October 25, 2020 - As gas prices recover and trade as high as the $3-mark this week, one predictable consequence is the return of gas-to-coal fuel switching for power generation in several key areas of the country.

The analysis pictured in the chart below tracks coal’s share of power generation relative to gas in the ISO regions of PJM, MISO, and SPP. This metric tends to rise as gas prices increase, and since October 9th it has been doing just that.

G&A suspects that dislocated spot prices helped to blunt this response early in the month, even as futures began to recover. However, with Henry Hub trading as high as $2.88/MMBtu today and other regional spot prices also rising, a coinciding turn down in gas generation is expected to follow in power markets in the Central and Northeast US.

At current prices, coal would soon account for a larger share of generation in these markets and begin to temper gas demand on a weather-adjusted basis.

Although some market participants would like to downplay the continued role of coal switching, this price-control mechanism is far from dead in the natural gas market.