Natural gas demand will not be up as much as many people think because “giddy gas bulls” are ignoring an expected increase of hydroelectric output, which likely will displace a lot of West Coast generation this summer, a Raymond James & Associate energy analyst said Monday.

The long-term outlook for increased gas-fired demand “is still very robust,” but “it is fair to say that increased hydro this year will offset much of the underlying gas-fired electric demand growth that has occurred over the past two years,” said analyst J. Marshall Adkins.

“Given the current Northwest snowpack levels (and announced outage plans by the various nuclear facilities), we now believe that as much as 1 Bcf/d of 2008 summer gas demand could be displaced by changes in hydroelectric/nuclear power output,” wrote Adkins. “This hydrocarbon demand displacement will be driven principally by increased hydroelectric power generation in the Pacific Northwest, as snow precipitation levels have been much higher than last year.”

Even if there are “slightly more” nuclear outages in the Northeast, the impact of higher hydro generation “should overwhelm the planned nuclear outages,” Adkins said. Natural gas predominates over coal in both the Northwest and the Northeast, he noted.

“All in, it looks like hydroelectric power generation will displace the equivalent of about 1.2 Bcf/d of gas, while lower nuclear output will increase gas equivalent demand by about 0.2 Bcf/d this summer,” Adkins wrote. “Thus, if we modestly haircut the gas displacement, it seems reasonable that summer 2008 natural gas demand will be negatively impacted by 0.5-1.0 Bcf/d as hydroelectric power generation surges higher this summer.”

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