Some investors are wagering on natural-gas prices losing their spark. Natural-gas prices have jumped as much as 44% since sinking to decade lows last month. Much of that rally had been powered by rising demand from utilities, which had taken advantage of the low prices by using more natural gas instead of coal. But the higher prices are making coal competitive once again. Coal prices are down 22% since the start of the year. Utilities are continuously fine-tuning how much coal and natural gas they’re burning to generate electricity. In recent months, they’ve increasingly favored natural gas due to the steep drop in gas prices. Utilities keep the breakdown of their fuel use a trade secret. How utilities will respond to higher gas prices has spurred debate among investors. Some analysts and traders say the rally threatens to erode natural gas’ recent gains in market share as utilities switch back to coal, and that could limit any further price increases.
If prices continue to tick up, expect more fracking.