Executive Market Summary

June 29th, 2015

Executive Summary

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Cooler than normal weather is expected in the Northeast and Midwest through July 5. This is a welcome change compared to last week where population weighted cooling degree days were 24% above normal. Last week’s warm weather hindered the latest storage injection which came in at 75 Bcf. This is down from 89 Bcf the week prior and less than last year’s 110 Bcf injection. It also came in below estimates of 76-80 Bcf.

Natural gas demand is up 17% this year to date compared to last year. A large part of this increase in demand has been led by power generation. Consumption of natural gas for power generation increased by 6.1% last week – 24.2% higher than the same week last year.

Long Term

US natural gas exports to Mexico reached a record high of 3.5 Bcf on June 18 (Bentek) bringing exports 33% higher year to date over 2014’s levels. Exports from the US to Mexico are expected to continue expanding with several pipeline projects in the works. Mexico’s increase in demand for natural gas is due to their commitment to reduce their dependency on fuel oil for electricity generation.

Exports to Mexico

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June 22nd, 2015

Executive Market Summary

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Natural gas storage remains healthily above last year’s level and just 46 Bcf above the five year average. Last week’s 89 Bcf injection was below estimates of 91-95 Bcf and less than last year’s 112 Bcf injection for the same week. The market remains subdued but analysts believe that smaller injections, like last week’s, can be expected moving forward.

Eastern US power burn is increasing due to both temperatures and long term structural changes. According to NOAA, the Northeast recorded its warmest May ever and 12.1 GW of coal plants will retire by the end of this month. See chart below:

Nat Gas Consumption

Above normal temperatures are likely to continue through the week across the southeast and west. The Midwest and Texas will see mostly normal temperatures before cooling off a bit this weekend.

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June 15th, 2015

Executive Market Summary

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Natural gas prices are beginning to rise thanks to hotter weather. Summer temperatures put pressure on the market by increasing demand on electric power needs. The temperature outlook remains bullish as extreme warmth is expected for densely populated areas in the Northeast, Mid-Atlantic and Pacific Northwest. Additionally, El Nino conditions are certain to last through summer. The results will be hot temperatures in the Eastern and Central US, especially later in the season.

Supply and production remained nearly flat from last week which could pose an issue as electricity demand continues increasing. Analysts expect that the demand on natural gas increase from last year due to a combination of summer temperatures and the coal retirements due to EPA regulation.

While the 111 Bcf storage report was on the low end of expectations, it remains above both last year’s storage level and the five year average storage level. From April 3, 2015 (the start of injection season) to June 5, 2015, injections totaled 883 Bcf – 16% more than the 758 Bcf injected during the same period last year.

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June 8th, 2015

Executive Market Summary

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US natural gas storage increased by 132 Bcf, the second largest weekly injection on record. This storage injection was about 10 Bcf above market expectations of about 122. Storage currently stands 751 Bcf above last year’s levels and 22 Bcf above the five year average. This is the first time stocks have had a surplus to the five year average since March 2013.

Largely contributing to the healthy storage injection is the lack of demand – power burn demand averaged 55.7 Bcf/day, the lowest levels of the year so far.

US total industrial production slowed to 3.2% and is currently in a slow growth phase according to the Institute for Trend Research or ITR.  Overall, the US economy is currently decelerating due to several factors including low energy prices but is expected to pick back up again in 2016. The recovery has been slow and we have yet to see an annual growth in excess of 2.5%.

The western and eastern thirds of the country are expected to see warmer than average temperatures with the central US experiencing normal temperatures.

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June 1st, 2015

Executive Market Summary

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For the 4th week in a row, the top stories close to the energy industry are still related to weather and storage.

According to the National Weather Service, their forecast is calling for an elevated probability of above-normal temperatures across parts of the Northeast, Southeast, Midwest, Rockies and the West.  It is also calling for a probability of below-normal temperatures across parts of Texas and New Mexico. Still in the news, forecasters are still predicting El Nino conditions.  That means warmer temperatures and increased hurricane activity through the summer will potentially drive prices up.

On to storage . . . fears of oversupply, forecasters were anticipating the storage report before it was released.  When the report was released, it showed a higher injection that expected.  Storage increased 112 Bcf to 2.101 Tcf.  The net injection was above expectations of an injection between 97 Bcf and 101 Bcf.  The forecasted injection for next week is around 125 Bcf, well above both last year’s Bcf injection and the five year average of 92 Bcf.

Analysts are surprised at the large injection which has taken the market down a notch to its lowest prices since April.  Further, the market remains oversupplied, but has not shifted to justify the higher prices.

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May 26th, 2015

Executive Market Summary

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Weather is a hot topic and continues to be the top story across all the energy commentary, this past week.   Heavy rain is forecasted across the southern Plains and severe thunderstorms are possible across parts of the southern US and mid-Atlantic.  What does this mean to the power consumer?  It is reported that these declining temperatures cool the power demand and falling temperatures pulled the power burn down in regions by a combined 1.2 Bcf/d.

As much as weather is the top story, it seems timely to highlight an article released by the US Department of Energy.  The article highlighted our nation’s wind potential.  We have seen first-hand the power of wind in our own geographic area, as well as, images in the news.  It’s reported that wind supplies nearly 5 percent of our nation’s electricity demand across 39 states, and it’s getting cheaper every year thanks to wind technology and policy.  Further improvements are poised to make wind economical in every state.

