Spike in US coal prices could buoy US natural gas prices

Spot prices for US eastern coal have rocketed by 30-45% in recent months, and some analysts speculate that rising coal prices will put upward pressure on gas prices as electric utilities switch to more economically attractive gas.

Aug. 12, 2004

2 min read

By OGJ editors
HOUSTON, Aug. 12 -- Spot prices for US eastern coal have rocketed by 30-45% in recent months, and some analysts speculate that rising coal prices will put upward pressure on gas prices as electric utilities switch to more economically attractive gas.

But in fact, it is always coal prices that follow gas prices on the way up¿especially in the US East, notes the Henwood Strategic Fuels Group unit of Boulder, Colo.-based Global Energy Decisions consultancy. Coal supplies in the US East are in fact tight, but more-than-ample supplies of coal in the Powder River basin of Wyoming have kept coal prices from rising in the West.

"These high delivered prices have much to do with some incremental increase in demand, and a lot to do with a lack of available coal supply," Henwood said in a recent online research report. "But it is important to remember that these are spot prices and reflect small volumes. (At least, on the average, 70-80% of the coal being sold today is being sold on contract—and these contracts were written months to years ago at lower prices.)"

Edinburgh-based Wood Mackenzie believes the CAPP rally won't lead to a "meaningful" increase in demand or price for gas markets. WoodMac's North American Power Insight service contends that the number of coal-fired power plants at risk is too small to impact the market for gas.