Boston, MA -- (SBWIRE) -- 01/24/2014 -- While we have long held the view that the glut of cheap gas in the US will drive the acceleration of gas-fired capacity expansion and determine the composition of the country's energy mix, we have also cautioned that an inevitable rise in gas prices would lead to fluctuations in coal-gas generation dynamics. With this in mind, it appears coal generation has rebounded in 2013 due to higher gas prices in the first half of the year. While we maintain that the biggest alterations to the US generation mix have already taken place and this short-term recovery in coal will dissipate as coal-fired capacity comes offline to comply with emission standards, we remain cognisant of the fact that gas prices are likely to rise as LNG export capacity comes online in 2016. This could mean that other forms of power generation become more competitive as gas prices rise over a longer timeframe - a point that crystallises when looking at the shortterm resurgence in coal.

Although we have emphasised that the biggest alteration to the US' energy mix has likely already taken place, with natural gas-fired electricity generation having surged 21% in 2012, we anticipate that between 2014 and the end of our forecast period in 2022, natural gas-fired generation will continue to gain traction as the fastest-growing traditional source of electricity generation. Indeed, we have already indicated that coal's role as the preeminent source of electricity generation in the US has eased gradually, and we anticipate that its share will dwindle further as the shift from gas to coal continues.

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Yet, crucially, our view on the utilisation of gas in US electricity generation continues to be tempered by the realisation that such dynamics are contingent on gas prices remaining low. Indeed, we emphasise that we have seen rising gas prices - due to falling gas production rates in early 2013 - trigger a resurgence in coalfired electricity generation in 2013.

As such, we emphasise that while we expect utilities to continue to take advantage of cheap gas prices to generate electricity over the long-term, we remain cognisant of fluctuating gas prices. With BMI's Oil & Gas analysts anticipating that gas prices will rise to US$7.1mn BTU by 2019/2020, due to LNG export capacity coming onstream in 2016 and an uptick in demand for gas from the petrochemicals sector, tightness in supply (and rising prices) could mean some sources of generation which are currently uncompetitive (such as coal and nuclear) will become more competitive. Much will also depend on the stringency of US Environmental Protection Agency (EPA) emissions standards governing existing power plants, which are due to be released in 2014.

Developments in the US power market this quarter include:

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