Slide 5 of 13
• Below average storage injections may be attributable, at least in part, to poor price incentives: high current prices and limited price increases are expected by the winter.
• The recent surge in spot prices at the Henry Hub are well above a typical range for 1998-1999 (in this context, defined as the average, +/- 2 standard deviations). The upper bound on the typical range for 1998-99 is more than $1 below current spot prices. Past price surges have been of short duration. The possibility of a downward price adjustment before the end of next winter is a source of considerable risk for storage operators who acquire gas at present prices.
• A second aspect of poor price incentives has been the relatively small differential between prevailing spot prices and NYMEX prices for December/January deliveries. Until recently, the price differentials in 2000 were about half the value for the corresponding period last year-- about $0.20 per MMBtu compared to $0.40 per MMBtu. During the 10 trading days between July 15 and August 7, the average differential of $0.25 per MMBtu has been consistent with the $0.20-$0.30 seen at this time last year.