Message-ID: <3603643.1075844072064.JavaMail.evans@thyme> Date: Mon, 18 Sep 2000 07:09:00 -0700 (PDT) From: lorna.brennan@enron.com To: julie.mccoy@enron.com, steve.klimesh@enron.com, gary.sova@enron.com, rob.wilson@enron.com, lon.stanton@enron.com, david.marye@enron.com, courtney.barker@enron.com, sarabeth.smith@enron.com, john.goodpasture@enron.com, michael.ratner@enron.com, sebastian.corbacho@enron.com, yuan.tian@enron.com, rockey.storie@enron.com, kent.miller@enron.com, john.dushinske@enron.com, dave.neubauer@enron.com, bill.fowler@enron.com, roger.westfall@enron.com, steve.thomas@enron.com, doug.aschwege@enron.com, judy.beck@enron.com, ken.anderson@enron.com, bryan.reinecke@enron.com, robert.johnson@enron.com, carolyn.descoteaux@enron.com, becki.souci@enron.com, gary.choquette@enron.com, ld.stephens@enron.com, michael.bodnar@enron.com, joni.bollinger@enron.com, david.badura@enron.com, janet.bowers@enron.com, craig.buehler@enron.com, bob.burleson@enron.com, allen.cohrs@enron.com, john.fiscus@enron.com, steve.gilbert@enron.com, morgan.gottsponer@enron.com, stephen.herber@enron.com, dana.jones@enron.com, stephanie.korbelik@enron.com, bill.mangels@enron.com, penny.mccarran@enron.com, vernon.mercaldo@enron.com, larry.pavlou@enron.com, eileen.peebles@enron.com, tony.perry@enron.com, loren.penkava@enron.com, ken.powers@enron.com, chris.sebesta@enron.com, frank.semin@enron.com, neal.shaw@enron.com, larry.swett@enron.com, kay.threet@enron.com, mike.ullom@enron.com, lisa.valley@enron.com, chuck.wilkinson@enron.com, jim.wiltfong@enron.com, jo.williams@enron.com, karen.lagerstrom@enron.com, bob.stevens@enron.com, sue.neville@enron.com, mike.barry@enron.com, martha.janousek@enron.com, kimberly.watson@enron.com, don.powell@enron.com, steve.weller@enron.com, michael.stage@enron.com, tim.johanson@enron.com, laura.lantefield@enron.com, frank.oldenhuis@enron.com, jeff.nielsen@enron.com, tracy.schwartzkopf@enron.com, robert.mason@enron.com, sean.bolks@enron.com, miriam.martinez@enron.com, lee.ferrell@enron.com, john.williams@enron.com, reyna.cabrera@enron.com, theresa.branney@enron.com, lynn.blair@enron.com, rick.dietz@enron.com, steven.january@enron.com, sheila.nacey@enron.com, donna.scott@enron.com, mary.miller@enron.com, michel.nelson@enron.com, mike.mcgowan@enron.com, julia.white@enron.com, drew.fossum@enron.com, steven.harris@enron.com, jeffery.fawcett@enron.com, lorraine.lindberg@enron.com, kevin.hyatt@enron.com, christine.stokes@enron.com, tk.lohman@enron.com, michelle.lokay@enron.com, lindy.donoho@enron.com Subject: CERA Monthly Briefing: Supply Anxiety - CERA Alert Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Lorna Brennan X-To: Julie McCoy, Steve Klimesh, Gary Sova, Rob Wilson, Lon Stanton, David Marye, Courtney Barker, Sarabeth Smith, John Goodpasture, Michael Ratner, Sebastian Corbacho, Yuan Tian, Rockey Storie, Kent Miller, John Dushinske, Dave Neubauer, Bill Fowler, Roger Westfall, Steve Thomas, Doug Aschwege, Judy Beck, Ken Anderson, Bryan Reinecke, Robert L Johnson, Carolyn DesCoteaux, Becki Sans Souci, Gary Choquette, LD Stephens, Michael Bodnar, Joni Bollinger, David Badura, Janet Bowers, Craig Buehler, Bob Burleson, Allen Cohrs, John Fiscus, Steve Gilbert, Morgan Gottsponer, Stephen Herber, Dana Jones, Stephanie Korbelik, Bill Mangels, Penny McCarran, Vernon Mercaldo, Larry Pavlou, Eileen Peebles, Tony Perry, Loren Penkava, Ken Powers, Chris Sebesta, Frank Semin, Neal Shaw, Larry Swett, Kay Threet, Mike Ullom, Lisa Valley, Chuck Wilkinson, Jim Wiltfong, Jo Williams, Karen Lagerstrom, Bob Stevens, Sue M Neville, Mike Barry, Martha Janousek, Kimberly Watson, Don Powell, Steve Weller, Michael G Stage, Tim Johanson, Laura Lantefield, Frank Oldenhuis, Jeff Nielsen, Tracy Schwartzkopf, Robert Mason, Sean Bolks, Miriam Martinez, Lee Ferrell, John Williams, Reyna Cabrera, Theresa Branney, Lynn Blair, Rick Dietz, Steven January, Sheila Nacey, Donna Scott, Mary Kay Miller, Michel Nelson, Mike McGowan, Julia White, Drew Fossum, Steven Harris, Jeffery Fawcett, Lorraine Lindberg, Kevin Hyatt, Christine Stokes, TK Lohman, Michelle Lokay, Lindy Donoho X-cc: X-bcc: X-Folder: \Michelle_Lokay_Dec2000_June2001_1\Notes Folders\Discussion threads X-Origin: LOKAY-M X-FileName: mlokay.nsf Here is CERA's monthly forecast. It is predicting October differentials at= =20 Chicago of $.11. ---------------------- Forwarded by Lorna Brennan/ET&S/Enron on 09/18/2000= =20 02:06 PM --------------------------- webmaster@cera.com on 09/15/2000 10:33:24 PM To: Lorna.Brennan@enron.com cc: =20 Subject: CERA Monthly Briefing: Supply Anxiety - CERA Alert ********************************************************************** CERA Alert: Sent Fri, September 15, 2000 ********************************************************************** Title: CERA Monthly Briefing: Supply Anxiety Author: N. American Natural