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




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CERA Alert: Sent Thu, October 26, 2000
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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: 
http://www.cera.com/client/nag/alt/102600_15/nag_alt_102600_15_ab.html
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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 $4.60s as of October 25. Cash prices have followed suit, falling from the 
mid-
$5.50s to the $4.60s 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.

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