Coal to natural gas displacement in the United States is expected to average 2.0Bcf per day in 2014 supported by recent steep rise in natural gas prices, said London based Barclays in its recent market analysis. Coal to natural gas displacement averaged 3.9 Bcf per day in 2013.This accounts for changes in the power generation fuel mix in the country, with rising wind and solar generation, a normal hydro year, and nuclear output similar to 2013. An uptick in prices will likely limit gas-fired generation beyond what our models are currently factoring in, and could have as much as a 100–200 Bcf effect on end-of-winter storage levels, in Barclay's view.

Furthermore, if prices rally further and settle in the $4.50 range for a longer period of time, a rebound of drilling would likely further limit upside risks. Persistent price strength is likely to incentivize more drilling, as many gas targets become economical in the $4.00-$4.50 range and an even greater number would be attractive to drillers above $4.50. This dynamic, however, is likely to play out more slowly than changes in gas power burn, the bank noted.

US natural gas prices edged higher in recent weeks on intense cold weather conditions. According to Barclay's estimates, US natural gas prices are expected to move up in coming weeks supported by forecasts for below normal temperature through the first half of January and extremely cold weather.
Source: Barclays