Rebounding hydro power won't dampen gas demand; analyst says

By the OGJ Online Staff

HOUSTON, Jan. 28, 2002 -- Hydroelectric power output is expected to increase this year but gas demand for power generation isn't expected to suffer.

Nuclear power output is expected to decline offsetting any gains in hydroelectric output, Marshall Adkins, an analyst with Raymond James & Associates said in a report Monday. "Fortunately for the gas markets, the negative impact from higher hydro should be more than offset by reduced nuclear-generated electric power over the next year," Adkins said.

Thanks to higher levels of precipitation in the Pacific Northwest, hydroelectric production will rebound. Output is expected to increase an average of 4,600 Mw through 2002. Gas demand could fall in the western states by almost 1.3 bcfd in 2002, he said.

However, nuclear generation should be down by an average of 4,000 Mw. Nuclear output turned down in November reflecting increased concerns about nuclear security and mild weather. Adkins expected nuclear power to turn down in May of 2002 but it happened quicker than he projected, which had a positive effect on gas demand. Some nuclear plants have scheduled lower nuclear production than originally expected, he said.

In 2001, nuclear generation experienced year-over-year increases because of shorter refueling outages and higher capacity utilization. Higher nuclear output helped offset the reduced hydroelectric power. Because the nuclear industry can't sustain the same level of output this year, demand for natural gas should rebound by 1 bcfd, if only gas fired generation is used as an offset.

Adkins based his analysis on planned nuclear plant shutdowns and on unplanned outages that could increase gas demand more than these estimates would suggest. He concluded the return of normal hydroelectric power will have little impact on natural gas demand this year.

"We return to our original thesis of lower gas supply, improving industrial demand, increased fuel switching to natural gas, and an improvement in the economy as reasoning behind a gas rebound in 2002," he said.

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