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Natural Gas Prices to Hinder Electricity Production

Higher prices of coal’s key fossil fuel rival, natural gas, will deter sections of gas-fired Electricity production in the United States this summer, resulting in a short-term recovery. Natural gas prices have been increasing this year, with early Monday trading above $3 per million British thermal units (MMBtu), up from less than $2 at this time last year.

Reduced natural gas supply and record-high liquefied natural gas (LNG) exports from the United States have fuelled a natural gas price rally since the beginning of the year. Winter storms in February, which resulted in the largest monthly drop in U.S. natural gas output on record, owing mainly to freeze-offs in Texas, also contributed to increasing natural gas prices as inventories were quickly depleted amid record residential demand.

As a result, the cost of natural gas supplied to electric generators would be nearly 50% higher this summer than last year, according to the Energy Information Administration (EIA). This summer, the cost is forecast to average $3.13 MMBtu, up 46 percent from the summer of 2020 and comparable to the summer of 2018. According to the EIA, rising natural gas prices are expected to deter gas-fired power generation in favour of coal and renewables, with the coal rise being more noticeable.

EIA said, “Higher fuel costs for natural gas-fired power plants this year means that those plants will be dispatched for Electricity generation less often, while coal-fired power plants will likely be dispatched more often.” According to the EIA, renewable energy sources are projected to produce more Electricity this summer than they did last summer, owing to newly installed wind and solar generating capacity.Despite the increase in coal-fired power production this summer, this is a one-time blip caused by natural gas economics, not a long-term pattern.

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