Coal producers took a powder in the power generation game during the first half of the year as low-priced natural gas swooped in and captured market share, but an economic recovery could turn the tables again, according to analysts at Raymond James & Associates Inc.

“…[T]he math suggests that U.S. natural gas demand is running about 211 Bcf higher through June than it otherwise might have if not for coal-to-gas switching. This equates to just over 1.2 Bcf/d over the first six months of the year,” the analysts said in a note Monday.

The picture could have been brighter for gas had hydroelectric generation not acted as a spoiler, they pointed out. Hydroelectric growth of 7.2% over the year-ago period in the context of a 5% decline in overall power demand likely worked against gas-fired generators, the analysts noted. Without the mitigating effect of hydropower on gas-fired generation demand growth, gas could have enjoyed a 1.9 Bcf/d year-over-year hike in demand from power generators at the expense of coal.

“As natural gas prices have and should continue to deteriorate through the summer injection season (ending Oct. 31), this benefit is likely to grow further before reversing course under a different relative pricing outlook heading into 2010,” they said.

In other words, “…the switching that helped gas demand this year may hurt it next year…[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 analysts said they figure that gas demand from power generators could fall by about 0.85 Bcf/d next year (excluding effects from hydropower) as the U.S. economy recovers. The Energy Information Administration recently expressed a similar view (see Daily GPI, Sept. 10).

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