BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.
 Long term weather
 Power plant retirements
 Power generation
 Natural gas rig count
 Bullish economic indicators
 LNG exports

MARKET OBSERVATIONS
– Hedging: Understand your risk level and hedge accordingly.
o NYMEX natural gas Aug-Dec 2016 trend indicates that $2.80 - $3.10 is the current “hedge something” range
o Indiana Hub electric wholesale August-Dec 2016 trend indicates that $28.80 - $30.80 is the current “hedge something” range

BEAR DRIVERS
Factors driving prices lower
 Natural gas storage level
o Current storage level at 3,140 Bcf
o Y/Y surplus of 582 Bcf; surplus to 5-yr. avg. of 637 Bcf
o Oct. 31, 2016 estimate of 4,100
 Solar generation
o The June ERCOT Generator Interconnect Status report shows 2,077 MW of solar generation will be installed by 2017, a 915 MW increase Y/Y and 150 MW increase from May's report.
 Energy storage
o The White House announced 33 state and private sector commitments expected to result in 1.3 GW of new energy storage over the next 5 years as part of an energy summit.
 Hydraulic fracturing regulations
o A federal judge in Wyoming overturned the Bureau of Land Management's authority to regulate hydraulic fracturing on public lands.
 Bearish economic indicators
o May Industrial Capacity Utilization 74.9%, down 0.4% M/M
o June Michigan Consumer Sentiment 93.5, down 1.3% M/M
o Baltic Dry Index at 677 on July 1, a 15.4% decrease Y/Y
 EIA gas drilling productivity report
o May shale gas drilling actual at 46.7 Bcf/d; 3.5% increase Y/Y and 0.9% decrease M/M
o June shale gas drilling forecasted at 46.2 Bcf/d; 1.3% increase Y/Y and 1.0% decrease M/M

BULL DRIVERS
Factors driving prices higher
 Long term weather
o The forecast for July and August is above normal temperatures across most of the U.S.
 Power plant retirements
o PG&E announced it plans to retire its 2,160 MW Diablo Canyon California nuclear plant by 2025 and replace it with more energy efficient resources.
 Power generation
o A proposed 1,105 MW natural gas fired generator planned for Wellsville, Ohio received two favorable utility board reports. The plant is expected to add 125 MMcf/d of natural gas demand.
 Natural gas rig count
o U.S. natural gas rig count at 89 on July1, a 59.4% decrease Y/Y and 3.5% increase from June 17.
 Bullish economic indicators
o GDP Projection: 2015 = 2.4%; 2016 = 1.8%; 2017 = 2.0%
o May retail sales up 2.5% Y/Y
o June ISM Manufacturing Index 53.2, a 1.9% increase M/M
 LNG exports
o LNG exports to Mexico are up 275% in the last 3 months as demand for natural gas power generation increases in that country.

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.
 Short term weather
 Power generation
 Nuclear energy
 Natural gas rig count
 Bullish economic indicators
 Hurricane season

MARKET OBSERVATIONS
– Hedging: Understand your risk level and hedge accordingly.
o NYMEX natural gas July-Dec 2016 trend indicates that $2.55 - $2.85 is the current “hedge something” range
o Indiana Hub electric wholesale June-Dec 2016 trend indicates that $27.00 - $29.00 is the current “hedge something” range

