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Takeaway: Coal is cheap and natural gas is above $3/Mcf; power producers in theory should run more coal and less gas.

After an astonishing decline in price over the last three years, natural gas has been slowly recovering, clawing back above the $3 /Mcf mark recently with the October futures contract rolling into November’s contract.

NatGas Takes On Coal  - coalnatgas

Coal is another form of energy we have massive quantities of here in the United States and has been wallowing at year-to-date lows recently. The standard in the eastern US, Central Appalachia coal, is at $62/ton right now. As coal sits at this price level and natgas heads higher, the latter could run into some headwinds due to coal becoming competitive from a price perspective for power producers (say that five times fast).

Our Energy Sector Head Kevin Kaiser notes that “...on an energy equivalent basis for a power plant, that’s around $3.20/MMbtu - $3.70/MMbtu.  So as nat gas prices move up into that range, coal becomes increasing competitive, so power companies should in theory run more coal and less gas.”

Keep an eye on natgas heading into the end of the year - coal has the ability to shake things up quite a bit.