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---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 07/19/2000
06:47 PM --------------------------- webmaster@cera.com on 07/14/2000 10:04:13 PM To: vince.j.kaminski@enron.com cc: Subject: Monthly Briefing: The Pressure Remains - CERA Alert ********************************************************************** CERA Alert: Sent Fri, July 14, 2000 ********************************************************************** Title: Monthly Briefing: The Pressure Remains Author: N. American Gas Team E-Mail Category: Alert Product Line: North American Gas , URL: http://www.cera.com/cfm/track/eprofile.cfm?u=5166&;m=1272 , Pressure in the North American gas markets remains intense, despite moderate summer weather that so far has allowed storage injections to average over 10 billion cubic feet (Bcf) per day. High injection rates have provided occasional relief for prices, but summer is far from over. The absolute level of storage inventories remains critical, and the prices should stay above the $4.00 per million British thermal units (MMBtu) level through August. The competition between power generation and storage for supply will continue, and gas prices must remain high enough to discourage marginal end-use demand and allow low storage inventories to build. CERA expects an average price of $4.20 per MMBtu at the Henry Hub for August (see Table 1), which will result in continued burning of residual fuel oil by the Atlantic Coast dual-fuel market and continued ammonia plant shutdowns, which began during the May and June price increases. Although continued strong storage injections would take some pressure off the gas market, a shift to a lower pricing plane--below $4.00 per MMBtu--depends on sustained mild summer weather. CERA expects gas demand for power generation to climb through the end of July and into August, and higher temperatures and power loads will limit supply that is available for injections. The pressure in the market is likely to tighten over the weeks to come, and the market will remain vulnerable to price spikes above $4.50 per MMBtu through August and September. Gas Storage--Not Yet Enough Despite recent high storage injection rates, storage inventories are not high enough to ensure that supplies will reach adequate levels for next winter. An end of mild weather in the Midwest and Northeast and seasonally intense heat in the Southwest would cause injection rates to decline significantly over the remainder of July and into August. The result would be injections averaging approximately 9.0 Bcf per day for July, largely owing to higher rates early in the month, and 7.0 Bcf per day for August (see Table 2). These rates would keep the year-over-year inventory deficit above 350 Bcf for July and August, with inventories on a path to reach between 2.7 and 2.8 trillion cubic feet (Tcf) by the end of October, still an all-time low level for the beginning of winter. Reaching even this level would require at least two of the following to occur: a continuation of quite mild weather, little or no hurricane activity in the Gulf of Mexico, or warm weather through October. As a result, the pressure is likely to remain high in the gas market at least through August. Regional Markets--The Topock Premium Buoyed by strong regional power demand and high utilization rates on pipelines into California, Topock continues to be the highest pricing point in North America. High power loads in the West are supporting other prices in the region, but supply growth and pipeline capacity constraints out of the Rockies and high pipeline utilization rates between the San Juan Basin and California have maintained extremely wide differentials between those markets and California. California should remain strong, and CERA expects some modest strengthening in Rockies and San Juan basis differentials during July and August with increasing Pacific Northwest gas demand for power generation (see Table 3). CERA's outlook by region follows: * Rockies. Continued strong supply growth in the Rockies is challenging pipeline capacity out of the region, and differentials have come increasingly under pressure this summer. CERA expects some modest recovery in Rockies differentials as hydroelectric generation on the Pacific Northwest declines. Differentials should average $0.55 per MMBtu for August. * San Juan. CERA expects continued strong power loads in the West to keep San Juan prices near current differential levels. August differentials should average $0.35 per MMBtu for August. * Permian and Mid-Continent. Hotter weather and higher power loads in Texas have already strengthened differentials at the Permian Basin, and that tightening should hold through August. The Mid-Continent should continue to price at a discount to Permian supplies. * Chicago. Chicago prices have held just above $0.05 above the Henry Hub for much of July, a condition CERA does not expect to change significantly during August. Chicago should average $0.06 above the Henry Hub. * Northeast markets. Mild weather in the Northeast quickly cooled price premiums from the mid-$0.40s to the mid-$0.20s from early to mid-July. With hot weather still likely to return, however, New York prices for August should average $0.32 above the Henry Hub. Canadian Markets--Western Supply No Longer in Decline? Although TransCanada flows are down, the strong market overall and wide differentials have resulted in increased flows on PGT (up 300 million cubic feet [MMcf] per day year-over-year). Domestic demand is still down slightly from last year's levels. Storage injections have picked up (in both the East and West) and, although behind last year's, are still above the five-year average. Western Canadian supply increased slightly on a year-over-year basis in June; July thus far is basically running flat with last year. The impact of the 1999 TransCanada capacity turnback and the current rate structure is beginning to be felt in the Canadian market. It is more and more apparent that TransCanada is becoming the swing pipeline, with flows 400 MMcf per day below last year's levels. The effect of the difference between contracted capacity (available to shippers at incremental cost) and uncontracted capacity (available only on a full-cost basis) is becoming evident. With supply filling contracted capacity on export pipes, the inability of TransCanada to discount below the minimum interruptible rate may be creating a two-tiered market. This shift results in a different netback for holders of capacity (similar to the higher netback achieved by the aggregators in the past) and those without capacity (those required to acquire full cost transportation, or to sell at AECO). This lack of flexibility is contributing to the wider differential between Henry Hub and AECO (currently averaging in the high U! S$0.70s). AECO is expected to average C$4.91 per gigajoule (US$3.52 per MMBtu) for August. **end** Follow URL for PDF version of this Monthly Briefing with associated Tables. Note: Should the above URL not work, please use the following: http://www.cera.com/client/nag/alt/071400_15/nag_alt_071400_15_ab.html ********************************************************************** 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
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