Gas Team E-Mail Category: Alert Product Line: North American Gas , URL: http://www.cera.com/cfm/track/eprofile.cfm?u=3D5526&m=3D1357 , Alternative URL:=20 http://www.cera.com/client/nag/alt/091500_16/nag_alt_091500_16_ab.html ********************************************************* As the heating season approaches, a high=01*but justified=01*level of anxie= ty regarding winter supplies is driving the gas market. As things stand, the= =20 market is headed into the winter exposed to a supply shortfall late in the winter= =20 even under normal weather conditions. This prospect has placed a floor on the ga= s price at the price of residual fuel oil, itself priced in the mid- to upper= =20 $4.00s range. Gas prices moving into this range would begin to attract demand back into the market, diverting supplies from storage and increasing supply=20 concerns again. To the upside, there is little demand response to price until=20 industrial demand lessens or the price of distillate oil, as of this writing near $7.0= 0=20 per million British thermal units (MMBtu), is breached. However, distillate=20 markets themselves are extremely tight, and prices for that fuel would likely follo= w=20 gas prices up. Within this range, prices are defined mainly by supply anxiety= =01*the market=01,s judgment of the likelihood of a supply shortfall, which would b= e characterized by extreme pricing and volatility, and a difficult process of= =20 supply allocation by price. By now, exposure to extreme price volatility this winter is certain. Althou= gh CERA expects storage injections to increase by approximately 2.0 billion cu= bic feet (Bcf) per day from August to September, this increase would still leav= e inventories at record lows for this month and next. Even this increase in injections will not occur if a tropical storm forces evacuation of offshore platforms, or if hot weather returns. For October, heating load enters the picture. With US supplies running clos= e=20 to year-earlier levels and imports slightly higher, demand priced out of the= =20 market will remain the key reason that storage injections increase at all from las= t=20 year=01,s low level. As a result, although prices may close the month of September in= =20 the upper $4.00s per MMBtu, at the high end of the competitive range with resid= , any threat of interruption in supplies will quickly bounce prices upward=20 during the remainder of September or in October. As the heating season begins, therefore, CERA expects the reality of supply vulnerability for the winter = to result in the first ever monthly average price of $5.00 at the Henry Hub (s= ee Table 1) and the first of potentially many months at or above that price. Gas Storage=01*New Record Lows CERA estimates that storage inventories in the United States crossed into= =20 record low territory as of the end of August, when inventories of 2,233 Bcf fell= =20 below the previous 1996 record low of 2,245 Bcf (see Table 2). More records will likely be broken in the coming months, and by widening margins. Injections = for September are expected to average 9.5 Bcf per day, an increase of 2.0 Bcf p= er day from the August level but below last year=01,s pace of 10.3 Bcf per day= . CERA=01,s September estimate could be exceeded under mild weather condition= s with no tropical activity hitting the Gulf of Mexico, but injections would= =20 likely fall below the 9.5 Bcf per day rate should storm activity force evacuation = of platforms. This rate would leave US inventories at 2,518 Bcf at month=01,s = end, a record low by 87 Bcf. For October, CERA expects a slight increase in the injection rate from last= =20 year. Injections of 5.5 Bcf per day on average this year would be enabled by dema= nd priced out of the market and by a lack of unusually cool weather or tropica= l storm activity. October injections have varied historically from 4.0 Bcf pe= r=20 day (1989) to 8.5 Bcf per day (1998). Even if injections reached toward the upp= er end of this range, the market would remain exposed to shortfalls during the winter. At the expected injection rate, US inventories of 2,689 Bcf at the= =20 end of October would result in an end of March 2001 inventory level of 669 Bcf und= er normal winter weather, 89 Bcf below the previous record low of 758 Bcf. Regional Markets=01*Waiting for Winter The pipeline explosion on El Paso during late August intensified the=20 subregional pressures already at play in western gas markets. Cuts in pipeline flows=20 limited access into California on the only pipeline route into the state with any= =20 excess capacity. The lack of supply pressured prices within the supply basins and forced strong storage withdrawals in the California market. Although summer power loads in California will ease and much of the El Paso capacity has be= en restored, the race to improve storage