Maguire: High natural gas prices may lead to a new surge in coal consumption in the US
The benchmark U.S. gas prices will end 2025 the same way they started - with an explosive rally. This is bad news for those who hoped for a further reduction in coal consumption in the U.S.
Gas prices in the United States increased by a third between January and March this year due to a harsh winter and strong LNG exports. This led to an increase in coal-fired electricity generation, as utilities reduced costs by burning coal instead of gas.
As 2025 approaches, a similar pattern is emerging. Coal-fired power generation is on the increase and gas-fired production is being reduced as gas prices reach three-year-highs and put pressure on the budgets for electricity suppliers.
The switch from gas to coal is again largely driven by cold temperatures and record exports. However, Washington, D.C. has also increased its support for the coal industry.
According to Ember data, coal-fired electricity generation emits 75% more CO2 per kilowatt-hour (kWh) than gas-fired electricity generation. This means that U.S. emissions will rise with the increase in coal production.
Many utilities, under pressure to maintain costs for consumers and ensure power supplies meet the demand needs of this winter, will see higher emissions as necessary in order to provide reliable and affordable electricity.
Price Pain
The benchmark U.S. Henry hub natural gas futures are up more than 40% since the end of September. This is due to an increase in gas usage for heating, and a sustained rise in LNG exports, which has reached a new record this year.
LSEG data show that this price increase is greater than the one seen in 2025 at the beginning of the year, when the futures prices climbed to $4.50/MMBtu from $3.50/MMBtu.
Prices have already surpassed $4.90/MMBtu this week and are on track to breach the $5.00 mark for the first since late 2022.
According to LSEG, the futures market is not pricing in a significant push above the $5 mark for this winter. Prices are expected to be around $4.24/MMBtu through the end of march.
The average price of U.S. natural gases is expected to increase by a third consecutive year in 2026, with Henry Hub futures averaging $4.15/MMBtu. This would be the highest annual average price of U.S. Natural Gas since 2022.
COAL CRUTCH
Ember reports that the prospect of an increase of 10% or more in benchmark natural-gas costs is not welcomed by the U.S. electricity sector. Natural gas still accounts for 42% of all electricity supplied.
To avoid paying for gas, some U.S. utilities will likely opt to increase output of coal-fired plants and reduce gas-fired production to cut costs.
LSEG data show that utilities followed a similar strategy during the first quarter 2025. The coal-fired production in the U.S. increased by 21% compared to the same period of 2024, while the gas-fired electricity output decreased by about 3%.
Since September, the trend of increasing coal generation and decreasing gas production has continued. Coal output in October and November was up around 16% when compared with the same months the previous year. This is the highest level for these months since 2022.
Gas-fired electricity output was down 3% in October and November compared to the previous year, with November being the lowest output for the month in the last three years.
The first major winter cold snap in 2025-26 is just around the corner, and gas prices are approaching new multi-year heights.
Gas is expensive, so it makes more sense to increase coal production than gas.
TENSIONS OF THE POWER SECTOR VS LNG
Another source of concern is the increasing competition between LNG exporters and utilities for gas.
The Trump administration has made a priority of selling U.S. Liquefied Natural Gas (LNG) to international buyers. This is a move that was widely welcomed by the U.S. Energy Sector.
However, power generators are less enthusiastic about the surge in LNG export volumes. This is because greater LNG exports could mean a reduction in gas supplies to power plants.
According to Kpler's data, over the first 11 month of 2025 the U.S. exported approximately 750 million tons of LNG. This is the largest tonnage ever recorded for this period.
As major buyers in Europe, Asia and the Middle East stock up for the winter months, we can expect to see further growth in LNG exports in the last weeks of this year.
Gas prices are likely to remain stable and susceptible to strong periods if the higher sales pace coincides a prolonged period of home heating demand.
This jittery environment could encourage even more gas production cuts and a greater reliance on coal, even if emissions continue to rise.
These are the opinions of the columnist, an author for.
You like this article? Check it out
Open Interest
The new global financial commentary source (ROI) is your go-to for all the latest news and information. ROI provides data-driven, thought-provoking analysis on everything from soybeans to swap rates. The markets are changing faster than ever. ROI can help you keep up. Follow ROI on
You can find us on LinkedIn.
(source: Reuters)
