With natural gas production expected to swell this summer, competition with thermal coal should be the primary theme on the demand side. Western coal is currently in contango, with Powder River Basin prices rising through year end to $13.55 and averaging more than $2 per ton higher than 2013.
CAPP coal prices were close to 2013 in Q1, but the strip rises to $62.78 by Q4, almost $8 above Q4 2013. Unless coal prices soften, natural gas should find an avenue to absorb any excess production without venturing into the $3.xx price range for any length of time.
Currently the north american natural gas inventory shortfall has left ample room in underground storage to absorb overproduction, but that has a limit and a combination of weather and production surprises could overwhelm storage, even from its current low level. This is unlikely under normal assumptions, and gas probably has more room to rise than to fall from the $4.50/mcf level at which it currently trades.