Saturday, July 25, 2009

NatGas & Coal: Race to the Bottom

There was an interesting piece in the Saturday WSJ regarding the fall in natural gas and coal prices. It seems natgas isn’t the only electric power plant fuel source with a supply and demand problem leading to depressed prices. Right now, natural gas is actually cheaper than coal, making it cheaper to run some natural gas power plants than coal plants. Appalachian coal prices are currently at a 2½ year low, 50% off last year’s price.

This condition isn’t likely to lead to a sudden spike in gas prices as power plants switch fuels. Coal companies are busy cutting output. Sound familiar? Wood Mackenzie, a noted energy research company, estimates that around 66 to 84 million tons of output cuts have been announced this year, but the industry will require another 50 million to right the supply/demand ship. As with natgas, it is a tricky calculation because coal stockpiles are now at a 22 year high.

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