positions before the onset of winter= =20 heating load will keep intense pressure on Topock prices. Differentials in the rest= =20 of the West will strengthen as local heating loads begin to absorb enough supply t= o ease pipeline bottlenecks (see Table 3). Differentials in the East, which have traded in a narrow range this summer,= =20 will likely reach slightly higher levels with the start of the heating season in= =20 October. However, exposure to pricing disconnects will remain low until later this= =20 year. CERA=01,s outlook by region follows: * Rockies. Pipeline bottlenecks out of the Rocky Mountains this summer should begin to ease as heating loads climb during October. CERA expects that as local demand limits pressure on pipeline capacity, differentials will narrow. October differentials should average $0.50 per MMBtu. * San Juan. The resumption of flows on El Paso=01,s southern system, combined with production outages, has relieved some of the access constraints on San Juan supply. Seasonal declines in Rockies to Southwest flows and the beginning of the heating season should narrow October differentials to $0.35 per MMBtu. * Permian and Mid-Continent. The continuing pull on supplies from the West will support Permian prices, and the Midwestern pull on supplies will support Mid-Continent prices. CERA expects a differential to the Henry Hub of $0.06 per MMBtu for Mid-Continent supplies and $0.11 per MMBtu for Permian supplies. * Chicago. The delay in the in-service date for Alliance from October 2 to October 30 will take some gas out of the Chicago market next month. This delay, combined with the need to build Midwest storage inventories, should sustain the recent increase in differentials from the $0.05=01)$0.08 range to above $0.10 per MMBtu. CERA expects October differentials at the Chicago citygate to average $0.11. * Northeast markets. Gas prices near $5.00 have increased the fuel cost of delivery from the Gulf Coast into the Northeast, raising the floor level for differentials to near $0.30 per MMBtu. The beginning of the heating season and the lack of new capacity into the New York citygate should support differentials above the floor during October, at near $0.40 per MMBtu. Canadian Markets=01*Outages Affect Supply Outages have affected supply thus far in September. Both British Columbia a= nd Alberta have been affected, resulting in a further year-over-year decline i= n Western Canadian supply. The various problems appear to be rectified, but t= he average supply for the month is likely to be down 100 to 150 million cubic= =20 feet (MMcf) per day from September 1999. Drilling has been adversely affected over the past several weeks by wet=20 weather, but rig utilization is beginning to climb again to previous levels. More th= an 8,400 gas wells are expected for this year. Slight Drop in Export Demand Eastern Canadian demand is still down approximately 200 MMcf per day, with cooler-than-normal weather reducing the need for air conditioning. In the W= est however, cooler-than-normal weather has accounted for an increase in demand for heating requirements of about 200 MMcf per day. Exports are down slightly in September compared with September 1999, with PG&E GT-NW off 110 MMcf per day. Northern Border is running even with September 1999. Storage Picture Brighter in Canada Storage injections in eastern Canada have picked up, with inventories now expected to reach the five-year average of 210 Bcf. In the West, inventorie= s=20 at the end of the injection season will not only be above the five-year level = but should be even with those of 1999, at 250 Bcf. Wider Differentials Holding After widening substantially in August to US$1.17, the AECO-to-Henry differential has closed back to a more typical level of $0.60 in September. September=01,s AECO price should average US$4.15 per MMBtu (C$5.79 per gigajoule [GJ]), increasing in October to US$4.35 per MMBtu (C$6.07 per GJ)= . **end** ********************************************************* CERA's Autumn 2000 Roundtable event dates and agendas are now available at= =20 http://www.cera.com/event ********************************************************* ********************************************************************** Account Changes To edit your personal account information, including your e-mail address, etc. go to: http://eprofile.cera.com/cfm/edit/account.cfm This electronic message and attachments, if any, contain information from Cambridge Energy Research Associates, Inc. (CERA) which is confidential and may be privileged. Unauthorized disclosure, copying, distribution or use of the contents of this message or any attachments, in whole or in part, is strictly prohibited. Terms of Use: http://www.cera.com/tos.html Questions/Comments: webmaster@cera.com Copyright 2000. Cambridge Energy Research Associates =20