BEAR DRIVERS
Factors driving prices lower
 Natural gas storage level
o Current storage level at 2,907 Bcf
o Y/Y surplus of 712 Bcf; surplus to 5-yr. avg. of 753 Bcf
o Oct. 31, 2016 estimate of 4,100
 PJM Capacity Performance Plan
o PJM posted the results of 2019-2020 capacity auction at a RTO clearing price of $100.00, a 40% decrease over 2018-2019 due to lower forecasted loads and 5,000 MW of new gas fired generation.
 Solar generation
o The Solar Energy Industries Association forecasts 16 GW of solar energy will be installed this year, a 119% increase over last year.
 Renewable energy
o Offshore wind developers are working with Massachusetts lawmakers on legislation mandating the state's purchase of 2,000 MW of offshore wind over the next 10 years.
 Bearish economic indicators
o May nonfarm payroll increased 38,000, well below expectations
o Dow Jones Index at 17,807.06 on June 3, down 1.5% Y/Y and up 2.2% year to date
 EIA gas drilling productivity report
o April shale gas drilling actual at 46.9 Bcf/d; 4.3% increase Y/Y and 0.8% decrease M/M
o May shale gas drilling forecasted at 46.4 Bcf/d; 3.0% increase Y/Y and 0.9% decrease M/M

Factors driving prices higher
 Short term weather
o The 1-5 day forecast is well above normal for the western half of the U.S. The 11-15 day forecast shows well above average temperatures in the Central and Midwest regions.
 Power generation
o May 2016 electric generation natural gas usage in the Midwest increased more than 90% Y/Y.
 Nuclear energy
o Exelon announced it is taking steps to close the Clinton and Quad Cities nuclear plants after the Illinois General Assembly adjourned without passing legislation that would support nuclear plants through a zero emission standard.
 Natural gas rig count
o U.S. natural gas rig count at 82 on June 3, a 63% decrease Y/Y and 3.5% decrease from May 20.
 Bullish economic indicators
o GDP Projection: 2015 = 2.4%; 2016 = 1.8%; 2017 = 2.3%
o May unemployment rate at 4.7%, a 0.3% decrease
o April retail sales increased 3.0% Y/Y
o May ISM Manufacturing Index 51.3, a 0.5% increase
o May Michigan Consumer Sentiment 94.7, up 6.4% M/M
 Hurricane season
o The 2016 Atlantic hurricane season is forecasted to be more active than recent years according to the Scientific Research Corporation, potentially affecting natural gas production in the Gulf of Mexico.

BEAR DRIVERS. FACTORS DRIVING PRICES LOWER.

 Natural gas storage level

 MISO Transmission Expansion Plan 

Power generation - Pennsylvania

Natural gas speculation – Funds' position

 EIA gas drilling productivity report

 Bearish economic indicators

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.

 Short term weather  

Electric demand - PJM

 Renewable Portfolio Standards

 Domestic energy policy

 Natural gas rig count

 Bullish economic indicators

MARKET OBSERVATIONS

Hedging: Understand your risk level and hedge accordingly.

NYMEX natural gas Feb-Dec 2016 trend indicates that $2.35- $2.65 is the current "hedge something" range

Indiana Hub electric wholesale Jan-Dec 2016 trend indicates that $29.00 - $31.00 is the current "hedge something" range

BEAR DRIVERS

Factors driving prices lower

Natural gas storage level

Current storage level at 3,756 Bcf

Y/Y surplus of 532 Bcf; surplus to 5-yr. avg. of 448 Bcf

March 31, 2016 estimate of 2,050 Bcf

MISO Transmission Expansion Plan

MISO approved $2.7 billion in new transmission investments, consisting of 345 projects across the region.

Power generation - Pennsylvania

In the first quarter of 2016, Invenergy will begin constructing a 1,500 MW natural gas fired power plant in Lackawanna County, PA. It will be the largest natural gas power plant in the state when it comes online in June 2018.

Natural gas speculation – Funds' position

Positions for Non-Commercial futures & swaps were short 83,720 contracts on Dec. 29, a 1.0% increase from Dec. 15.

EIA gas drilling productivity report

Dec. shale gas drilling actual at 44.3 Bcf/d; 1.8% increase Y/Y and 0.8% decrease M/M.

Jan. shale gas drilling forecasted at 44.0 Bcf/d; 2.2% increase Y/Y and 0.8% decrease M/M.

