The energy world of the early 2010s looked starkly different from today. U.S. LNG exports were in their infancy, with Sabine Pass yet to commence operations. Declining costs and government subsidies were just starting to propel renewables forward, and AI had not yet gained the widespread attention it has today. Despite all these changes, one might expect certain steadfast principles to hold true, such as aggressively rising gas prices leading to sharp declines in natural gas-fired generation, but even that is changing. Today, we’ll examine how volatile natural gas prices affect coal-to-gas and gas-to-coal switching and why that dynamic has been shifting.
First, let’s consider what has changed. Coal-fired generation has been consistently declining over the past 15 years, dropping from comprising 45% of the generation stack in 2010 to just 15% last year. While renewables have helped displace some of this coal generation, cheap natural gas and the construction of more efficient natural gas combined cycle plants have made up the bulk of the difference. The map below illustrates coal retirements (grey) and new gas builds (purple) since 2010, with a megawatt of gas being built for essentially every retired megawatt of coal.
Turning to recent developments in the natural gas market, the latest bitter winter led to record residential and commercial heating demand and an overall electric load increase of 5% year-over-year. Additionally, Plaquemines LNG started ramping up operations at the start of the winter, creating additional demand. This combination led to a strong increase in the forward curve earlier this year, as shown below. However, this was shortly followed by a sharp drop in forwards, as high storage builds and the potential effects of tariffs set in.
So, how should we expect gas-fired generation to respond given volatile gas prices? Assuming load and renewable generation is held at August-2025 levels, we evaluated the impact of varying gas prices on gas generation across the country. While the results show regional differences based on varying coal and gas capacities and economics, one common trend across the country emerged: the most drastic impacts to gas, i.e., gas-to-coal switching, are felt below $3.50/MMBtu. The graphic below illustrates the percent declines in gas-fired power burn we would expect compared to a low gas price of $1.50/MMBtu.
While gas still declines above the $3.50/MMBtu threshold, it is at much more muted levels. This behavior is driven by developments over the past 15 years, as depicted in the earlier map. The new, more efficient gas plants that came online in the 2010s were supported by cheap gas prices, which meant only the most economic coal plants could survive. Less economically viable coal plants that could only compete with gas plants when gas prices were higher were forced out of the market and decommissioned.
Gas-fired power plants will now be relied upon to run at higher gas pricing, as there are no coal plants left to compete with them. Conversely, if gas generation wants to gain market share from coal plants, gas prices will need to drop further—at least below $3.50/MMBtu—to see material gains. For more gas and power analysis, check out FactSet’s comprehensive energy offering.
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