar discussing a bullish outlook for natural gas, senior quantitative analyst Bob Yu said gas demand for power burn this year has been 4.8 Bcf/d higher than the five-year average but will weaken in 2017 with higher prices.
A $3.30/MMBtu average price for Henry Hub gas in 2017, above an average of $2.40/MMBtu in 2016, would cut gas power demand by about 2.5 Bcf/d next year, Yu said. Coal would take some of the generation lost by gas via economic fuel switching, but that shift "really isn't one for one" between the fuels, Yu added, primarily because of renewable sources' growth.
From 2010 to 2015, coal's decline and gas' gain came at almost the exact same pace. In that time frame coal's share of US generation fell 10 percentage points from 46% to 36%, while gas' share climbed 9 percentage points from 23% to 32%. That one-for-one symmetry slightly changed this year, Yu noted. Through September, coal generation had slipped 4 percentage points to 32% and gas generation was up 2 percentage points, with renewable growth filling in the 2-percentage-point difference between the fuels.
Yu said renewables are "taking more and more market share" and "going forward will have a detrimental impact on fossil fuel generation."
Next year, Yu said he sees gas prices rising but said he doesn't think the Henry Hub price would peak above $4.50/MMBtu. If pricing nears that mark, producers are more "nimble" than in the past and able to add more working rigs rapidly, he said. That ability to put new production online quickly would swiftly add to gas storage and likely push down prices.
