Oil falls as economic reports bolster dollar strength

Central Banks Help Gas Tanks

This means that prices really must stay strong in the back end of the curve to assure that we have enough to meet demand. Negative news for natural gas is the possibility of power generators going back to coal.

Reuters reported that, "Rising natural gas prices forced power generators to turn to burning coal last month, with coal-fired generation 21% higher than a year earlier, energy data provider Genscape said on Thursday. U.S. producers have been churning out natural gas from horizontal wells after improving the drilling technology known as hydraulic fracturing. This has driven gas prices lower and has increasingly made the fuel more attractive to power generators. "While March electricity demand increased 2% over March last year, natural gas-fired generation plummeted 11% below March 2012 levels," Genscape said in a press release. April 2012 marked the first time that gas-fired electricity generation was as high as coal-fired generation."

Yet at the same time Reuters also reported, "Nevada power company NV Energy Inc proposed a plan to accelerate the retirement of its coal-fired generating facilities and the construction of natural  gas and renewable power plants. NV Energy proposed its so-called "NVision" plan to reduce carbon and other emissions on Wednesday as an amendment to Nevada Senate Bill 123, which revises several of the state's renewable and other energy policies. This proposal by NV Energy is part of a growing trend with U.S. Western power companies to reduce greenhouse gas and other emissions by shutting coal-fired power plants. Over the next 10 years, NV Energy proposed to accelerate the retirement of its 553-megawatt (MW) Reid Gardner coal plant in southern Nevada and end its interest in the 2,250-MW Navajo coal plant in north central Arizona.

Still according Reuters, "U.S. power companies plan to shut or convert over 40,000MW of smaller, older coal-fired plants over the next few years as cheap natural gas prices and strict environmental rules have made coal the more expensive option in some areas. Eventually, the switch away from coal may shut 60,000 MW to 100,000 MW of power generation across the country, according to industry estimates. Low gas prices from record shale production depressed power prices to at least 10-year lows in several regions in 2012, making it uneconomic for generators to install new environmental controls on their oldest and smallest coal plants. Those controls are needed to keep the units compliant with federal environmental rules proposed since President Barack Obama took office in 2009.There are about 318 gigawatts (GW) of coal-fired power plants in the United States, about 30% of the nation's 1,051 GW generation fleet. The share of generation fueled by coal in 2013 will rise to 39.5% from 37.4% in 2012, then ease to 39.4% in 2014, according to the U.S. Energy Information Administration's (EIA) short-term energy outlook in  March.  Coal produced over half of the nation's power as recently as 2003. EIA projected the share of generation fueled by gas in 2013 will average about 28.3%, down from 2012's average of 30.4% on forecasts that higher gas prices will prompt generators to burn more coal. In 2014, EIA projects gas used in power generation will slip to 27.8%.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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