Subject: temporary slack - cera alert
here is cera ' s latest near term analysis .
- - - - - - - - - - - - - - - - - - - - - - forwarded by lorna brennan / et & s / enron on 10 / 27 / 2000
02 : 40 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
webmaster @ cera . com on 10 / 26 / 2000 06 : 05 : 45 pm
to : lorna . brennan @ enron . com
cc :
subject : temporary slack - cera alert
cera alert : sent thu , october 26 , 2000
title : temporary slack
author : n . american gas team
e - mail category : alert
product line : north american gas ,
url : http : / / www . cera . com / cfm / track / eprofile . cfm ? u = 5526 & m = 1402 ,
alternative url :
warm weather and strong storage injections have temporarily shifted the focus
in the
gas market away from a potential supply shortage this winter toward a growing
sense
that supplies might just prove adequate . the result has been a steady and
steep
decline in the november nymex price from $ 5 . 63 per mmbtu on october 12 into
the $ 4 . 60 s as of october 25 . cash prices have followed suit , falling from the
mid -
$ 5 . 50 s to the $ 4 . 60 s at the henry hub , and gas is now pricing below residual
fuel oil
in the gulf coast and especially on the east coast . although gas storage
inventories
will begin the winter at levels higher than expected , in cera  , s view adequate
supply for the winter is not yet assured , and the market remains subject to a
quick
return to prices well above $ 5 . 00 with the first cold snap .
storage injections of 71 billion cubic feet ( bcf ) for the week ended october
20
accompanied by broad - based and continuing warm weather have driven the shift
in
market psychology . last week  , s injection rate was 26 . 5 bcf , or approximately
3 . 8
bcf per day , above the previous five - year average for those seven days and 58
bcf
above the 13 bcf of injections recorded last year for the week ending october
22 .
with warm weather this week and the return of more normal temperatures
expected
next week , cera now expects storage to reach a maximum level of 2 , 784 bcf on
october 31 - - still an all - time low entering the winter , by 26 bcf ( see table
1 ) .
is this inventory level " enough " ? not yet . storage inventories this winter
under 15 -
year normal weather conditions would fall to approximately 780 bcf , 22 bcf
above
the previous all - time low . this end - of - march minimum implies total
withdrawals in
the united states this winter of 2 . 0 trillion cubic feet ( tcf ) , 128 bcf above
last year  , s
withdrawals . but holding withdrawals this winter down to 2 . 0 tcf in the face
of a
return to normal weather - - and the demand rebound of 3 . 0 bcf per day it would
bring - - will be difficult . although the beginning of a us supply rebound and
growing imports will add approximately 1 . 0 bcf per day to supplies this
winter ,
holding withdrawals down requires both of the following :
* industrial markets - - mainly ammonia and methanol
producers - - that are now shut down because of high gas prices
must remain shut down . these markets represent
approximately 0 . 5 bcf per day of demand that could return ,
should gas prices moderate relative to ammonia and methanol .
* the nearly 1 . 5 bcf per day of switchable load now burning
residual fuel oil must remain off of gas .
in cera  , s view , for gas prices to fall below resid on a sustained basis ,
particularly
as power loads increase this winter , it must become apparent that winter
demand can
be met , the current resid load can return to gas , and storage inventories can
be held
reasonably near the previous record low . that low , 758 bcf , occurred in march
1996
and was accompanied by a february average price of $ 4 . 41 and a march average
of
$ 3 . 00 at the henry hub . that spring , however , us productive capability was
nearly
4 . 0 bcf per day greater than it is today , winter power generation demand was
lower ,
and there were about 4 . 5 million fewer residential and commercial gas
customers in
the united states .
market fundamentals in cera  , s view still support gas prices above those of
resid ,
which as of this writing is pricing in the $ 4 . 75 - $ 5 . 00 per mmbtu range . warm
weather throughout november and into december could reverse this
relationship , but
a warm october alone is insufficient , and any cold weather within the next few
weeks will quickly tighten the slack that has temporarily come into the
market .
cera  , s price outlook for november - - an average of $ 5 . 50 at the henry hub - -
stands for now .
* * end * *
follow url for pdf version of this alert with associated table .
cera ' s autumn 2000 roundtable event dates and agendas are now available at
http : / / www . cera . com / event
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