Natural gas boom leads to drop in coal usage

Natural gas generation is fueling a decline in the use of coal despite a drop in coal prices.

According to data compiled by Bloomberg, the use of coal in power generation will drop 2 percent in 2012 to 916.4 million tons, the lowest since 1992, while the use of natural gas is expected to rise 5.6 percent, according to an outlook released Feb. 7 from the U.S. Department of Energy. U.S. electricity demand is expected to increase by less than 1 percent.

Utilities may have about 168.4 million tons of coal ininventory at the end of the year, the lowest level since 2008, the outlook said.

Gas prices for natural gas-fired power plants fell as low as $1.16 per million Btu below the cost of coal for electricity generation, despite a 26 percent drop in the price of coal from its 2011 peak.

Coal exports are expected to decline 8.7 percent to 97.6 million tons in 2012, down from 107 million in 2011, which was the highest level since 1991, the DOE said.

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