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Recession = Less Gas Generation Demand, But Up in West

Natural gas use for electric generation will be down nationally this year by about 300 MMcf/d compared with 2008, despite a large forecasted drop in hydroelectric supplies that will provide a boost for gas-fired power in the West, according to a report released Tuesday by U.S.-based analysts at Barclays Capital. Nationwide, it is the recessionary impacts rather than the below-normal water levels having the most impact on gas-fired power generation this year, according to the Barclays report.

Presumably in a normal water year, U.S. gas use in power generation would plummet even more in 2009. Calling poor hydro a "bright spot" for gas, Barclays report is predicting that below-average precipitation will reduce U.S. hydroelectric output this year, requiring an increase in natural gas-fired generation equivalent to 400 MMcf/d, and that increased gas load will be concentrated in the western states.

In contrast to other areas of the United States, power demand in the West "has been holding up fairly well," the Barclays report said. "Thus, the net effect of reduced hydroelectric output will be to boost gas-fired generation in the western states while lower power loads in the rest of the country will reduce natural gas use for electric generation in those other regions."

For the most part, the impact on generation fuel mix will be felt in the West, the report said, considering that U.S. hydroelectric production is concentrated in the Pacific Northwest and California.

"Since the West has not witnessed a significant pullback in power consumption related to the recession, the lost hydroelectric output must be replaced -- with most coming from gas-fired generation," the report said. Nevertheless, the weak water level boost for gas-fired power regionally will be offset nationally as the "recession drags total U.S. power consumption lower.

"With most of the winter precipitation season behind us, 2009 is on track to be a below-average hydroelectric production year. As in the past, coal and natural gas-fired plants will replace most of the electric generation lost from the poor hydro year."

Centering on the Oregon-Washington state predicted river flows as a key to western hydroelectric supplies, the report noted that the National Weather Service's Northwest River Forecast Center is currently projecting that flows this year will be 84% of average for the April-September runoff season. "This marks another in a string of below-average years," Barclays said. "Poor rainfall for 2009 in California adds to this picture, and precipitation in British Columbia also has been below normal."

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