August 3rd, 2012

Natural Gas Futures – Natural gas matched coal as the primary fuel for U.S. power generation this year for the first time since the government started collecting data.

The BGOV Barometer shows natural-gas fired plants provided 32 percent of generation in May, close to coal’s 34 percent share, after the two fuels were in a virtual tie in April, according to the Energy Information Administration. Low prices are benefiting power generators such as Calpine Corp. (CPN), the biggest U.S. producer of electricity from natural gas.

“Natural-gas generation is becoming the preferred generation of choice since it’s cheaper and more efficient, more flexible and environmentally cleaner than coal,” Jack Fusco, chief executive officer of Houston-based Calpine, said during a July 27 conference call with analysts. “Coal-fired generation is in a secular decline, facing pressure from both environmental regulations and lower natural-gas prices.”

The expansion of gas production from shale using technology known as fracking has pushed prices down 69 percent over the past four years. An Environmental Protection Agency mercury and air toxics rule, released in December, will lead to a reduction of 4.7 gigawatts in coal-fired generation, the agency estimated. FBR Capital Markets & Co. in New York estimated the drop might more than 10 times that much.

Natural Gas – Regain Lead

Coal may regain its lead later this year following a rebound in gas prices, said Brandon Blossman, director of coal and power research at Tudor, Pickering, Holt & Co. in Houston. Natural gas rose 37 percent to $2.92 per million British thermal units yesterday from a 10-year low of $2.126 on March 30.

The Energy Information Administration projects that coal will provide 38 percent of U.S. power generation mix in 2035, compared with 45 percent in 2010. Natural gas will rise to 28 percent from 24 percent, according to a July 30 study by the agency.

“Coal is about as dirty a fossil fuel as there is, clearly,” Mark Brownstein, the chief counsel of the Environmental Defense Fund in New York, said in an interview. “There are benefits to substituting natural gas for coal, but the natural-gas industry is missing a huge opportunity to maximize these benefits by failing to adhere to the highest of production practices.”

Conservation groups including the Environmental Defense Fund and the Natural Resources Defense Council seek regulation of gas production to require companies like Exxon Mobil Corp. (XOM) or Chesapeake Energy Corp. (CHK) to disclose all chemicals used in the process of hydraulic fracturing, or fracking, and minimize methane leaks during production.

Calpine said on July 27 that its adjusted net income was $14 million in the second quarter, compared with a $55 million loss in the second quarter of 2011.

- Katarzyna Klimasinska in Washington at Bloomberg.