EIA: Coal generation will tick up in 2017 as natural gas prices rise

Dive Brief:

  • Despite the long-term decline of coal, production and generation will actually rise next year as the cost of natural gas ticks up and the markets adjust accordingly.
  • According to the U.S. Energy Information Administration, coal will generate 31% of the country's power next year, compared with 30% this year. Gas will decline from 34% this year to about 33% in 2017.
  • Coal production is expected to decline 17% this year, to the lowest levels in for decades, but will rise in 2017. Gas prices will rise from $2.50/million British thermal units this year, to $3.12/MMBtu in 2017.

Dive Insight:

Make no mistake, EIA's data clearly shows that renewable energy is growing quickly. But coal will see a brief resurgence next year as gas markets tick upwards and generators turn to the cheaper fuel.

EIA's monthly report shows wind energy capacity at the end of 2015 was 72 GW, but will likely rise to 89 GW by the end of next year. The agency said about 8 GW is being added this year, and the balance in 2017.

Non-hydro renewables are expected to exceed 1 billion kWh/day for the first time. Generation shares of nuclear and hydropower will remain unchanged from 2016 to 2017.

But as coal plants are taken offline, the country is still turning to natural gas as a bridge to renewable power. Marketed gas production has declined slightly this year, the first time since 2005, but that trend will reverse as prices rise.

EIA said it "expects production to start rising in November as a result of increases in drilling activity and infrastructure build-out that connects natural gas production to demand centers. In 2017, forecast natural gas production increases by an average of 2.9 Bcf/d from the 2016 level."

In addition to growing domestic consumption, increased exports to Mexico and into the global liquefied natural gas market will also help drive demand and prices. EIA said certain NYMEX contract values for February 2017 suggest that a price range from $2.01/MMBtu to $4.84/MMBtu "encompasses the market expectation of Henry Hub natural gas prices in February 2017 at the 95% confidence level."

More information on how gas prices will impact electricity markets next year is available here.

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Filed Under: Generation
Top image credit: Talen Energy