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ANALYSIS: Gas-to-coal switching at risk this summer as Henry Hub forward curve weakens

Global Coal Alert

ANALYSIS: Gas-to-coal switching at risk this summer as Henry Hub forward curve weakens


Henry Hub cash prices up more than 40% in 2021

Coal adds market share in MISO, SPP, PJM and ERCOT

US power burn down 2 Bcf/d, about 7%, year-to-date

Higher gas prices are already taking a chunk out of US gas-fired power burns this year, but recent weakness in the Henry Hub forward curve could slow that trend by later this summer.

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Year to date, cash prices at the Henry Hub have traded at an average of about $2.65/MMBtu, after excluding a series of outlier prices over $4 – all recorded during this winter's historic production freeze-off in February. Compared to 2020, benchmark prices are up about 80 cents this year, or more than 43%, S&P Global Platts data shows.

Higher gas prices in 2021 are giving coal an edge among dual-fuel generators operating in some of the US' largest independent system operator territories.

Coal's largest gain in market share has accrued in MISO, where it accounts for an estimated 40.3% of total generation in 2021, up from just 30% last year. In SPP, PJM and ERCOT, market share for coal is also higher this year compared to last – rising about 7.2 percentage points, 6.4 percentage points and 3.9 percentage points, respectively, according to S&P Global Platts Analytics data.

While modeled US power burn data shows a corresponding, significant decline in generator gas demand this year, the underlying sample implies an even larger drop in burns when accounting for temperatures.

Power burn

Through early April, US gas-fired power burn has averaged about 27.3 Bcf/d, according to Platts Analytics data. That's down about 2 Bcf/d, or nearly 7%, compared to the 2020 year-to-date average.

Accounting for variations in temperature, this year's decline appears slightly larger. At a population-weighted temperature of 45 degrees Fahrenheit, sample power burn this year has trended close to 20.2 Bcf/d, compared to about 22.3 Bcf/d last year. Modeled up, the 2.1 Bcf/d decline in sampled demand this year would likely account for an even larger drop in total gas demand from US generators.


Following a bullish run in the forward gas markets this February, the Henry Hub balance-2021 curve has since lost over 22% of its value, settling most recently at just $2.62/MMBtu, S&P Global Platts' M2MS data shows. As supply-side gains in the US market continue to build, gas prices could face further downward pressure this summer.

In April, US gas production has averaged over 92.5 Bcf/d as recent rig additions in the Permian, the Haynesville and other basins continue to lift output from a pandemic-fueled low at 84.5 Bcf/d last summer.

In the storage market, recent production gains have met with mild late-winter and early-spring temperatures this year, significantly narrowing this winter's inventory deficit. As of the reporting week ending March 26, US storage was estimated at 1.764 Tcf and is now just 36 Bcf shy of the five-year average – down from a nearly 180 Bcf deficit in late February, data from the US Energy Information Administration shows.

Assuming recent supply side gains continue to pressure benchmark gas prices, recent forecasts from Platts Analytics – calling for a roughly 2 Bcf/d decline in weather-normal power burn demand this summer – could be overstated.