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Electric Power Plants: Key Tiggers for Natural Gas Prices

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Electric power plants

Gas flows to electric power plants rose for the week ending June 5, 2015. Gas deliveries to natural gas powered electric power plants were at 27.4 Bcf (billion cubic feet)—compared to 22.3 Bcf in 2014. Switching power plants from coal to natural gas for electrical power generation also supported the renewed demand for natural gas prices.

Long-term, lower natural gas prices are driving the switching of coal power plants to electric power plants. This will increase the demand for natural gas prices in the short term. Demand from the residential and commercial segment also saw a weekly increase. They also supported natural gas prices.

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The EIA (U.S. Energy Information Administration) forecast states that dry natural gas could be the key contributor to electrical power generation by 2040. It could have a 34% share. Market surveys from Capital Economics suggest that old coal plants might retire. This will lead to new natural gas power plants. The demand might support natural gas prices to $4 per MMBtu (British thermal units in millions) by the end of 2015.

The recent exponential increase in natural gas prices benefits energy ETFs like the Energy Select Sector SPDR ETF (XLE) and the Spider Oil and Gas ETF (XOP). XLE and XOP consist of oil and gas exploration and production companies. They fell in yesterday’s trade and moved in the direction of crude oil prices.

Higher natural gas prices positively impact oil and gas companies like Gulfport Energy (GPOR), Range Resources (RRC), and Antero Resources (AR). Combined, they account for 3.25% of XOP. These stocks have a gas production mix that’s more than 68% of their total production.

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