Fuel switching, renewables cause sharp decline in US power sector gas demand in March

Fuel switching contributed to lower US power sector gas demand during March, a trend that, based on current natural gas prices, could continue this summer.

Power sector gas demand averaged 27.8 Bcf/d in March, almost 1.9 Bcf/d lower year over year, data from S&P Global Commodity Insights showed March 31. This was only the fourth month since the start of 2022 for power sector gas demand to fall year over year, although it was also lower in January. It is the largest decline for any month since July 2021, Commodity Insights data showed.

Power sector gas demand has been trending higher for several years, despite rising renewable generation, as gas took market share from coal, but higher gas prices have put that trend into reverse this year.

US power demand was actually higher year over year during March 2025, but the increase was more than made up by renewable generation, according to preliminary data from the Energy Information Administration.

Total demand rose almost 300 GWh/d, but combined wind and solar rose around 350 GWh/d, according to data from EIA's hourly electric grid monitor. Even with the rise in renewable generation outpacing demand, coal-fired generation was still around 350 GWh/d higher year over year. This further squeezed gas-fired generation, which was around 400 GWh/d lower year over year in March, the data showed.

Coal-fired generation was also significantly higher year over year in January and February, but the effect on gas-fired generation was more limited, because cold weather in those months meant total power demand was also much higher. Power demand was around 700 GWh/d higher in January and and 1,000 GWh/d higher year over year in February, outpacing increases in renewable generation, the data showed.

Outlook

"Coal generation capacity factors rose to around 62% in January 2025, and we expect an increase throughout 2025," Wendy Schallom, a coal and power market analyst at Commodity Insights said March 31. "We anticipate additional switching in coal's favor throughout the remainder of this year, as gas prices remain elevated compared to the previous year."

Henry Hub cash prices averaged $4.07/MMBtu in March 2025, compared with just $1.49/MMBtu during March 2024, according to data from Platts, part of Commodity Insights. Rising LNG feedgas demand and strong heating demand in January-February have tightened the gas market significantly this year and supported prices.

Futures markets suggest prices will remain elevated for the rest of the year; contracts delivering in May-December 2025 were trading at an average of $4.54/MMBtu, data from CME Group showed March 31. Cash prices averaged just $2.26/MMBtu during May-December 2024, Platts data showed.

Power sector gas demand is expected to be around 3% lower year over year in 2025 because of fuel switching, Commodity Insights gas analysts wrote March 24 in their short-term outlook.

There are limits to how fuel switching is possible, however. "Gas-coal switching flexibility is shrinking due to the retirement of a significant part of the coal-fired generating fleet, weakening a crucial demand-balancing mechanism during market tightness," the analysts said. This could contribute to a "rapid increase in prices" in winter 2025–26, they said.