(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: https://tmsnrt.rs/2G8evNB
By John Kemp
LONDON, Jan 21 (Reuters) – U.S. coal-fired power plants are facing the perfect storm, with a mild winter and slumping natural gas prices adding to their long-term problems with competitiveness and pushing more towards retirement.
Warm weather is sapping total demand for electricity, while ultra-low gas prices mean more of the demand that remains will be satisfied by gas-fired units rather than coal plants.
Natural gas futures prices for deliveries to Henry Hub in Louisiana in March 2020 have fallen to just $1.92 per million British thermal units, down from $2.24 at the same point last month and $2.94 a year ago.
Gas prices have plunged as a result of warmer than average temperatures so far this winter and production growth rates that have been running close to 10% year on year.
For many power producers, the price of gas is now lower than coal, once differentials in transport costs and the efficiency of different types of power plants are taken into account.
Coal-fired power plants need to burn about 10,000 British thermal units of coal to generate a kilowatt hour of electricity, according to the U.S. Energy Information Administration.
But a gas-fired combined cycle plant needs to burn only around 7,600 British thermal units of gas (â€œElectric power annualâ€, EIA, Oct. 18, 2019).
Even before gas prices slumped this winter, the cost of fuel for gas-fired generators had fallen below their coal-fired counterparts, once adjustments are made for differences in heat rates.
The result is that fewer coal-fired power plants remain open, and those still operating are running at reduced output and for fewer hours (https://tmsnrt.rs/2G8evNB).
In October 2019, the most recent month for which data is available, total coal-fired generating capacity had fallen to just 234 gigawatts (GW), down from 245 GW in October 2018 and 258 GW in October 2017.
At the same time, electricity production from the remaining coal generators was just 39% of their maximum capacity, down from 49% in October 2018 and 47% in October 2017.
By contrast, gas-fired combined cycle capacity had climbed to 268 GW in October 2019, up from 259 GW and 246 GW in the same months in 2018 and 2017 respectively.
And combined cycle units generated 55% of their maximum output in October 2019, trending up from 53% and 48% in the same months in 2018 and 2017.
By October, gas prices had fallen so low they were even encouraging owners of simple gas turbines and steam turbines, which are much less efficient than combined cycle units, to operate for more hours.
Gas turbines, similar to a jet engine and normally employed only to meet peak electricity demand, produced 13.6% of their maximum output in October 2019, up from 11.6% in October 2018 and 9.5% in October 2017.
Gas-fired steam turbines, which burn gas to raise steam in a boiler and also tend to operate as peaking plants, operated at 15.9% of their capacity compared with 12.6% and 12.5% in the same months of 2018 and 2017 respectively.
The shift from coal to gas has been evident for several years, but is likely to have accelerated this winter as gas prices hit multi-year lows.
Ultra-low prices provide a strong signal for gas generators – single turbines and steam turbines, as well as combined-cycle plants – to run for as many hours as possible, which will help absorb the current glut of gas.
But with gas-fired generators operating flat out, coal units could see their operating rates fall to record lows for the time of year, further undermining their already-fragile financial condition.
– U.S. oil and gas boom tamed by sharply lower prices (Reuters, Jan. 17)
– Mild winter sends U.S. natural gas prices tumbling (Reuters, Jan. 10)
– U.S. gas volatility diminishes on higher output and exports (Reuters, Dec. 20)
– U.S. gas market struggles with persistent oversupply (Reuters, Oct. 29) (Editing by Jan Harvey)