Re: Market Opinion about AGA's

Interesting observation...but I'm not sure I agree. I think consensus
opinion is that anything under 2.7 TCF is very dangerous entering the
winter. A month ago, analysts were predicting we would end the injection
season with around 2.6 - 2.7 in the ground. With the most recent AGA, those
projections seem to be closer to 2.7. With supply of gas very inelastic to
price in the short and medium term, you must look at the demand side of the
equation. The market is trying to price out the right amount of demand
(mostly through lost industrial load and fuel switching) such that supplies
will be stored rather than burned. Each AGA number is another data point as
to whether nat gas is high enough to price out enough demand to reach a
comfortable level in storage entering the winter. A low AGA number
indicates we haven't priced out enough demand and the market must go up.
Certainly, the 97 throws a curve in the bull argument, but the number may be
a function of very mild weather, a four day holiday weekend, and reporting
noise rather than indicative of a structural shift in the supply/demand
equilibrium. We'll know a lot more as the next two weeks' numbers come out.
If we get two low injections, watch out.

Enron North America Corp.

From: Frank Hayden @ ENRON 07/12/2000 04:39 PM

To: John Arnold/HOU/ECT@ECT
cc:
Subject: Market Opinion about AGA's

John,
I think the AGA's are not as important to bulls as to bears. In the
beginning of the season, AGA's were very important in framing the bull
case. The current expectation is that we will go into the winter under
stored. I don't believe any additional AGA news can significantly change
that expectation.

However, I believe Bears, as evidenced today, will feed more heavily off of
bearish AGA news, than bulls will off bullish AGA news.

At this juncture, I believe that the most potent bullish news has to come
from the physical market and weather.

I hope you don't mind me expressing my view point on this issue.

Thanks,
Frank