Message-ID: <16779038.1075855615048.JavaMail.evans@thyme> Date: Sat, 23 Sep 2000 16:46:00 -0700 (PDT) From: mike.grigsby@enron.com To: thaywood@ftenergy.com Subject: SOCAL Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Mike Grigsby X-To: "Haywood, Tom" @ ENRON X-cc: X-bcc: X-Folder: \Michael_Grigsby_Jun2001\Notes Folders\Sent X-Origin: Grigsby-M X-FileName: mgrigsb.nsf Dear Tom, Enron would be interested in getting together with other trading partners to discuss listing other index points at the Socal border. I think the market requires other postings to reflect the fundamental changes in the market with respect to transportation constraints. The market has clearly seen a divergence in the summer spreads between PG&E and Socal interconnects. The marginal generation load in SP-15 and Southern California this summer has proven that Socal Gas is short delivered gas and is incapable of meeting daily demand with flowing supplies, and will be incapable of injecting gas during these months. Because of this, supply being transported from the Southwest supply basins can only find a home going into PG&E. This places downward pressure on PG&E Topock gas and upward pressure on Socal Topock gas. Remember, Socal is an island, not because of the delivered capacity to the border via EPNG and TW, but because of the limited capacity of Socal's interconnects. Demand exceeds the supply interconnect capacity. There is also a divergence between Ehrenberg and Topock because of liquidity. Topock is a more liquid market because of the upstream transport contracts on EPNG and downstream buying patterns of certain Socal markets. The market is more diversified at Topock than Ehrenberg. The overwhelming demand pressure on Socal gets exposed at Topock. Although Ehrenberg is the marginal point for gas into Socal, there is more of an imbalance in upstream capacity (EPNG and TW) to downstream capacity (Socal Topock 545,000/d) at Socal Topock than at Ehrenberg. The Socal Ehrenberg interconnect has 1.1 bcf of capacity and is primarily sourced by one market transporter. Ehrenberg simply gets placed at "market prices" because of varying objectives. One transporter may place gas to larger buyers to ensure flows, while smaller buyers on Socal may not approach this transporter for supplies. This illiquidity has led to a spread existing between Topock and Ehrenberg. Picture the market, San Juan gas is trading well below the Permian and Waha basins, which happen to be the marginal supply points for the west. Because of the of the limited capacity going into Socal Topock, every transporter on EPNG and TW wants to fill their contracts with San Juan gas first. These molecules compete for Buyers at a limited delivery interconnect. Likewise, all Buyers reach out for supply coming through a limited delivery interconnect (Topock). The San Juan then trys to find an outlet going east on the SJ east leg of EPNG. This transport leg simply displaces Permian gas going into Plains North and allows Permian gas to head west to Ehrenberg on the EPNG south mainline. While the Socal market peaks in the summer, so does the EOC demand. Permian west (Keystone West meter) cannot satisfy both the EOC demand and the Socal demand. So for the first time ever, we saw EPNG Waha West at maximum capacity to source transport contracts on the EPNG south mainline. This tells the entire story. When demand exceeds all available historical supply points, and begins to reach to Waha to meet Ehrenberg demand, you have a paradigm shift. This eliminates any correlation that may have existed between the supply basins and the market area. When Keystone West reaches maximum capacity, the rule of market spreads not exceeding the max rate transport rate then dies a fast death. There is simply no available capacity at the Keystone West meter to allow a shipper to buy max rate transport on EPNG and ship it to Socal. If you asked the market what the maximum interconnect capacity at Keystone West is, 9 out of 10 would not know. This leads to blaming market participants for wide spreads that are above historical levels. It is like Al Gore blaming "big oil companies" for the high prices of gas, when all refineries are at maximum capacity. There simply isn't the capacity to meet demand. The supply exists, but there isn't enough refining capacity available to meet demand. Fundamentals rule the market in all cases. I would like to propose the following index points for the Southern California border. The market would be better served with supply being included in these index points. One, Socal CA production/Socal storage/EPNG Ehrenberg, Two, Topock TW and EPNG, Three, KRS/Wheeler Ridge. The market will be experiencing more changes with respect to the Socal restructuring in the future. We will then address the different interconnects and propose an index for the Socal citygate as well. Call me on Monday to discuss the Enron Online download. Sincerely, Mike Grigsby Director of West Trading 713-780-1022