Wires

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 Gridexpects peak gas demand at 516 million cubic meters/day(mcm/day) in the coming winter, 9 mcm/day above its preliminaryforecast, it said in its outlook report on Wednesday.

"For security planning the 2012/13 peak gas demand forecastassumes a high level of gas demand for power generation," itsaid.

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

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

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

Gas-fired power generation is expected to becomeincreasingly marginalised in Britain's electricity mix as cheapU.S. coal displaces comparatively expensive gas.

"For gas and coal to be equitable the gas price for winter2012/13 needs to fall by about 40% or around 30p/therm,alternatively there needs to be a further increase in the coalprice by about $80/tonne," National Grid said.

Prompt physical coal delivered to Europe currently fetchesabout $90 a tonne, with prices widely believed capped at aroundthe $100 mark, suggesting it will retain its position as thecheapest power plant fuel.

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

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

"The decline would have been less as there are numerous newfields expected to come on stream during winter 2012/13, howeverthese have been offset by our assumption of a limitedcontribution from Elgin Franklin," Grid said.

Total's North Sea Elgin and Franklin gas field was shut downin late March following the evacuation of the Elgin platformafter workers detected a gas leak.

Expanded gas storage facilities including Rough, the UK'sbiggest, as well as mid-range sites like Holford and Aldbroughand new facilities like Hill Top Farm should help meet higherpeak winter demand, Grid said.

The operator identified uncertainty over liquefied naturalgas (LNG) shipments as the biggest potential impediment tomeeting demand in the UK this winter, given that cargoes can bediverted to higher paying markets in Asia.

(Reporting by Oleg Vukmanovic, editing by William Hardy)

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

Keywords: UK GAS