Economic recovery and hot weather in the Gulf Coast and Southeast regions could boost power demand enough to consume about half of the gas that Barclays Capital analysts had expected to go to coal-fired power generation displacement this year during storage injection season, the firm said Wednesday.

"A smaller coal displacement would translate into a somewhat higher gas price to achieve that displacement than our Q32010 outlook of $4.00/MMBtu [see Daily GPI, June 15]," the Barclays team said in a note. "Since the extra demand does not wipe away all [of] the need for coal displacement in our balances, gas prices still need to be low enough to displace some coal between now and the end of the injection season."

The analysts noted that power demand has returned to pre-recession levels in the Gulf Coast region (Texas, Oklahoma and Louisiana) and has neared pre-recession levels in the Southeast. The Midwest has seen some load growth, too, but loads still remain below 2007 levels there, they said.

"The recovery of loads in the Gulf region and the Southeast is important for the gas markets," they said. "First, incremental power demand in the Gulf markets will boost gas consumption. Second, loads in the Southeast have climbed high enough to potentially avert the need for gas-coal competition in the region."

Barclays projected that gas prices should stand at $4-5/MMBtu during injection season to achieve the necessary level of gas-on-coal competition.

"Hot weather and associated demand, along with gas prices at recent levels ($4.50) that keep coal displacement in play, would match our supply outlook while still reaching our estimated end-of-October [storage injection season] finish (3.9 Tcf)," Barclays said.

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