If so much coal-fired power generation hadn’t been bowing out to make room for gas-fired plants so far this year, the current gas supply glut would be a lot worse, according to analysts at Barclays Capital. They conceded in a research note Tuesday that coal-fired generation displacement has been much greater than they had thought it would be.

“…[A]bsent the displacement of coal-fired plants, year-to-date gas demand for the power sector would have been 3.7 Bcf/d lower than levels last year,” the analysts wrote. “The record storage inventory that we expect for October 2009 would have amounted to record shut-ins of gas production had coal not been turned down in favor of gas-burning plants.”

In 2010 gas price recovery will come at the cost to the gas industry of returning coal-fired generation. “Sustained displacement of coal at 2009 levels would require that gas remain below $4/MMBtu in 2010,” the Barclays analysts wrote. That’s something that’s not likely to happen, according to analysts at Raymond James & Associates Inc.

“[W]e find that our 2010 relative pricing outlook should drive most if not all of the price-driven switching between coal and natural gas back to coal for the full year,” the Raymond James analysts wrote in their own note this week (see Daily GPI, Sept. 15).

Going forward, power industry players will look back on 2009 and the lessons learned about what can happen when gas is really cheap.

“That our estimate [of coal-to-gas switching] was low suggests that there is much more flexibility within these [coal] contracts, or more flexibility conceded by coal suppliers than anticipated,” the Barclays analysts wrote. “Certainly, with persistently low gas prices, coal buyers are seeking accommodations from suppliers…2009 will set an important high-water mark for the power industry’s reaction to cheap gas. New lessons were learned, and new flexibility was found in coal deliveries.”

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