As Peabody Energy Corp. warns that it may be the next casualty of cheap natural gas, coal watchers are increasingly scrutinizing gas drilling data to gauge when the downward spiral might end.
Peabody, the largest U.S. coal producer, said Wednesday that it may need to file bankruptcy, joining rivals Alpha Natural Resources Inc. and Arch Coal Inc. Gas prices have tumbled 88 percent from their peak, decimating coal demand, and this year will be the first in records back to 1949 that gas will be the primary U.S. source of electricity, the Energy Information Administration says. Signs of a bottom may be found in shale patches.
Once an afterthought for coal miners in Appalachia, Illinois and Wyoming, the Baker Hughes Inc. weekly rig count data has become a must-see for producers looking for hope.
“Absolutely you’re watching it,” said Matt Preston, research director of North America thermal coal markets at Wood Mackenzie in Annapolis, Maryland. “It used to be gas wasn’t competitive so you didn’t have to worry about it.”
Preston said coal could get some of its market share back if gas prices rise to $3 per million British thermal units. Gas for April delivery gained 1.7 cents, or 0.9 percent, to $1.868 per million Btu Wednesday on the New York Mercantile Exchange. The median price so far this year is $2.50.
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Meanwhile, rigs drilling for gas have fallen 63 percent to 94 as of March 11 from a year earlier, the lowest in records going back to 1987, according to Baker Hughes.
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