By Emiko Terazono

The share of electricity generated by burning coal in the US has fallen to its smallest in nearly 40 years amid historically low natural gas prices and the warmest March on record for much of America.
The rise in shale production has pushed down natural gas prices, prompting utilities to shift their power generation from coal to gas.

Coal still remains the largest source of electricity production in the US, but the country’s Department of Energy said the commodity’s share in electricity generation fell in March to 34 per cent, the lowest level since January 1973, the earliest date for which it has monthly statistics.

Coal consumption was also depressed by a warm winter, while newer, natural gas-fired units operate at higher efficiency than older, fossil-fired units, which increases the competitiveness of natural gas relative to coal, said the energy department.

Natural gas-fired generation jumped 40 per cent from the same month in 2011 and accounted for almost a third of electricity generation. The sharp fall in natural gas prices has led to power utilities in some states such as Ohio and Pennsylvania to increase the output of their natural gas-fired plants.

US natural gas fell below $2 per million British thermal units in April this year for the first time in a decade, although they have recovered to $2.437 per mBtu.

Meanwhile, US benchmark central Appalachian thermal coal prices have fallen to $53.30 a tonne, the lowest level in 18 months.

Hayden Atkins, an analyst at Macquarie, said the price levels that coal producers needed to maintain output was relatively high. “If prices stay where they are today, producers will continue to cut output, which is already happening,” he said.

According to the US government, coal output between January and April this year fell 8 per cent from 2011, while for April it declined 13 per cent.

However, Barclays analysts believe the switch from coal to gas will ease in 2013 as gas prices recover.
“While coal lost market share to gas in 2009, 2010 and 2011, 2012 will
represent a high water mark,” they said in a report to clients.

However, the effect of weak prices may have affected longer-term decisions around power plant retirement plans, they noted, adding: “Ultimately, it will be perceptions of gas prices that will matter more for the long-term viability of existing coal fuel plants.”

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