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UPDATE 1-UK Grid raises peak winter gas demand forecast

* Winter temperatures expected below average-Grid

* Total winter gas season demand unchanged

* Coal to dominate power generation sector

(Adds detail, background)

LONDON, Oct 10 (Reuters) - The UK's National Grid expects peak gas demand at 516 million cubic meters/day (mcm/day) in the coming winter, 9 mcm/day above its preliminary forecast, it said in its outlook report on Wednesday.

"For security planning the 2012/13 peak gas demand forecast assumes a high level of gas demand for power generation," it said.

Although temperatures are expected to drop below average levels this winter, the average consumption forecast for the forthcoming October-March period is little changed from last year levels, it said.

Total demand for the October-March period, which makes up the so-called winter gas season, is estimated at 50.9 billion cubic metres, figures show.

That is unchanged versus Grid's preliminary forecast issued in July but is below the 55.2 bcm in the previous winter.

Gas-fired power generation is expected to become increasingly marginalised in Britain's electricity mix as cheap U.S. coal displaces comparatively expensive gas.

"For gas and coal to be equitable the gas price for winter 2012/13 needs to fall by about 40% or around 30p/therm, alternatively there needs to be a further increase in the coal price by about $80/tonne," National Grid said.

Prompt physical coal delivered to Europe currently fetches about $90 a tonne, with prices widely believed capped at around the $100 mark, suggesting it will retain its position as the cheapest power plant fuel.

The grid operator pegged maximum forecast gas supplies from the UK Continental Shelf at 138 mcm/day, 7 percent lower than the equivalent forecast for the previous winter.

Declines are primarily driven by a historic trend of falling output from Britain's maturing gas fields.

"The decline would have been less as there are numerous new fields expected to come on stream during winter 2012/13, however these have been offset by our assumption of a limited contribution from Elgin Franklin," Grid said.

Total's North Sea Elgin and Franklin gas field was shut down in late March following the evacuation of the Elgin platform after workers detected a gas leak.

Expanded gas storage facilities including Rough, the UK's biggest, as well as mid-range sites like Holford and Aldbrough and new facilities like Hill Top Farm should help meet higher peak winter demand, Grid said.

The operator identified uncertainty over liquefied natural gas (LNG) shipments as the biggest potential impediment to meeting demand in the UK this winter, given that cargoes can be diverted to higher paying markets in Asia.

(Reporting by Oleg Vukmanovic, editing by William Hardy)

((Oleg.Vukmanovic@thomsonreuters.com)(44 207 542 0014)(Reuters Messaging: oleg.vukmanovic.thomsonreuters.com@reuters.net))

Keywords: UK GAS