DTI (CNG) Storage Offering.

FYI

Read and file.
---------------------- Forwarded by Chris Germany/HOU/ECT on 02/05/2001 01:11
PM ---------------------------

Sean Boyle@ENRON
02/02/2001 11:23 AM
To: Chris Germany/HOU/ECT@ECT, Dick Jenkins/HOU/ECT@ECT, Scott
Neal/HOU/ECT@ECT, Brad McKay/HOU/ECT@ECT, Scott Hendrickson/HOU/ECT@ECT
cc:
Subject: DTI (CNG) Storage Offering.

I met with Jeff Kiester of DTI yesterday regarding the storage offering they
have on the market. They have 3 Bcf storage capacity and 30,000dt/d of
FT-GSS up for bid by 2/12/01. However there will be up to an additional 10
Bcf of storage capcity available before 4/1/01 depending on additional
turnback. All of this capacity is utility turnback mainly, East Ohio,
National Fuel and RG&E.
Potential uses for DTI storage:
1. Desk use - If we buy the storage without the transportation we would
inject and withdraw at SP. If we do submit a bid, I would recommend that we
try to incorporate free intramonth injection capability, effectivly giving us
a no-notice type service that we could use to take physical positions in the
cash market. The current park/loan rate is $0.07 /dt/d, it seems we utilize
this 2-3 times a month.
2. VNG - AGL could want to look into adding storage to the VNG portfolio,
the drawback is that the PL1 line has no excess deliverability, VNG's need is
more a peak day issue.
3. Partner with EES - Paul Tate from EES also sat in on our meeting, he
expressed an interest in looking into potential partnering oppourtunities
with the East desk regarding markets on TCO and DTI. This storage offering
for example could be something we partner on. I plan to meet with Paul at
the beggining of next week to discuss further (Dick I will check with you on
your availability).

Jeff also indicated there will be more transportation capacity turned back in
the near future. There will be a posting for 75,000 dt/d of Lebanon - Leidy
capacity coming out in the next few weeks.

Market view on capacity release:
With the utilities turning back transportation, the economics of the capacity
release market will change. The utilities have historically released
transportation in the summer months for $0.05 or less (as low as $0.01) in
order to recover something from their asset. DTI will now be the marketer of
the turned back capacity. Historically the pipeline has been very reluctant
to sell capacity below max rate in the winter and less than 50% ($0.12 at
current rates) in the summer. Jeff indicated that his view is that capacity
values will increase slighly this summer and significantly next summer due to
the new power gen load coming online 2002. As part of DTI's last rate case
settlement FT-GSS holders can no longer release transportation in the summer,
that went into effect last summer-00. Although the capacity release market
was a little tighter last summer it did not significantly drive up capacity
release prices in the summer-00. My view is that two of the three power gen
loads will be interuptible and therfore will not sigificantly increase the
overall load factor of the system. The bottom line is that DTI is competing
with capacity release and I feel there will be enough capacity release
available on the market this summer to force DTI to sell it's capacity below
50% of max rate. However capacity release prices may increase next year as
more utilities turnback capacity and the new power generation may be in the
capacity release market.

Market View on Basis on CNG for Summer 01 & Summer 02:
With the increased load and potentially low storage inventory level going
into this summer, basis could be strong vs historical prices. However, with
the inception of M&NEP delivering 400,000dt/d into the Northeast last year
CNG basis (summer strip) was less than $0.20 in Jan-00 and Feb-00, even
though the April 1 storage inventory level was the lowest since 1996. In
1996 CNG Apr-Oct strip traded as high as high as $0.31 in Feb-96 and dropped
as low as $0.21 by May-96. DTI summer load is averages 2.5 - 3.0 Bcf, I
don't think the 100,000dt/d load of the new power gen load will be
significant this summer considering the additional supply coming in from
Dracut. However with American National Power Inc (34,000Dth/d) and El Paso
Gas Services Co (139,000dt/d) both coming online in 2001, that have
contracted for around half of the Dracut supply, this may cause sumer basis
prices to increase from current levels (Apr-01-Oct-01 strip $0.33) this
summer and depending on storage inventories 4/1/02, Apr-Oct-02 basis may be
also get stronger.