---------------------- Forwarded by Lorna Brennan/ET&S/Enron on 06/20/2000 
11:15 AM ---------------------------


webmaster@cera.com on 06/15/2000 10:04:27 PM
To: Lorna.Brennan@enron.com
cc:  

Subject: Monthly Briefing--The Pressure Cooker - CERA Alert




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CERA Alert: Sent Thu, June 15, 2000
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Title: Monthly Briefing--The Pressure Cooker
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=1230 ,

Pressure remains extremely strong in the United States gas market, as three 
factors-increasing power generation demand, lower storage inventories, and US 
wellhead supply still struggling to rebound-call into question the ability to 
build storage to a level adequate for next winter. As strong as gas market 
fundamentals are, gas prices are being supported also by concurrent strength 
in oil and liquids markets, making traditional alternatives to gas much more 
expensive than in recent years.  In this environment intense competition 
between power generation demand and storage injections will continue 
throughout the summer-with pressure increasing into July as temperatures 
rise-and gas will continue to price at the high levels necessary to 
discourage end-use demand.

The $1.00 per million British thermal units (MMBtu) increase in gas prices 
since the beginning of May has already driven responses among end users. 
First, gas is now pricing at a slight premium to residual fuel oil on the 
East Coast, and gas will likely lose approximately 600 million cubic feet 
(MMcf) per day of demand to residual fuel oil this summer relative to last 
summer. Second, several ammonia manufacturing facilities have begun to shut 
down. Equally telling, however, is that heat in any one region of the 
country-most recently the West-is all that is required to sustain gas prices 
above $4.00 at the Henry Hub, despite relatively moderate temperatures 
elsewhere and demand reductions in industrial and other power markets. 
Underlying pressures are such that prices are likely to rise on average from 
current levels as higher temperatures arrive. For these reasons CERA expects 
prices to average $4.45 at the Henry Hub during July (see Table 1), and even 
greater volatility is !
possible. The intense competition and need to price out end-use demand mean 
that the market is vulnerable to spikes above $5.00 per MMBtu amid heat waves 
this summer.

Gas Storage-Injections Increase, but Little Relief Yet

The gas market experienced a small measure of relief in early June as storage 
injections finally reached a pace closer to historical averages, with the 
American Gas Association (AGA) reporting 78 billion cubic feet (Bcf) of 
injections during each of the weeks ending June 2 and 9. However, these 
injections did little to reduce a deficit that is now close to 400 Bcf on a 
year-over-year basis, and conditions may not again be as favorable as they 
have been recently for injections for many weeks, or even months, to come. As 
temperatures rise through the end of the month, injections are likely to 
slow, so that for June CERA expects an average injection rate of 
approximately 10 Bcf per day. The deficit that stood at an estimated 394 Bcf 
as of the end of May (see Table 2), on an inventory level of approximately 
1,454 Bcf, is expected to rise slightly during June, to 403 Bcf, despite a 
healthy injection rate for the first nine days of the month.

With US wellhead supply still running an estimated 0.5 to 1.0 Bcf per day 
below year-earlier levels and with added imports from Canada just offsetting 
this decline, even the moderate demand growth expected for July relative to 
last July will make reducing the deficit a difficult task. Each month in 
which this 400 Bcf deficit carries forward increases the likelihood that 
inventories will be at their lowest maximum ever this October. Injections 
like those in the recent two weeks would have to continue into July for this 
pattern to reverse in a significant way, an unlikely event that would occur 
only under very mild weather conditions.

Regional Markets

With the exception of the Rocky Mountains, western differentials have been 
supported by waves of hot weather and extremely strong gas demand for power 
generation within the region. This strong demand is pulling supplies from the 
Permian and San Juan Basins to the West Coast and has pushed up capacity 
utilization on the Southwest pipelines into California. Prices at the 
California border have been particularly strong, averaging over a $0.30 
premium to the Henry Hub so far this month. Continued strong western demand 
looks likely to support prices within the region through July, as power loads 
remain strong and hydroelectric output declines. In addition, the early heat 
waves have begun to erode the California storage surplus, although 
inventories in the region as a whole remain strong (see Table 3).

