Thursday, April 14, 2011

Strong Northwest hydro season could cut natural gas demand by 295 Bcf

Strong Northwest hydro season could cut gas demand by 295 Bcf: Bentek
Houston (Platts)--13Apr2011/623 pm EDT/2223 GMT

What is shaping up to be a very strong Pacific Northwest hydropower season will likely eliminate about 295 Bcf of natural gas demand in West Coast power markets over the first eight months of 2011, Bentek Energy said in a report Wednesday.

As a result of the reduced demand, the consulting firm said it expects Henry Hub gas prices to average about $3.95/MMBtu in the spring and summer. Bentek is a unit of Platts, a division of The McGraw-Hill Companies.

The US National Oceanic and Atmospheric Administration's Northwest River Forecast Center on Tuesday predicted river flows on the Washington/Oregon border will be 121% of normal from April through September and river flow predictions have been near or above 100% of normal throughout the 2010-2011 forecast season that began in December.

And earlier this month, the US Army Corps of Engineers said hydroelectric production at 23 dams in the Pacific Northwest was about 8.8 million MWh in March, 52% above the 10-year average and more than twice the output in March 2010.

Bentek said an average of 1.2 Bcf/d of gas demand disappeared in the first quarter because of increased hydro generation and predicted that hydro output is unlikely to slow until August.

In addition, the company projected that hydro generation will average 166 GWh/d between April and August, 35% above normal, depressing wholesale electricity prices across the Pacific Northwest as well as in California and Southwest markets, which import power from the region.

In April, gas generation levels will be 54% below normal as some 1.7 Bcf/d is displaced by hydro --- a peak for the season, according to Bentek.

Bentek predicted that by July less gas will be displaced because of an increase in overall consumption.

So far this year, electricity exports from the Pacific Northwest have been an average of 42% above normal, Bentek said 83% above year-ago levels. "Power exports form the Northwest are expected to continue to top year-ago and normal levels through August, based on current snowpack levels and hydro forecasts," the report said.

Gas traders in the region said forward prices are not showing the level of demand loss Bentek is projecting.

"Cash is trading pretty high to NYMEX prompt so that may be keeping a floor under [forward] basis for now," a Western financial trader said. "Storage is lower than forecast right now, so [that's] probably some support for a while. If there's no heat early and we get big injections then prices should tank quickly," he said.

Platts forward gas prices for Northwest Pipeline at Sumas, Washington, have actually tightened over recent months. Its summer 2011 package was assessed Wednesday up 5 cents since the beginning of the year to minus 42.5 cents/MMBtu to the NYMEX.

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