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Coal-to-gas switching is a displacement of coal-fired generation by natural gas-fired generation due to short-term fuel price competition. Generally, economics drive coal to gas switching in the short term. Regions where the delivered cost of natural gas falls below the delivered cost of coal generally see an uptick in natural gas fired generation. Therefore, coal-to-gas switching has a positive impact on total natural gas demand.

  • Low natural gas prices (relative to coal) lead to higher levels of coal-to-gas switching (and vice versa);
  • The economics of fuel-switching is an important element in natural gas trading, but only during the injection season (roughly, April – September).

Conversion of two commodity prices to comparables is almost always replete with simplifying assumptions. Here we assumed that Central Appalachian coal yields 25 MMBtus of heat, Northern Appalachian coal yields 26 MMBtus of heat, while Powder River Basic coal yields 17.7 MMBtus of heat. Transportation and emissions costs are not included.

Historical data are available from January 4, 2013.

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Source: CME Group, U.S. Energy Information Administration, Bluegold Research estimates and calculations

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