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As U.S. natural gas prices jumped to a three-year high, coal has become a cheaper power-generating fuel for utilities, which are set to run coal-fired generators harder this winter.

U.S. benchmark natural gas prices at Henry Hub have jumped from $4.23 per million British thermal units (MMBtu) at the start of November to above $5 per MMBtu by early December. Early on Friday, the front-month futures price was $5.084 per MMBtu.

That’s the highest price in three years, as a polar vortex with freezing temperatures and snowstorms gripped most of the U.S. and as U.S. liquefied natural gas (LNG) exports continue to set record highs as new plants ramp up liquefaction and shipments.

Near-month futures prices are at their highest since December 2022, while the price of the 12-month futures contract strip January 2026 through December 2026 climbed in one week by 26 cents to $4.302 per MMBtu, the U.S. Energy Information Administration (EIA) said in its latest Natural Gas Weekly report.

The report also showed that working natural gas stocks totaled 3,923 Bcf for the week ending December 3, which is 5% more than the five-year average and less than 1% lower than last year at this time.

Although natural gas stocks are at levels higher than the five-year average, prices are rallying as heating and power demand jumps with the colder weather and LNG exports out of America are setting new highs.

The U.S. is set to export 14.9 billion cubic feet per day of LNG this year, up by 25% from 2024, the EIA said in its latest Short-Term Energy Outlook (STEO) for November. Plaquemines LNG in Louisiana has ramped up exports more quickly than the EIA expected, leading the administration to raise its forecast of LNG exports in the current quarter by 3% compared with last month’s outlook. The EIA expects U.S. LNG exports to increase by an additional 10% in 2026.

As a result, soaring U.S. natural gas prices make gas-fired power generation more expensive for electric utilities and some of these are set to boost generation from cheaper coal.

The EIA expects in its latest STEO that the 2025 annual average price of natural gas paid by electric power plants will jump by 37% and the price paid by industrial sector customers will increase by 21% compared with the 2024 averages.

The Henry Hub natural gas spot price is set to average $4.00 per MMBtu in 2026, the EIA forecasts. The expected average price would be 16% higher than in 2025, primarily due to surging LNG exports amid flat gas production.

Coal, for its part, saw increased production this year, supported by the Trump Administration and the rising price of natural gas.

The coal production increase in 2025 is the result of rising demand, the EIA notes. Demand has increased due to higher natural gas prices, delayed coal plant retirements, and strong demand for heating in the earlier winter months this year. In response to higher demand, the EIA expects electric power coal inventories to end the year at 107 million short tons (MMst), which would be 17% lower than at the end of 2024.

Higher natural gas prices are setting the stage for increased coal use, at least in the coming months. But soaring power demand from AI could also support a quiet comeback for coal in the coming years.

Most coal-fired power plants could delay retirement because of the AI-driven power demand surge, Energy Secretary Chris Wright told Reuters in September.

“Energy sobriety has returned to Washington, D.C. Our focus is on Americans and the price of utility and avoiding blackouts,” Wright said.

“We've got to stop existing firm capacity from retirement,” the Energy Secretary added.

The surge in U.S. electricity demand “is reviving hopes of at least a slightly brighter future for coal,” Ed Crooks, Vice Chair Americas at Wood Mackenzie, said in October.

“There is no doubt that the boom in data centre investment is helping to slow the decline of coal in the US, by prolonging the operational lives of some coal-fired power plants,” WoodMac reckons.

Two years ago, Wood Mackenzie’s base-case expectation was that U.S. coal-fired power generation would plunge by about 60% between 2025 and 2032. Now WoodMac expects the drop to be about 39%.

By Tsvetana Paraskova for Oilprice.com