"We continue to search for reasons to become more positive on thermal coal," Benjamin said in a note to clients.

Gas prices are capped below $4.50 per million Btu because of the burgeoning supply, New York-based Benjamin wrote in a note to clients on March 25. Shale production in the U.S. rose 47 percent in 2009 from 2008 to 3.11 trillion cubic feet, based on the most recent Energy Department data.

Gas prices might begin to rise, making coal more attractive, as countries reassess nuclear power in the aftermath of the radiation leaks at Japan's Fukushima Dai-Ichi nuclear plant, according to Brian Gamble, an analyst at Simmons & Co. Intl in Houston.

It costs a power plant $37.08 per megawatt hour to burn coal for generation, compared with $31.80 with gas, based on the March 29 of closing prices, said Billiana Pehlivanova, a New York-based analyst at Barclays Capital.

Coal Costs
Consumption of coal at U.S. power plants increased in three of the 13 weeks during the first quarter, according to Genscape Inc., a Louisville, Kentucky-based data provider.

Gas demand for power generation will rise to a record 20.28 billion cubic feet a day this year, according to the Energy Department.

Electricity generated from gas this year will be 21 percent higher than five years ago, while coal use will be 7.3 percent lower, Energy Department estimates show.

About 743,994 tons of coal went to the electric power sector through the third quarter of 2010, the Energy Department said in a Jan. 21 report.

Gas may also benefit outside of its discount to coal as Obama tightens environmental standards, Rollyson said. The Environmental Protection Agency last month proposed requiring utilities to install devices to cut mercury, arsenic and acid gases spewing from coal-burning plants.

"The cost of burning coal at utilities, particularly the environmental costs, seems like they're about to go up," Rollyson said.

Eoin Treacy's view At present, natural gas tends to be a regionally oriented market. This helps to explain the wide divergence between the US and UK traded contacts. The exploitation of unconventional natural gas deposits has so far been primarily a North American enterprise. Aggressive growth in LNG infrastructure continues but it will still be a number of years before US natural gas prices reflect global rather than regional supply and demand.

Coal is somewhat different. It is much easier to transport and trade routes are well established. While the USA has the luxury of choice as to whether to continue to burn coal or switch to natural gas, the former remains the most prevalent source of energy for much of the world and that position is unlikely to be usurped in the short to medium-term.

The Coal / Natural Gas ratio remains at an elevated level and has been ranging above 16 since August. A sustained move below that level would be required to question the consistency of the medium-term uptrend. While natural gas prices remain within an extended base formation, coal prices have firmed in sympathy with oil. The future's price found support in the region of the 200-day MA in late February; holding the progression of higher reaction lows. A sustained move below $73.50 would be required to question potential for continued upside.

Peabody Energy remains in a consistent medium-term uptrend and while somewhat overextended relative to the MA, a sustained move below it, currently near $60, would be required to question medium-term upside potential. Alpha Natural Resources, Arch Coal and New World Resources share a similar pattern with the coal futures price.