Low water levels in the Pacific Northwest are expected to gift gas-fired power generators with increased demand, according to a Barclays Capital analysis of National Oceanic and Atmospheric Administration forecast data.

Less water available to flow through dams than last year means 2,400-3,200 average megawatts (aMW) of hydro generating capacity could be lost for the period April through August 2010. This could yield 500-650 MMcf/d of incremental gas demand relative to last year on average over the five-month period, Barclays analysts said in a research note published last Tuesday.

"The bulk of the water supply shortfall is forecast for the April through June period, when the incremental need for gas-fired generation could lift natural gas demand by as much as 800 MMcf/d to 11,00 MMcf/d," the analysts wrote. "In contrast, water supply in July and August is expected to come closer to last year's levels, resulting in a negligible y/y change in average gas demand for those months."

Washington, Oregon, Idaho and Montana comprise the Pacific Northwest, which provides 3.2% of U.S. total power supply and accounts for about 46% of U.S. hydropower generation, the analysts noted. Across the United States, hydropower accounts for 7% of generation.

"...[G]as demand can get a sizeable boost in a low hydro year, and this is exactly what the market is anticipating in 2010," the analysts wrote. "This relationship is most clear in states such as Washington, where hydropower accounts for over 65% of the generation mix."

Even in a low hydro year, dams are capable of stepping up to peak demand, the analysts noted; however, some of their flexibility is lost. "Yet for peak demand considerations a much smaller amount of generation capacity would be lost compared with the average output losses because of the ability to ramp up," they wrote.

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