Bulls and Bears April 2015

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Latest News Updates 2/17/15

BEAR DRIVERS – Factors driving prices lower

· EIA gas drilling productivity report

January shale/tight gas drilling production reported at 44.8 Bcf/d; 17.9% increase Y/Y and 1.3% increase M/M
Feb shale gas drilling forcasted at 45.4 Bcf/d; 18.0% increase Y/Y and 1.3% increase M/M

· Natural gas speculation- Funds' position

o Position for Non-Commercial futures & swaps was short 81,835 contracts on Feb 10, an increase of 25.4% from Jan. 27. This is the largest short position since Mar. 2012

· Energy storage

o Advanced Rail Energy Storage is a new technology to provide grid-scale energy storage by replicating pumped-storage hydro with rail cars going up and down a hill.

· ERCOT transmission development

o ERCOT announced $950 million in transmission improvements for the west load zone's growing Permian Basin load by 2020.

o West zone's peak load has increased over 40% since 2010.

· LNG export capital

o Lower oil and natural gas prices are putting completion of LNG export projects at risk, reducing future demand of natural gas by up to 5 Bcf/d.

Bearish economic indicators

oBaltic Dry Index: 530 on February 13, 2015, the lowest level since 1986.

BULL DRIVERS – Factors driving prices higher

· Short term weather

o the 1-15 day is forcasting below normal temps for the eastern half of the U.S.

· Nuclear Energy decline

oFitch Ratings is forcasting 8,000 MW of nuclear generation to retire before the expiration of their operating licenses.

Coal stockpile inventory

oNov. U.S. electric power sector coal stocks estimated at 41,742 thousand short tons, a 9.0% decrease Y/Y. U.S. coal production for Jan. is estimated at 85.8 million short tons, up 3.4% Y/Y.

MISO offer price cap waiver

o FERC approved MISO's request to temporarily waive their $1,000/MWh offer price cap this winter to allow generators to recover verifiable costs due to extreme fuel costs.

Bullish economic indicators

o U.S. freight carloads up 4.7% Y/Y for week ended Feb. 7

o Dow Jones Index at 18,019.35 on Feb. 13, up 12.4% Y/Y

o GDP Projection: 2014=2.4%; 2015= 3.2%; 2016= 2.5%

o Jan unemployment rate increased 0.1% to 5.7%

o Jan total nonfarm payrolls increased by 257,000

o Jan Manufacturing ISM reported PMI at 53.5%

· Natural gas storage level

o Current storage level at 2,268 Bcf

o Y/Y surplus of 542 Bcf; deficit to 5-yr. avg. of 11 Bcf

o March 31, 2015 estimate of 1,600 Bcf

MARKET OBSERVATIONS

Hedging: Understand your risk tolerance and hedge accordingly
- NYMEX natural gas Mar-Dec 2015 trend indicates that $2.75 - $3.05 is the current “hedge something” range
- Indiana Hub electric wholesale Feb-Dec 2015 trend indicates that $32.00 – $34.50 is the current “hedge something” range

Bulls and Bears May 2015 >

Bulls and Bears April 2015

April 2nd, 2015 at 4:51 pm

BEAR DRIVERS

Factors driving prices lower

EIA gas drilling productivity report

Feb. shale gas drilling actual at 45.4 Bcf/d; 18.0% increase Y/Y and 1.3% increase M/M Mar. shale gas drilling forecasted at 45.9 Bcf/d; 17.7% increase Y/Y and 1.1% increase M/M

Natural gas speculation – Funds' position

Position for Non-Commercial futures & swaps was short 53,067 contracts on Mar. 24, a decrease of 18.5% from Mar. 10.

Short term weather

The 1-10 day is forecasting above normal temperatures for the central U.S. and normal temps for the eastern U.S.

Renewable energy

The federal government is increasing the share of renewable energy in their electricity supply to 30% over the next 10 years.

Virginia power generation

Dominion is building a 1,600 MW natural gas power plant in Greensville County, VA. It would be the largest natural gas-fired power station in the state and is scheduled for completion by 2019

Bearish economic indicators

Baltic Dry Index: 596 on Mar. 27, 2015, near the lowest level since 1986. U.S. freight carloads down 2.4% Y/Y for the week ended Mar. 21.

BULL DRIVERS

Factors driving prices higher

Hydraulic fracturing regulations

The Bureau of Land Management issued final regulations for drilling on federal land, which accounts for 11% of the U.S.
natural gas supply. The regulations strengthen the standards on well construction, increase disclosure of chemicals used, and stricter standards for recovering waste water. Annual costs are estimated at $32 million to $45 million

Mercury and Air Toxics Standards (MATS)

Supreme Court to rule by June if the EPA erred in requiring power plants to cut emissions without considering the economic benefits. EIA estimates 70% of coal-fired generating capacity is already MATS compliant.

Natural gas consumption

Mexico's Commission Federal Electricidad plans to reduce their use of oil for electric generation 90% by 2017 causing an increase of natural gas demand by 0.4 Bcf/d.

Federal energy policy

The signed executive order requires the federal government to reduce its carbon emissions by 50% over the next 10 years from 2008 levels.

Bullish economic indicators

Dow Jones Index at 17,712.66 on Mar. 27, up 8.9% Y/Y Mar. Michigan Consumer Sentiment 93.0, up 16.3% Y/Y

Natural gas storage level

Current storage level at 1,479 Bcf Y/Y surplus of 575 Bcf; deficit to 5-yr. avg. of 194 Bcf Oct 31, 2015 estimate of 3,700 Bcf