Attached is the monthly CERA analysis of markets, prices and supply.

---------------------- Forwarded by Lorna Brennan/ET&S/Enron on 08/16/2000 
07:41 AM ---------------------------


webmaster@cera.com on 08/15/2000 10:48:57 PM
To: Lorna.Brennan@enron.com
cc:  

Subject: Monthly Briefing: In a High Range - CERA Alert




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CERA Alert: Sent Tue, August 15, 2000
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Title: Monthly Briefing: In a High Range
Author: N. American Gas Team
E-Mail Category: Alert
Product Line: North American Gas ,
URL: http://www.cera.com/cfm/track/eprofile.cfm?u=5526&m=1314 ,

Alternative URL:
http://www.cera.com/client/nag/alt/081500_17/nag_alt_081500_17_ab.html

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Gas prices remain within a high range, with prices volatile between 
approximately $3.75 and $4.50 per million British thermal units (MMBtu). 
Prices are likely to remain within this high band through the fall, until the 
uncertainty of early winter weather resolves itself. At the lower end of this 
range--and with oil prices in the upper $20s per barrel or higher--price 
support kicks in as end users begin to switch back toward gas or to 
reactivate industrial demand. Gas prices may flirt with the lower boundary so 
long as the weather is not too hot across too many regions, allowing storage 
injections to increase and providing hopes for an adequately supplied winter. 
Above-normal heat in only one or two regions, however, or even the threat of 
storms in the Gulf of Mexico will pull prices quickly upward. As for the 
upper boundary, although prices in specific regions such as California and 
the Northeast may reach above $5.00, an actual storm in the Gulf or more 
widespread heat than!
 has yet occurred this summer appears required to pull the Henry Hub much 
above $4.50.

Absent tropical storm activity in the Gulf of Mexico, CERA expects prices to 
settle into the lower portion of this band during September (see Table 1). 
Although strong power loads and the resulting weak injection rates are likely 
to sustain prices through much of August, the seasonal decline in generation 
demand into September should allow storage injections to increase by 1.5 
billion cubic feet (Bcf) per day. As a result, CERA expects prices to settle 
somewhat, averaging $3.95 per MMBtu at the Henry Hub during September. 
However, the larger fundamental force in the market remains unchanged: 
supplies are adequate with any certainty only for another warm winter. Any 
interruption in supply or abnormal demand will quickly drive prices upward; 
next month may represent the low for the remainder of the year.

Gas Storage--Not Yet Enough

Mild weather over much of the United States during July allowed a much-needed 
recovery in storage injections, with the estimated injection rate increasing 
by nearly 2.5 Bcf per day from year-earlier levels (see Table 2). This rate 
was enabled entirely by lower demand, however, and not added supply. The 
result is that under more normal summer weather conditions during August, the 
US storage inventory deficit is likely to remain stubbornly near 350 Bcf. 
Although the deficit is likely to decline on average during August, it is 
even more likely to expand again during September, especially should any 
storm necessitate evacuation of offshore platforms. Absolute inventories and 
supply adequacy for this winter therefore remain a concern in the market.

Inventories are unlikely to reach levels adequate to prevent record lows from 
occurring next spring. Should injections continue as expected, inventories 
would reach approximately 2,750 Bcf by October 31; but reaching even this 
level, still an all-time low annual maximum inventory, requires some help 
from a lack of storm activity and a lack of heating load in October. Storage 
inventories are not yet sufficient to relieve market pressure and are 
unlikely to become so by the beginning of the heating season.

Regional Markets--Western Disconnects Continue

Wide differentials emerged this summer in the West and look likely to persist 
through September. In Southern California record summer demand levels have 
pushed pipeline flows to new highs. Topock continues to be the premium 
pricing point in North America. In the Rockies supply growth has pushed up 
pipeline flows out of the region. Power loads should ease somewhat in 
Southern California, and that easing will bring some decline in the Topock 
premium. Pressure on Rocky Mountains and San Juan prices should persist until 
the start of the heating season in late October (see Table 3).

CERA's outlook by region follows:

*  Rockies. Pipeline capacity out of the Rockies is running nearly full to 
every export market except the San Juan Basin. Emerging pipeline bottlenecks 
should keep differentials wide during September, with an average differential 
of $0.75 per MMBtu.

*  San Juan. In the San Juan increased imports from the Rocky Mountains and 
high utilization rates on capacity into California are pressuring prices. 
CERA expects differentials to average $0.55 per MMBtu for the month of 
September. San Juan differentials will narrow more substantially when Rocky 
Mountain pipeline bottlenecks are relieved by increases in heating demand 
during the fourth quarter.

*  Permian and Mid-Continent. Strong power loads in Texas have supported 
Permian Basin prices during July and August. Persistent power demand is 
expected to keep differentials around $0.08 per MMBtu for September. 
Mid-Continent prices should average just under Permian prices.

*  Chicago. Steady storage injection loads are unlikely to support prices at 
Chicago in the face of declining power generation into September. July 
premiums of $0.06 to $0.07 have already come down in early August and are 
likely to remain low, at approximately $0.03 for September.

*  Northeast markets. Northeast price premiums have averaged from the 
mid-$0.20s to the mid-$0.30s, depending on generation load and proximity to 
the New York Facilities Group major meters. CERA expects little to change 
this relationship, but as generation loads decline into September, premiums 
could move closer to the fuel cost floor, the mid- to high $0.20s.

Canadian Markets--Supply Growth Still Disappointing

Although June displayed year-over-year growth in production in western 
Canada, July reverted to a decline, and August is running close to last 
year's level. The current expectation is for over 15,500 well completions in 
2000, approximately 9,200 of which are expected to be gas wells. Even if the 
trend toward shallow drilling does not change substantially, the sheer number 
of wells is expected to produce a supply build by year-end and into 2001. For 
2000, the total western Canadian supply build is expected to be flat with 
1999, increasing to a positive growth of 350 MMcf per day in 2001.

Demand Slow but Exports Up

TransCanada flows are down 275 MMcf per day on average for 2000 but have been 
down by over 350 MMcf per day so far in the third quarter. PG&E GT-NW volumes 
were up by over 300 MMcf per day in June and July but have dropped to 
year-earlier levels in August and are expected to remain close to last year's 
levels for September. Northern Border Pipeline is operating at rates similar 
to last year's on average in 2000 but is expected to decrease about 50 MMcf 
per day for the third quarter. Western Canadian demand is currently up 
slightly, driven by the warmer-than-normal weather in late July and early 
August, but should be closer to 1999 levels in September.

High Prices: Wide Differentials

The AECO-Henry differential has widened quite dramatically over the past few 
months from the low US$0.30s of the first quarter to US$0.84 in July. The 
differential increased to well over a dollar in the second week of August, 
but the driver for that increase was maintenance that reduced the export 
capacity at Empress. August and September are expected to average in the 
mid-$0.80s.

AECO is expected to average C$4.67 per gigajoule (GJ) (US$3.35 per MMBtu) for 
August, with September softening to C$4.53 per GJ (US$3.25 per MMBtu) for a 
third quarter average of C$4.54 per GJ (US$3.25 per MMBtu).


**end**

Follow URL for PDF version of this Monthly Briefing with associated tables.



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