Houston (Platts)--22Feb2013/258 pm EST/1958 GMT

Below-average hydro-electric power generation in the US Northwest will boost natural gas demand by up to 250,000 Mcf/d in the region this year, according to a Barclays Capital analysis released Friday.

Forecasts for water supply in the Northwest point to below-average hydro power generation from April through September. "This should support natural gas consumption in the region and reduce the need for coal-to-gas displacement," it said.

The past two years featured ample water supply in the region, with 2011 being the fourth-most abundant year in the past 53, and 2012 ranking sixth.

In contrast, forecasts for 2013 call for a rather dry summer season, as water accumulation at the Dalles Dam on the Columbia River is expected to rise to just 89% of historical norms, the report said. This compares to 143% of normal in 2011 and 134% of normal in 2012.

The summer of 2010 saw a similar water supply at the Dulles Dam to what is expected this year. In that year, gas demand for power generation in the Pacific Northwest -- including Washington, Oregon, Idaho and Montana -- averaged 530,000 Mcf/d from April through September. This compares with 300,000 Mcf/d used for power generation in the region during the same period in 2012.

"Consequently, a repeat of the 2010 hydro power generation levels should result in an increase of roughly [200,000 to 250,000 Mcf/d] for natural gas demand," the report said.

While not significant enough to cause a meaningful uptick in gas prices, the incremental demand in the Pacific Northwest will "marginally alleviate the need for gas to displace coal in the East," the report said.

The expectations for a relatively weaker hydro year are already being seen in the forward curves.

According to Platts forward assessments, prompt-summer basis at Northwest Pipeline-Sumas this year is nearly 8 cents higher than the summer 2012 package at the same time a year ago.

From January 1, 2012, through February 21, 2012, summer 2012 basis at Sumas averaged at minus 24.75 cents/MMBtu, according to Platts assessments. During the same time frame in 2013, summer 2013 basis at Sumas averaged minus 17.05 cents/MMBtu.

Electricity forward prices also show higher levels for this year compared to last summer.

From January 1, 2012, through February 21, 2012, the second quarter 2012 basis at Mid-Columbia averaged $20.50/MWh. During the same time period in 2013, second-quarter prices for 2013 at Mid-Columbia averaged $23.36/MWh, according to Platts data.

--Eunice Bridges, eunice_bridges@platts.com
--Edited by Lisa Miller, lisa_miller@platts.com

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