CERA's outlook by region follows:

*  Rockies. Continuing strong supply growth and low seasonal demand have 
pushed up exports out of the Rocky Mountains region. High utilization rates 
on export pipelines will keep Rocky Mountain differentials wide during the 
rest of the summer. CERA expects an average July differential to the Henry 
Hub of $0.55 per MMBtu.

*  San Juan. The pull on supplies from California has narrowed the 
differential between the San Juan Basin and the Henry Hub, and this West 
Coast pull looks likely to remain strong through the summer. CERA expects a 
differential between the San Juan Basin and the Henry Hub of $0.16 per MMBtu 
during July.

*  Permian and Mid-Continent. As Texas power loads increase, the competition 
from the West Coast and Texas markets for Permian supplies should intensify. 
Permian differentials, which have been averaging around $0.15 per MMBtu to 
the Henry Hub, should narrow. CERA expects a $0.06 per MMBtu differential for 
July. Mid-Continent supplies should price just below Permian supplies, at an 
$0.08 per MMBtu differential to the Henry Hub.

*  Chicago. Chicago differentials continue to trade around $0.05 per MMBtu to 
the Henry Hub, and although hot weather and climbing demand within the region 
could put some upward pressure on those differentials, ample seasonal 
pipeline capacity into the region will limit pressure. CERA expects a July 
differential of $0.06 per MMBtu.

*  Northeast. New York citygate differentials have a higher floor this 
summer, namely higher fuel costs from the Gulf Coast as a result of $4.00 
gas. The result has been differentials above $0.30 from Transco Station 65 
but closer to $0.30 from the Henry Hub. As power generation load reaches its 
peak, however, differentials can rise even in summer. Short-lived power load 
peaks may lift weekly New York differentials into the $0.40s, but for the 
month of July CERA expects the New York differential to average $0.34.

Canadian Markets-Demand
Still Down

Canadian demand continues to be down on a year-over-year basis. Volumes on 
TransCanada Pipeline are 400 MMcf below levels at this time last year, and 
Alberta demand is 200 MMcf below; both of these reductions are primarily 
storage related. Weak storage injections, driven in large part by the lack of 
an adequate summer-winter price spread, continue to place inventories further 
behind 1999 levels. Although inventories are still well above the five-year 
average, unless injections increase, it is more likely that end-of-season 
inventories will be comparable to the five-year average (450 Bcf) rather than 
to 1999 levels (484 Bcf).

Export volumes continue to be slightly higher than last year. Thus far in 
June, flows on Northern Border Pipeline are similar to 1999, while PG&E GT-NW 
is currently operating 300 MMcf higher. Demand on the West Coast is expected 
to continue this trend for the summer.

Alberta supply build for June is likely to be flat with 1999 levels. An 
outage pattern similar to last year's has emerged. TCE/NOVA has had 
maintenance projects ongoing in June, but the supply reduction is primarily 
the result of plant turnarounds. Thus far in June, reductions in supply 
because of maintenance have been as high as 850 MMcf but should average 300 
MMcf for the month. Even though June is expected to be flat year-over-year, 
the fact that this maintenance reduction is less than 1999 maintenance 
reductions implies that a return to supply growth has not yet occurred. 
Supply is still expected to start showing growth in the second half of the 
year, largely in the fourth quarter, as a result of the increased level of 
drilling. The annual average supply is expected to be around 100 MMcf per day 
higher than in 1999 as the result of the return to growth in Alberta and 
modest growth in British Columbia (again primarily later in the year), as 
well as the new production from!
 Ft. Liard that is now onstream.

The NYMEX and Henry Hub price strength is being felt in Canada. AECO is 
expected to average C$5.15 per gigajoule (GJ) (US$3.69 per MMBtu) for June 
with a differential in the low US$0.60s. July is expected to average C$5.44 
per GJ (US$3.90 per MMBtu). The Henry-to-AECO differential is likely to 
remain relatively high until storage injections increase the demand.


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


**end**

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CERA's Spring 2000 Roundtable event dates and agendas are now available at
http://www.cera.com/event
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