Bearish economic indicators

U.S. freight carloads down 17.9% Y/Y for week ending Dec. 26 and down 5.8% Y/Y for year to date

Baltic Dry Index: 478 on Dec. 24, a 37.2% decrease Y/Y

Dec. ISM Manufacturing Index 48.2%, a .04% decrease

BEAR DRIVERS. FACTORS DRIVING PRICES LOWER.

 Natural gas storage level

 Short term weather

 Energy subsidies



Natural gas speculation – Funds' position

 EIA gas drilling productivity report

 Bearish economic indicators

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.

 LNG exports

 PJM offer price cap

 Domestic energy policy

 Mercury and Air Toxics Standards

 EPA Clean Power Plan

 Bullish economic indicators

MARKET OBSERVATIONS

Hedging: Understand your risk level and hedge accordingly.

NYMEX natural gas Jan-Dec 2016 trend indicates that $2.13 - $2.43 is the current "hedge something" range

Indiana Hub electric wholesale Jan-Dec 2016 trend indicates that $28.00 - $30.00 is the current "hedge something" range

BEAR DRIVERS

Factors driving prices lower

Natural gas storage level

Current storage level at 3,846 Bcf

Y/Y surplus of 541 Bcf; surplus to 5-yr. avg. of 322 Bcf

March 31, 2016 storage estimate of 2,050 Bcf

Short term weather

The 1-5 day forecast is much above normal for the eastern half of the U.S.

The 6-15 day forecast is above normal for the eastern half of the U.S.  

Energy subsidies

Congress passed a bill to extend federal tax credits for wind and solar generation for five years.

GTM Research estimates the credit extension will produce $40 billion in solar production investments.

Natural gas speculation – Funds' position

Positions for Non-Commercial futures & swaps were short 82,880 contracts on Dec. 15, an 11.5% decrease from Dec. 1.

EIA gas drilling productivity report

Nov. shale gas drilling actual at 44.7 Bcf/d; 4.3% increase Y/Y and 0.6% decrease M/M.

Dec. shale gas drilling forecasted at 44.3 Bcf/d; 1.7% increase Y/Y and 0.9% decrease M/M.

Bearish economic indicators

U.S. freight carloads down 13.2% Y/Y for week ending Dec. 12 and down 5.4% for year to date Y/Y

Baltic Dry Index: 477 on Dec. 18, down 39.5% Y/Y

Nov. ISM Manufacturing index 48.6%, a 1.5% decrease

BULL DRIVERS

Factors driving prices higher

LNG exports

Lake Charles LNG export project received FERC approval. The project is authorized to export 2 Bcf/d of natural gas to non-free trade agreement nations.

Final investment decision is expected in 2016, with LNG exports beginning in 2020.

PJM offer price cap

FERC approved PJM's proposal to double its energy-market offer cap to $2,000/MWh from $1,000/MWh.

Domestic energy policy

On Dec. 18, the U.S. ended their 40-year ban on U.S. oil exports.

Mercury and Air Toxics Standards

The federal appeals court ruled the EPA rule can remain in place while the EPA revises the standards to consider the cost of implementation.  

EPA Clean Power Plan

MISO expects the cost to compliance to range from $5.8 billion to $104 billion with 7 GW to 28 GW of coal generation retirements.

MISO's final cost estimate is expected Feb. 2016.



Bullish economic indicators

Nov. unemployment rate unchanged at 5.0%

Nov. total nonfarm payrolls increased 211,000.

Dow Jones Index at 17,128.55 on Dec.18, down 3.7% Y/Y and down 3.9% year to date.

GDP Projection: 2014 = 2.4%; 2015 = 2.5%; 2016 = 2.4%

BEAR DRIVERS
Factors driving prices lower
 Natural gas storage level

 Current storage level at 3,929 Bcf
o Y/Y surplus of 371 Bcf; surplus to 5-yr. avg. of 147 Bcf
o March 31, 2016 estimate of 2,050 Bc

    EIA gas drilling productivity report
o Oct. shale gas drilling actual at 45.0 Bcf/d; 2.7% increase Y/Y and 0.4% decrease M/M.
o Nov. shale gas drilling forecasted at 44.7 Bcf/d; 4.3% increase Y/Y and 0.6% decrease M/M.


