Surge in Natural Gas Prices Sets The Stage for Coal Comeback

Core Insights - U.S. natural gas prices have surged to a three-year high, prompting utilities to increase reliance on coal for power generation this winter [1][2][6] Natural Gas Prices - U.S. benchmark natural gas prices at Henry Hub rose from $4.23 per million British thermal units (MMBtu) at the beginning of November to over $5 per MMBtu by early December, reaching $5.084 per MMBtu [1] - Near-month futures prices are at their highest since December 2022, with the 12-month futures contract strip for January 2026 through December 2026 increasing by 26 cents to $4.302 per MMBtu [3] Natural Gas Stocks and Demand - Working natural gas stocks totaled 3,923 billion cubic feet (Bcf) for the week ending December 3, which is 5% above the five-year average and slightly below last year's levels [4] - Increased heating and power demand due to colder weather and record-high LNG exports are contributing to rising prices despite higher stock levels [4] LNG Exports - The U.S. is projected to export 14.9 billion cubic feet per day of LNG in 2024, a 25% increase from 2023, with forecasts for a further 10% increase in 2026 [5] - The rapid ramp-up of exports from Plaquemines LNG in Louisiana has led to a 3% upward revision in the EIA's forecast for LNG exports in the current quarter [5] Impact on Power Generation - The increase in natural gas prices is making gas-fired power generation more expensive for electric utilities, leading to a shift towards cheaper coal generation [6] - The EIA anticipates that the average price of natural gas for electric power plants will rise by 37% in 2025, while industrial sector customers will see a 21% increase compared to 2024 averages [6] Future Price Projections - The Henry Hub natural gas spot price is expected to average $4.00 per MMBtu in 2026, which would be 16% higher than in 2025, driven by increasing LNG exports amid stable gas production [7]