(Idea) Core Natural Resources
Editor’s Note: CNR is a potential candidate for the HFIR Natural Gas Portfolio.
By: Jon Costello
Coal producers offer investors a way to profit from the U.S. natural gas bull market that began late last year.
Coal prices could gain support from increased domestic demand that occurs as natural gas prices rise. Higher natural gas prices make coal relatively more attractive as an energy source for power generation. Electric utilities become incentivized to switch to coal, increasing demand and prices. Coal stocks could benefit from the resulting uplift in coal producer cash flow.
We expect the natural gas bull market to continue through the end of the decade, so domestic coal prices may also get a longer-term boost.
These dynamics appear to paint a bullish picture for natural gas demand that comes on top of the widely-publicized LNG export buildout and data center expansion. They could deliver an added boost to coal prices and coal stocks.
Coal Becomes Competitive with Natural Gas
EIA data shows that natural gas prices surged in the U.S. as the weather turned cold and electricity demand increased. Note the spike in New York City natural gas prices, shown in blue.
Source: EIA, Electricity Monthly Update for January 2025, Released on March 25, 2025.
But note also the increase in the Henry Hub price—the brown line in the chart—that began in December of 2024 pushed natural gas prices above coal prices. If that line continues to trend upward, electric utilities capable of switching to coal are increasingly likely to do so.
The EIA is calling for just such an outcome. It forecasts a 5% increase in coal consumption in 2025 in its Short-Term Energy Outlook (STEO).
Increasing coal demand is set to arrive as U.S. coal supply is in long-term decline. Less-efficient coal plants have been retired, and natural gas has been the primary energy source substitute. The trend is expected to continue to decline for at least several years.
In its STEO, the EIA expects coal production to decline by 6% in 2025. All regions of U.S. production are expected to see production fall.
Source: EIA, Short-Term Energy Outlook for March 2025.
From a purely domestic supply and demand standpoint, the stars appear to be aligned in a bullish manner for coal prices.