Message-ID: <33347798.1075844939065.JavaMail.evans@thyme>
Date: Thu, 22 Jun 2000 01:48:00 -0700 (PDT)
From: jeff.nielsen@enron.com
To: michael.mitcham@enron.com, stanley.horton@enron.com, dave.neubauer@enron.com, 
	rod.hayslett@enron.com, jo.williams@enron.com, bill.cordes@enron.com, 
	steve.harris@enron.com, james.prentice@enron.com, 
	kent.miller@enron.com
Subject: Clean Fuels
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Mike Mitcham and I have discussed the relationship of Clean Fuel's short 
natural gas position from the production of methanol and the long position of 
Transwestern created from fuel retention.  We have came to the conclusion 
that the two positions are not compatible.  Clean Fuel's short position and 
gas consumption is directly related to their long methanol position. In order 
for Clean Fuels to not speculate and maintain a balanced hedge, a fixed price 
for natural gas and methanol is required. Methanol, is a very illiquid market 
and can not be hedged for longer than about three months out.  Because 
Tranwestern has a longer dated position, the two risks can not be efficiently 
managed.  Another risk associated with incorporating the two positions is the 
location differential.  Clean Fuels purchases their volumes off of Houston 
Pipeline and is priced at a Houston Ship Channel index related price.  The 
value between the Houston Ship Channel and Transwestern routinely fluctuates, 
making the pricing differential of the two positions somewhat difficult to 
manage. 

As stated before, because of liquidity issues, timing issues, and location 
differentials,  we feel that the positions can be better managed 
individually.  If market conditions change in the future, incorporating the 
two positions can be revisited.  If you need any additional information, 
please let me know.