MONDAY, February 6, 2012

We published a report Feb-3-2012 titled, “Coal-to-Gas Switching in Sub-$3.00/mmBtu World: What’s Next” where we discuss the impact that coal-to-gas switching has had, and we believe will have, on the utility and coalco sectors.  EIA generation data from Nov-2011 sent a strong message about generation economics – coal-fired gen declined 10.4% YOY while gas fired gen increased 9.3%.  And, things have gotten worse since.  In Jan-2012, natural gas prices averaged $2.70/mmBtu, down about 17% from Nov-2011. 

We believe the impacts of coal-to-gas switching are going to get worse before they get better.  Utilities are already approaching their coal suppliers to “amend and extend” their existing coal contracts, and there are reports that utilities are already re-selling inventory at below-market prices – marketers have been at this for some time already.  Not surprisingly, coalco’s are beginning to announce production cut-backs – we believe 20 – 25 million tons on an annualized basis can come out of CAPP alone in 2012, and 30 – 50 million tons in total. 

Utilities and coalco’s are clearly feeling the impacts, and there have been significant behavioral changes.  We outline some important caveats and sector impacts that we believe will influence coalco and utility decision-making over the next 6-12 months.  We suggest you buckle up your chin strap.  This will have to play itself out, and it will take at least through mid-year 2012 for that to occur. 

If you would like a copy of our report, please contact me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or contact Vicky Reece, our Director or Client Services, at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .