storm arrives cera alert update cera pricing rest season forwarded lorna brennan et withdrawal rates decline inventory field pressure reduced pressure market reinforced extended 2001 probably 2002 past two summers high prices required discourage demand allow overall us storage injections reach barely 1 6 trillion cubic feet tcf normal weather holds remainder winter 2 2 tcf injections would nearly impossible achieve would required 2001 inventories recover 2 7 tcf peak weather winter merely normal mid december march going winter next year united states considerably less gas storage reaching even 2 362 bcf level according cera estimates see table 1 would require additional 275 bcf injections next year alone would prove challenging price cold weather path weakness storage inventories demand pressure core power generation markets created cold weather caused prices move onto even cera cold weather path winter see table 2 storage inventories would become perilously low current forecast cold weather mid december proves accurate injections required next summer would keep pressure market intense reasons cera outlook prices january throughout 2001 reflects cold weather path prices could take even higher path particularly colder normal weather endures beyond mid december returns sustained basis january february several forces could weaken prices 2001 begin enter market winter offset demand volatility winter requirement rebuild storage inventories winter factors include building us supply capability growing imports softening oil prices allowing lower floor prices winter ends potentially weakening economic growth although influence factors increase unlikely match huge injection requirement appears certain next summer demand difficult next round switching gas prices hitting new record highs cera expects additional demand priced market gas priced residual fuel oil weeks since may however easiest fuel switching power generation industrial sectors already occurred even though gas prices currently level distillate approximately 7 23 per mmbtu new york switching gas distillate requires changes long standing consumer habit occur time likely limited volume significant switching distillate would quickly raise price distillate four major sources additional demand response industrial markets additional switching resid industrial boilers next increment demand come market likely industrial sector additional fuel switching resid extent distillate markets continue show flexibility represent large volume cera estimates industrial boiler market probably already begun lose small amounts less 0 5 bcf per day switching resid given consistency gas price premiums greater 0 50 per mmbtu investment restoring switching capability premiums move far beyond level industrial end users expected take closer look reinvigorating switching capability beyond initial short term levels however change would require investment industrial end users availability resid oil markets cera estimates focused investment course number months perhaps year switching resid could eventually reach high 1 3 bcf per day already movement given impact high gas prices earnings energy prices already begun receive management attention switching distillate us department energy data suggest industrial end users theoretical capability switching nearly 1 3 bcf per day distillate short term switch would represent additional distillate demand 200 000 barrels per day bd us market 3 8 million barrels marginal demand would move distillate price tandem gas price additional switching among power generators distillate would reinforce price correlation addition availability distillate inventories site restrict quick switching short periods time offer long term solution tight markets shutting industrial plants also offering flexibility shutdown manufacturing plants use gas feedstock major feedstock consumers ammonia methanol industries surprisingly given tight margins available manufacturers ammonia methanol continue show suppressed gas demand however short term portion ammonia production risk whereas production needs merchant facilities along gulf coast relatively readily replaced imports substitution becomes difficult away coast transportation logistics facilities whose production linked value added fertilizer products hence cera still estimates even nonexistent margins substantial ammonia production would continue additional losses perhaps 200 million cubic feet mmcf per day potential demand addition facilities already closed extraordinarily high gas prices also hasten shuttering north american methanol capacity putting risk another 100 200 mmcf per day gas demand sector switching could occur boiler use concentrated chemicals paper refining sectors south food products sector midwest continuing feedstock losses would concentrated south central region process users even extraordinarily high gas prices expected little impact use gas short term energy costs dominant component production costs users physical changeover would time intensive elemental impact end use product quality northeast cold weather operations begin northeast pipelines issued notices customers either imposed highly likely need impose transportation restrictions various types common restriction nonprimary firm services secondary interruptible type services scheduled next several days many pipelines pipelines issued balancing requirements whereby receipts deliveries must match even hourly flow orders also implemented actions normal winter operations cold period expected whereas firm market natural gas rarely affected restrictions spot market becomes much volatile interruptible supplies dry spot market primarily made nonfirm customers dramatic reaction diminished availability delivered spot gas market area reflected volatility cash market week result restrictions nonprimary firm services expansion basis henry hub one point gas next day delivery new york traded near 24 00 per mmbtu delivered although average price closer 14 20 high spikes result thinly traded volumes gas although restrictions likely ease temperatures return closer normal cera expects basis new york citygate average 1 31 per mmbtu december 1 36 per mmbtu january end follow url pdf version alert associated tables come shoot rapids us ceraweek 2001 shooting rapids strategies risks energy future houston february 12 16 2001 information register please visit http www cera com ceraweek electronic message attachments contain information cambridge energy research associates inc cera confidential may privileged unauthorized disclosure copying distribution use contents message attachments whole part strictly prohibited terms use http www cera com tos html questions comments webmaster cera com copyright 2000 cambridge energy research associates