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May 18th, 2015

Executive Market Summary

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Weather is a hot topic right now as we are seeing what the atmosphere is capable of; severe thunderstorms, hail, and damaging wind gusts throughout the west and southwest.  According to NOAA, El Nino conditions are in the Pacific Ocean.  An El Nino is an irregularly-occurring ocean-atmosphere oscillation that affects weather around the globe.  This weather phenomenon intensified from ‘weak’ in April to ‘weak-to-moderate’ in May.  What does that mean for the US?  The prediction is warmer temperatures this summer compared to last year’s mild summer. It also means a busy hurricane season which could cause energy disruptions in the Gulf of Mexico.

The EIA reported storage injection of 111 Bcf for the week ending May 7th. The injection was below expectations calling for an injection between 115 and 119 Bcf.  US inventories now stand at 1,897 Bcf, which is 752 Bcf higher than this time last year and 38 Bcf below the five-year average.

Gas failed to follow through on the strong rally that started last Friday.  Weakening industrial demand throughout the eastern US, particularly in the Midwest, are contributing to the overall demand decline.  Demand is down 1.3 Bcf/d, while industrial demand shrunk by 0.1 Bcf/d.  Demand is expected to continue to fall heading into the weekend, before warmer weather early next week boosts power demand throughout the Northeast and Southeast, raising overall demand.

According to Platt’s, the Federal Energy Regulatory Commission expects power generation capacity and fuel supply to be ample this summer. FERC believes the system reserve margins across all regions will be adequate. It is important to note that this is the first summer in which the Mercury Air and Toxics Standards went into effect and there is still a positive report on reserve margins.

Because of the low natural gas prices, natural gas power burn continues increasing. The EIA predicts that natural gas generation from April and May will nearly reach the level of coal generation – the first time the shares have been this close since April 2012.

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May 11th, 2015

Executive Market Summary

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According to the EIA, from the week ending on April 3 (the beginning of the injection season) through the week ending on May 1, storage injections have totaled 325 Bcf – 54% more than the 211 Bcf injected during the same five weeks in 2014.

Thursday’s 76 Bcf injection compared bearishly against last year’s 75 Bcf injection and the five-year average injection of 68 Bcf. It also came in about 2-3 Bcf higher than what analysts predicted. Aaron Calder, senior market analyst at Gelber and Associates, believes that the market is currently oversupplied by about 3 Bcf/day and there are no signs of demand keeping up with production.

Weather is expected to remain mild with below normal temperatures across Texas, the Southwest and West. Above normal temperatures are expected across large parts of the Northeast and Midwest. The temperatures are expected to bring triple digit injections over the next four weekly storage reports. Forecasts for next week’s storage report are at about 120 Bcf.

Consumption fell last week as a result of the weather. Industrial demand dropped by about 3.4% and commercial and residential consumption fell by more than 30%. On the other hand, natural gas power burn increased 0.6% – which equates to a 13.9% increase over last year’s levels.

The Bureau of Labor Statistics released the job report and unemployment rate. Both are looking healthy and point to the economy improving. The U.S. added 223,000 jobs in April and the unemployment rate fell to 5.4%, the lowest since May 2008.

Long Term

On Thursday, May 7, Dominion Cove Point received final authorization from the Department of Energy (DOE) to export liquefied natural gas (LNG) to countries without a free trade agreement with the US. The Cove Point LNG Terminal is located in Calvert County, Maryland and is able to export 0.77 Bcf a day of LNG for 20 years.

The Federal Energy Regulatory Commission (FERC) filed a notice for environmental review for the Oregon LNG export terminal, due February 12, 2016. After FERC approval, the LNG export company will have to wait for final DOE authorization. If approved, the facility has the capacity to liquefy up to 1.3 Bcf of natural gas a day.

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May 4th, 2015

Executive Market Summary

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After the storage report was released on Thursday, natural gas prices rose and, according to Gexa, settled above $2.75 for the first time in more than a month. The 81 Bcf injection fell 4 to 7 Bcf short of expectations. While it was a bullish report, we still sit 76.5% above last year’s levels and only 75 Bcf lower than the five year average. A positive to note is that Thursday’s injection was larger than both last years and the five year average injection for the same week.

Forecasters are expecting a mild summer season. The mild temperatures could bring triple digit injections these next few weeks.

Power burn continues increasing as more gas fired generation retires. Bentek estimates that power burn demand this summer will average 29.7 Bcf/day which is 4.5 Bcf/day higher than in 2014.

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April 27th, 2015

Executive Market Summary

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For the second week in a row, the storage injection came in higher than what analysts were expecting. The 90 Bcf storage injection brought the current storage level to 1,629 Bcf. This sits 82.6% higher (737 Bcf) than last year’s levels and only 5.8% or 101 Bcf lower than the five year average.

Forecasts for May show more mild weather for the month with mostly normal and some below normal temperatures. Mild weather continues to take off heating and cooling loads, resulting in the larger injections.

Demand for natural gas continues to grow as coal plants retire, other plants begin switching from coal to natural gas and overall power burn increases. The MATS rule officially went into effect on April 16 and the EIA anticipates 13 gigawatts of coal fired generation capacity to retire this year. Coal accounts for 81% of all planned retirements in 2015.

Summer 2015 projections for consumption of natural gas power generation is just slightly below the 2012 record high level of 27.9 Bcf/day. Please see the EIA chart below.

Natural Gas Power Generation

Talks of gas infrastructure projects in the Southeast are expected to grow growth in natural gas demand along the coast. Kinder Morgan expects that there will be $100 billion worth of industrial projects along Texas and Louisiana. We will keep you updated as more information comes available.

Strip Price:

strip

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