Here is CERA's monthly forecast.  It is predicting October differentials at 
Chicago of $.11.
---------------------- Forwarded by Lorna Brennan/ET&S/Enron on 09/18/2000 
02:06 PM ---------------------------


webmaster@cera.com on 09/15/2000 10:33:24 PM
To: Lorna.Brennan@enron.com
cc:  

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=5526&m=1357 ,

Alternative URL: 
http://www.cera.com/client/nag/alt/091500_16/nag_alt_091500_16_ab.html
*********************************************************

As the heating season approaches, a high*but justified*level of anxiety
regarding winter supplies is driving the gas market. As things stand, the 
market
is headed into the winter exposed to a supply shortfall late in the winter 
even
under normal weather conditions. This prospect has placed a floor on the gas
price at the price of residual fuel oil, itself priced in the mid- to upper 
$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 
concerns
again. To the upside, there is little demand response to price until 
industrial
demand lessens or the price of distillate oil, as of this writing near $7.00 
per
million British thermal units (MMBtu), is breached. However, distillate 
markets
themselves are extremely tight, and prices for that fuel would likely follow 
gas
prices up. Within this range, prices are defined mainly by supply anxiety*the
market,s judgment of the likelihood of a supply shortfall, which would be
characterized by extreme pricing and volatility, and a difficult process of 
supply
allocation by price.

By now, exposure to extreme price volatility this winter is certain. Although
CERA expects storage injections to increase by approximately 2.0 billion cubic
feet (Bcf) per day from August to September, this increase would still leave
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 close 
to
year-earlier levels and imports slightly higher, demand priced out of the 
market
will remain the key reason that storage injections increase at all from last 
year,s
low level. As a result, although prices may close the month of September in 
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 
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 (see
Table 1) and the first of potentially many months at or above that price.

Gas Storage*New Record Lows
CERA estimates that storage inventories in the United States crossed into 
record
low territory as of the end of August, when inventories of 2,233 Bcf fell 
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 per
day from the August level but below last year,s pace of 10.3 Bcf per day.
CERA,s September estimate could be exceeded under mild weather conditions
with no tropical activity hitting the Gulf of Mexico, but injections would 
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,s end, a
record low by 87 Bcf.

For October, CERA expects a slight increase in the injection rate from last 
year.
Injections of 5.5 Bcf per day on average this year would be enabled by demand
priced out of the market and by a lack of unusually cool weather or tropical
storm activity. October injections have varied historically from 4.0 Bcf per 
day
(1989) to 8.5 Bcf per day (1998). Even if injections reached toward the upper
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 
end of
October would result in an end of March 2001 inventory level of 669 Bcf under
normal winter weather, 89 Bcf below the previous record low of 758 Bcf.

Regional Markets*Waiting for Winter
The pipeline explosion on El Paso during late August intensified the 
subregional
pressures already at play in western gas markets. Cuts in pipeline flows 
limited
access into California on the only pipeline route into the state with any 
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 been
restored, the race to improve storage positions before the onset of winter 
heating
load will keep intense pressure on Topock prices. Differentials in the rest 
of the
West will strengthen as local heating loads begin to absorb enough supply to
ease pipeline bottlenecks (see Table 3).

Differentials in the East, which have traded in a narrow range this summer, 
will
likely reach slightly higher levels with the start of the heating season in 
October.
However, exposure to pricing disconnects will remain low until later this 
year.
CERA,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,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)$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*Outages Affect Supply
Outages have affected supply thus far in September. Both British Columbia and
Alberta have been affected, resulting in a further year-over-year decline in
Western Canadian supply. The various problems appear to be rectified, but the
average supply for the month is likely to be down 100 to 150 million cubic 
feet
(MMcf) per day from September 1999.

Drilling has been adversely affected over the past several weeks by wet 
weather,
but rig utilization is beginning to climb again to previous levels. More than
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 West
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, inventories 
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,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 
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