Houston (Platts)--7 Oct 2015 357 am EDT/757 GMT

US coal consumption for the power sector will total an estimated 781.4 million st in 2015, down 8.2% from last year and the lowest amount since 1989, according to the October edition of the US Energy Information Administration's Short Term Energy Outlook released Tuesday.

A projected 28% drop in natural gas prices compared with 2014 and weak demand due to mild weather have continued to drive consumption estimates down, said Elias Johnson, coal analyst for the EIA.

"We're not having any of the problems with adequate supplies in storage that we had last year," Johnson said. "The mild summer weather didn't put pressure on generation of any type."

Should the figure hold, it would be the lowest overall coal consumption since 1987, when 836.9 million st was consumed, according to the agency.

The EIA expects coal consumption to remain relatively unchanged in 2016 due to projected rising electricity demand and higher natural gas prices.

That will result in higher utilization rates among surviving coal-fired power plants, including those that have not been retired due to the implementation of the Mercury and Air Toxics Standards, Johnson said.

That will benefit coal producers in the Interior Region, including the Illinois Basin, which can sell to surviving coal units that already have installed pollution control equipment, Johnson said.

"The Illinois Basin has kind of been the winner in the industry because it is closer to markets than Western coal and much cheaper to mine than Appalachian coal," he said.

In 2015, exports are likely to total 77.2 million st, down 20.7% from last year due to low seaborne pricing. The agency expects exports to total 68.2 million st in 2016.

With fewer exports and declining consumption, coal production in 2015 will likely total 910.6 million st, down 8.7% from last year. It would be the lowest annual total since 1986, when the US produced 890 million st.

The EIA expects coal generation in the US to dip to 35% in 2015 from 38.7% in 2014, while natural gas generation will climb to 31.6% in 2015 from 27.4% in 2014. The agency expects coal generation in 2016 to total 34.8% and natural gas generation to total 31%.

Coal prices, which finished 2014 averaging $2.36/MMBtu, are estimated to average $2.27/MMBtu in 2015 and $2.26/MMBtu in 2016.

The Henry Hub futures price for natural gas is expected to average $2.89/MMBtu in 2015, down from $4.26/MMBtu in 2014. The agency estimates the price will average $3.14/MMBtu in 2016.

--Jeffrey McDonald, jeffrey.mcdonald@platts.com
--Edited by Annie Siebert, ann.siebert@platts.com

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