    MISO winter assessment
o MISO forecasts sufficient resources to meet electric demand this winter.
o Projects a reserve margin of 34.1% to 43.6%.
o Forecasting 104.0 GW of peak winter demand and 146.6 GW of available capacity.
 Short term weather
o The 1-15 day forecast is normal to above normal for the eastern half of the U.S.
 Natural gas speculation – Funds' position
o Positions for Non-Commercial futures & swaps were short 82,469 contracts on Nov. 3, a 28.5% increase from Oct. 20 and the largest short position since June 9, 2015.


Bearish economic indicators
o U.S. freight carloads down 8.5% Y/Y for week ending Oct. 31 and down 4.6% for year to date Y/Y
o Baltic Dry Index: 631 on Nov. 6, a 55.5% decrease Y/Y

BULL DRIVERS
Factors driving prices higher
 EPA Clean Power Plan
o ERCOT predicts retail electricity prices to rise 16% by 2030 due to the costs of the Clean Power Plan.
 Electric demand - MISO
o MISO projects power demand to grow 1.3% annually through 2025.
 Nuclear energy
o Moody's reports 11% of nuclear units, consisting of 10,000 MW of capacity, are at risk of early retirement.
 LNG exports
o Sempra submitted pre-filings with FERC to increase exports from the Cameron LNG facility, which is to begin exporting LNG in early 2018.
 Natural gas rig count
o U.S. natural gas rig count at 199 on Nov. 6, a 44.1% decrease Y/Y


Bullish economic indicators
o Oct. unemployment rate decreased 0.1% to 5.0%
o Oct. total nonfarm payrolls increased 271,000.
o Dow Jones Index at 17,910.33 on Nov.6, up 2.0% Y/Y and up 0.5% year to date.
o Oct. ISM Manufacturing Index 50.2%, a 0.9% decrease
o GDP projection: 2015 = 2.4%; 2016 = 2.3%
o Oct Michigan Consumer Sentiment 90.0, up 3.2% M/M
o Sep. retail sales increased 2.4% Y/Y

BEAR DRIVERS. FACTORS DRIVING PRICES LOWER.

 EIA gas drilling productivity report



Renewable energy - ERCOT

 LNG exports

 Short term weather

 Natural gas storage level

 Bearish economic indicators

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.

Resource plan - PJM

 Michigan reserve margin

 Domestic energy policy

 Transmission development

 Natural gas rig count

 Bullish economic indicators

MARKET OBSERVATIONS

Hedging: Understand your risk level and hedge accordingly.

NYMEX natural gas Nov-Dec 2015 trend indicates that $2.60 - $2.90 is the current "hedge something" range

Indiana Hub electric wholesale Oct-Dec 2015 trend indicates that $30.00 - $32.00 is the current "hedge something" range

BEAR DRIVERS

Factors driving prices lower



EIA gas drilling productivity report

Sep. shale gas drilling actual at 45.0 Bcf/d; 7.5% increase Y/Y and 0.4% decrease M/M.

Oct. shale gas drilling forecasted at 44.8 Bcf/d; 6.1% increase Y/Y and 0.5% decrease M/M.



Renewable energy - ERCOT

ERCOT set a new wind generation record on Sep 13, reaching 11,647 MW. The state of Texas has about 15,500 MW of installed wind capacity.



LNG exports

Global LNG projects continue to be at risk as demand growth slows and prices decrease. Earlier this year, Moody's forecasted most of the proposed LNG projects in the U.S. would be canceled.

Short term weather

The 6-15 day forecast is normal to below average for the Midwest to the east coast.



Natural gas storage level

Current storage level at 3,440 Bcf

Y/Y surplus of 466 Bcf; surplus to 5-yr. avg. of 148 Bcf

Oct. 31, 2015 estimate of 3,900 Bcf



Bearish economic indicators

U.S. freight carloads down 5.5% Y/Y for week ending Sep. 19, 2015 and down 4.4% year to date.

