Slide 4 of 27

This chart shows beginning winter stocks for natural gas, distillate. and propane as a percentage of the mid-point of EIA’s average stock range (based on the last 3 years of inventory data) for September 30.

The heating fuels have moved from a cycle of low stocks in 1996 to one of high stocks. Although we have seen stocks drift up and down somewhat historically, the shift that we’ve seen between 1996 and today is one of the larger swings that have occurred historically.

• All the heating fuels were low at the outset of winter 96/97. Distillate stocks were so low, the Secretary of Energy called in the oil industry to discuss what was happening.

• Stocks began to recover in 1997, and as we look ahead to winter 1998/99, we have the opposite situation to that of 1996 -- very high stocks. Distillate, for example, is almost 40 million barrels higher going into this October than at the same time in 1996. The increase in stocks is enough to supply about a third of one month’s distillate demand.

• The remainder of this talk discusses this further.