Demand For Natural Gas Is Breaking Records

Coal usage continues to collapse.

Morgan Stanley commodities guru Hussein Allidina writes that coal-to-gas switching among power generators remains at all-time highs. 

July power sector gas demand broke all records. An unusually hot July…coupled with ongoing coal-to-gas substitution (Henry Hub spot prices averaged $2.97/mmBtu) set the stage for a record amount of gas consumption in the power sector.

Underscoring the price-induced shift to gas, power gas demand averaged 35.1 bcf/d in Jul, a YoY increase of 4.7 bcf/d, even though [cooling degree days] were roughly flat YoY. We estimate coal-go-gas switching accounted for ~3.5 bcf/d of the YoY growth in July.

Here’s that story in graph form:

Morgan Stanley

Photo: Morgan Stanley

The other news is that gas production outside of the Marcellus Shale is declining, making consistent $3 likely, Allidina says.

However, production within the Marcellus itself alone is enough to offset any shortfall. From Allidina:

As we look to the balance of 2012, we expect the de-bottlenecking of Marcellus infrastructure will continue to drive production higher, offsetting production declines elsewhere.

SEE MORE – Morgan Stanley’s Massive Guide To Commodities >

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at