Dow Jones Index at 16,314.67 on Sep. 25, down 3.7% Y/Y and down 8.5% year to date.

Baltic Dry Index: 943 on Sep. 25, a 11.3% decrease Y/Y

BULL DRIVERS

Factors driving prices higher



Resource plan - PJM

PJM proposes to raise the minimum capacity reserve margin by 5% to 16.6% due to reduced excess capacity from regions outside of PJM and an increase in the average forced outage rage of the PJM generation fleet.



Michigan reserve margin

The Michigan Agency for Energy forecasts the Lower Peninsula will have an electric capacity shortfall in 2016 due to the 25 coal units that have or are retiring by 2020.



Domestic energy policy

The House Energy and Commerce Committee endorsed a bill to lift the ban on crude oil exports from the U.S.

Transmission development

FERC suspended PJM's $551 million proposed transmission enhancements cost allocation method to determine if the costs are just and reasonable, possibly delaying up to 61 transmission projects.

Natural gas rig count

U.S. natural gas rig count at 197 on Sep. 25, a 41.7% decrease Y/Y



Bullish economic indicators

Aug. unemployment rate 5.1%, a 0.2% decrease from July

Aug. total nonfarm payrolls increased 173,000.

July retail sales increased 0.2% M/M and 2.2% Y/Y

Sep. Michigan Index of Consumer Sentiment at 87.2, a 5.1% decrease M/M and a 3.1% increase Y/Y

BEAR DRIVERS. FACTORS DRIVING PRICES LOWER.

 EIA gas drilling productivity report

 Solar generation

 Pennsylvania power generation

 Distributed energy

 Natural gas storage level

 Bearish economic indicators

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.

 Environmental policy

 PJM Capacity Performance Plan

 Natural gas consumption

 Natural gas rig count

 Short term weather

 Bullish economic indicators

MARKET OBSERVATIONS

Hedging: Understand your risk level and hedge accordingly.

NYMEX natural gas Sept-Dec 2015 trend indicates that $2.60 - $2.90 is the current "hedge something" range

Indiana Hub electric wholesale Sept-Dec 2015 trend indicates that $30.25 - $32.25 is the current "hedge something" range

BEAR DRIVERS

Factors driving prices lower

EIA gas drilling productivity report

July shale gas drilling actual at 45.4 Bcf/d; 11.0% increase Y/Y and 0.2% decrease M/M.

Aug. shale gas drilling forecasted at 45.2 Bcf/d; 8.4% increase Y/Y and 0.2% decrease M/M.

Solar generation

ERCOT expects between 10,000 MW and 12,500 MW of solar generating capacity to be installed in Texas by 2029.

Pennsylvania power generation

Competitive Power Ventures plans to build a 980MW gas-fired combined-cycle power plant in southwest Pennsylvania to take advantage of the proximity to Marcellus Shale production. Commercial operation is expected by the second quarter of 2019.



Distributed energy

The Department of Energy's Loan Programs Office is making up to $1 billion dollars in new loan guarantees to support distributed energy projects.

Natural gas storage level

Current storage level at 3,099 Bcf

Y/Y surplus of 480 Bcf; surplus to 5-yr. avg. of 88 Bcf

Oct 31, 2015 estimate of 3,800 Bcf

Bearish economic indicators

U.S. freight carloads down 3.7% Y/Y for week ending Aug. 22, 2015

Dow Jones Index at 16,643.01 on Aug. 28, down 2.6% Y/Y

Baltic Dry Index: 903 on Aug. 28, a 21.5% decrease Y/Y

BULL DRIVERS

Factors driving prices higher

Environmental policy

The U.S. EPA is proposing rules on oil and natural gas drilling companies to cut methane emissions by 45% from 2012 levels over the next 10 years. The rules are aimed at preventing methane from inadvertently leaking into the air. Final rulings are expected in 2016.

