July 21, 2017 - Natural gas became the top fuel for U.S. power generation last year, but it's a title it could surrender in 2017.

Demand for the fuel should still increase across some areas of the market: exports are up year over year and industrial demand is on the rise. But the dominance gas held as a power sector fuel has diminished thanks to a price rebound and a rise in renewable generation.

The U.S. Energy Information Administration (EIA) said this month that coal- and gas-fired plants should hold near-equal 31pc shares of power generation in 2017. Coal this year should just edge out gas, supplying 3.453bn kWh/d, or a hair above the projected 3.432bn kWh/d generated by gas, according to the agency's July Short-Term Energy Outlook.

Until last year natural gas had trailed coal each year dating back to 1949, according to U.S. government data. Factors such as coal plant retirements, tougher emissions standards and growth in renewable capacity contributed to the 2016 shift. Economics though was the key driver.

"The utility industry has shown a noticeable willingness to generate with the lowest-cost fuel," said Kyle Cooper, a consultant for brokerage Ion Energy.

Gas prices collapsed sharply in spring of 2016 following a mild winter that left U.S. stockpiles at unusually high levels. U.S. gas prices dropped in March of that year to 17-year lows below $1.65/mmBtu, giving gas a price advantage over coal. Gas consumption from the power sector rose last year to 27.3 Bcf/d (773mn m³/d), up by 3.6pc from a year earlier.

Low prices boosted demand and helped bleed down high gas inventories. They also contributed to prices rebounding last fall above $3/mmBtu, a level where demand has started to falter. Producers unable to cope with last year's price downturn pared drilling in some of the most prolific U.S. fields. The subsequent drop in production helped tighten the U.S. market and provided lasting support for prices.

Spot prices at the Henry Hub so far this year have averaged $3.01/mmBtu, up by 44pc from a year earlier. The EIA projects that spot prices this year will average $3.10/mmBtu on growing exports and colder weather during the upcoming winter.

The strength in U.S. prices could still be undermined later this year. Producers have redeployed rigs because of higher energy prices and some analysts and traders are anticipating a rebound in production during the second half of the year. The magnitude of that increase could pressure prices lower and stoke more demand for gas later this summer or during autumn. Weather-related demand usually falls ahead of the winter, allowing electric utilities to use discretion in choosing between source fuels.

Prices could also drop if summer heat does not cut deeply enough into U.S. inventories. Prices, in that case, may move lower to stimulate demand.