Moody’s vice president and senior analyst Anna Zubets-Anderson said in a report this week that environmental regulators had cast more scrutiny over coal as shale production had boosted gas inventories.

“Coal will regain a bit of market share as natural gas prices recover somewhat, but most coal-to-gas substitution to date will be permanent,” she said.

The report cited a recently released Energy Department outlook for the short-term that revealed coal’s hand in electricity generation will fall to 37% in 2012, a drop from 42% last year and 49% as recently as 2007.

At the same time, the gas share in 2011 of 25% will rise this year to 31%.

The report said natural gas was set to hit a 10-year low this year, with a jump in inventories to 60% over the five-year seasonal average.

Zubets-Anderson pointed to US Environmental Protection Agency regulations that were keeping investors far from the idea of coal use, while at the same time warning that global demand for steel had left coal producers with similar woes.

“We see limited medium-term upside for coal prices,” she said in the report.

“The prospects for the worldwide steel industry are not encouraging. The US steel industry continues to cope with persistent capacity utilization rates below 80 per cent, a level that would indicate healthy industry conditions.”