[Ferro-Alloys.com] The recent rise in U.S. natural gas prices and decline in coal prices is set to put a dent in demand for natural gas as some utilities resume using more coal to generate electricity.

 

A mild winter that left a huge amount of gas in inventory and record-high natural gas production pushed prices to 10-year lows in April, luring power companies away from coal. But the spread between NYMEX Central Appalachian coal and Henry Hub natural gas futures on Thursday reached its widest in more than a year as gas prices rebounded from lows plumbed earlier this year, making gas less of a bargain.

 

The relative price difference on Thursday reached USD1.25 per million British thermal units (mmBtu), according to Reuters data -- the widest since August 2011, which could be enough to discourage more use of natural gas in electricity generation.

 

Energy traders have said it costs about USD1 per mmBtu to transport Eastern coal, so when natural gas prices are higher and the coal discount is over USD1 per mmBtu, it starts to make economic sense to burn coal rather than natural gas.