Bulls and Bears Report- November 2015

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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

< Bull/Bear Summary October 2015

Bull/Bear Summary December 2015 >

Bulls and Bears Report- November 2015

November 24th, 2015 at 3:13 pm

BEAR DRIVERS. FACTORS DRIVING PRICES LOWER.
 Natural gas storage level
 EIA gas drilling productivity report
 MISO winter assessment
 Short term weather
 Natural gas speculation – Funds' position
 Bearish economic indicators

BULL DRIVERS. FACTORS DRIVING PRICES HIGHER.
 EPA Clean Power Plan
 Electric demand - MISO
 Nuclear energy
 LNG exports
 Natural gas rig count
 Bullish economic indicators

MARKET OBSERVATIONS
– Hedging: Understand your risk level and hedge accordingly.
o NYMEX natural gas Jan-Dec 2016 trend indicates that $2.40- $2.70 is the current “hedge something” range
o Indiana Hub electric wholesale Jan-Dec 2016 trend indicates that $29.65 - $31.65 is the current “hedge something” range

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

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