PJM Capacity Performance Plan

Capacity costs for the 2018-2019 planning year rose 37% to $164.77/MWday. The PJM grid operator can impose penalties up to $2,800/MWh on generators that do not operate during emergency hours.



Natural gas consumption

EIA forecasts industrial natural gas consumption to increase 3.9% in 2016, to average 22.5 Bcf/d due to new industrial plants coming online.

Natural gas rig count

U.S. natural gas rig count at 202 on Aug. 28, a 40.2% decrease Y/Y

Short term weather

The 1-10 day forecast is above normal for the eastern half of the U.S. The 11-15 day is above normal for the east coast.



Bullish economic indicators

July unemployment rate 5.3%, unchanged from June

July total nonfarm payrolls increased 215,000 from June

BEAR DRIVERS. FACTORS DRIVING PRICES LOWER.

 EIA gas drilling productivity report

 Electric generation costs

 Energy storage

 Short term weather

 Natural gas storage level

 Bearish economic indicators

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.

 Electric demand

 Power plant retirements

 EPA Clean Power Plan

 PJM uplift charges

 Mercury and Air Toxics Standards

 Bullish economic indicators

BEAR DRIVERS

Factors driving prices lower

EIA gas drilling productivity report

July shale gas drilling actual at 45.4 Bcf/d; 11.0% increase Y/Y and 0.2% decrease M/M.

Aug. shale gas drilling forecasted at 45.2 Bcf/d; 8.4% increase Y/Y and 0.2% decrease M/M.



Electric generation costs

Construction costs for natural gas-fired combined cycle units have been decreasing over the last five years, averaging less than $1,000/kW.

During the first half of 2015, solar installation costs decreased by up to $0.50 per watt, or about 13%.



Energy storage

A report by AECOM predicts battery prices will fall 40-60% over the next five years.

Short term weather

The 1-10 day forecast is normal to below normal for the Midwest.

Weather forecasters are predicting a 90% probability for a winter 2015/2016 El Nino, which favors a warmer than normal upper Midwest.



Natural gas storage level

Current storage level at 2,977 Bcf

Y/Y surplus of 521 Bcf; surplus to 5-yr. avg. of 81 Bcf

Oct 31, 2015 estimate of 3,800 Bcf

Bearish economic indicators

U.S. freight carloads down 4.4% Y/Y for week ending Aug. 8, 2015

BULL DRIVERS

Factors driving prices higher

Electric demand

ERCOT set a new all-time peak demand at 69,783 MW on Aug. 10.

ERCOT announced several conservation alerts.

PJM's peak demand in the first half of 2015 was 143,115 MW, a 1% increase from the first half of 2014.

Power plant retirements

PJM's installed capacity in June was 3.9% lower Y/Y at 176,741 MW

1,600 MW of coal generation is expected to retire in Michigan by 2020 to comply with the Clean Power Plan.



EPA Clean Power Plan

Fifteen states have filed legal challenges in the federal court against the new carbon regulations based on the fact they would be required to spend significant resources to meet the Sept. 6, 2016, deadline for compliance plans.



PJM uplift charges

PJM uplift charges remained high during the first half of 2015 due to high electric generation outages and inflexible natural gas supply arrangements.



Mercury and Air Toxics Standards

The EPA intends to submit their cost justification plans to the U.S. Court of Appeals by spring 2016.

Bullish economic indicators

Dow Jones Index at 17,477.40 on Aug. 14, up 4.6% Y/Y

Baltic Dry Index: 1055 on Aug. 14, a 3.9% increase Y/Y

July unemployment rate 5.3%, unchanged from June

July total nonfarm payrolls increased 215,000 from June

BEAR DRIVERS. FACTORS DRIVING PRICES LOWER.

 EIA gas drilling productivity report

 Federal energy policy

 PJM resource plan

 Ohio power generation

 Natural gas storage level

 Bearish economic indicators

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.