metropolitan purchasing council

Metropolitan Purchasing Council

Commodities Management Group

October 10, 2013

This presentation has been prepared solely for informational purposes relating to CNE’s business as a physical energy provider. CNE does not provide and is not providing advice regarding the value or advisability of trading in “commodity interests” as defined in the Commodity Exchange Act, 7 U.S.C. §§ 1-25, et seq., as amended (the “CEA”), including futures contracts, swaps or any other activity which would cause CNE or any of its affiliates to be considered a commodity trading advisor under the CEA.

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Source: NYMEX

Agenda

1.Weather Demand

2. State of the Economy

3. Supply & Demand Fundamentals

4. Pricing Trends

3This presentation has been prepared solely for informational purposes relating to CNE’s business as a physical energy provider. CNE does not provide and is not providing advice regarding the value or advisability of trading in “commodity interests” as defined in the Commodity Exchange Act, 7 U.S.C. §§ 1-25, et seq., as amended (the “CEA”), including futures contracts, swaps or any other activity which would cause CNE or any of its affiliates to be considered a commodity trading advisor under the CEA.

Lower Cooling Demand Pressures Prices Downward

• 2013 summer cooling load was slightly below 10-year normal

• Lower cooling demand helped put downward pressure on gas since hitting a high in May

Data Source:: EarthSat, NOAA

• Strong Gulf of Alaska low keeps Arctic air bottled-up around that region

• Low tends to flood the lower 48 with mild Pacific air resulting in lower than normal demand for the Midwest and East

Nov’13


Initial Winter Forecast Risk in Jan-Feb

Source:, NOAA

•Calls for a mild start, then a colder Jan-Feb period for the Midwest and East

• Weak La Nina/El Nino could cause more volatile weather that could be more dependent upon shorter-term indexes throughout the winter season

Customer Takeaway: Though too early to have any reasonable level of confidence about this winter, the early evidence suggest that the cold may be back-loaded


12 Named Tropical Storms Season-to-Date

Source: NOAA, EIA

Customer Takeaway: Gulf of Mexico supplies are less critical today as production has grown in on-shore unconventional shale resources, but hurricane threats still add short-term volatility to NYMEX this time of year

• Official season runs from Jun to early Nov (peak is Sept 10th)• Most forecasters projected an above-average year for hurricane activity• Hurricane price risk is due to short term supply shut ins


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Source: NYMEX

Agenda

1. Weather Demand

2.State of the Economy


4. Pricing Trends


Will Shutdown Hinder GDP Growth?

Sources: WSJ, Labor Dept, Commerce Dept, Business Insider

Gov. Shutdown Impact:• 800k government workers

received furloughed• Private contractors

furloughed related employees

• 10% of U.S. manufacturing is associated with the defense sector

• Additional uncertainty around raising the debt ceiling and the Fed’s move to tighten monetary policy

• Goldman Sachs estimate shows a two week shutdown may reduce Q4 GDP by 0.4%

Customer Takeaways: Beyond the immediate impact of reducing government consumption (i.e. federal compensation), the shutdown creates economic uncertainty for Q4’13 potentially reducing growth


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Source: NYMEX

Agenda

1. Weather Demand


3.Supply & Demand Fundamentals

4. Pricing Trends


Record U.S. gas production pushes prices down

Source: Baker Hughes, EIA

• Horizontal drilling and hydro fracking are key drivers to U.S. shale gas revolution

• 2006 shale gas production was ~3 Bcf/d vs. current ~28 Bcf/d

Customer Takeaway: Record low gas prices prompted producers to scale back operations, slowing the rate of growth in natural gas supply Short-term Impact to Price Supportive

Natural gas rig count near 13-year lows(-50% decline over past two years)

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U.S. Natural Gas Production Surprises

Source: Baker Hughes, EIA

• Gross natural gas production in lower 48 posts a record high of 74.52 Bcf/d (+0.7%) in July

• The Department of Energy forecasts supply to remain fairly flat through 2014

• Stronger prices will be needed to incentivize drillers to significantly ramp up production

Customer Takeaway: Marcellus and shale plays such as Eagle Ford in TX are keeping overall gas production slightly higher y-o-y; higher demand will be needed to absorb that supply

Natural gas production at a record high

U.S. Natural Gas ProductionBillion cubic feet per day (bcf/d)


Gas Injections On Pace to Meet Winter Demand

Customer Takeaway: Gas supplies look adequate for normal winter heating demand, but will still drive NYMEX price valuations in the coming months

Sources: EIA

• Current storage is 3,487 Bcf, 49 Bcf above the 5-yr average and -166 Bcf below 2012• Injections are on pace to reach 3,820 Bcf by November (official start of winter NG

demand)• Shoulder-month gas demand has helped bolster weekly gas injections once again


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Midwest Basis Impact Due To Northeast Production

Source: Bentek


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New Demand Sources on the Horizon

LNG exports begin by late 2015 (4 to 6 Bcf/d by 2020)

Gas-to-Liquids Est. Demand Impact (2 Bcf/d by 2021)

LNG And CNG Vehicles(2 to 4 Bcf/d by 2020)

2014 2015 2016 2017 2018 2019 2020

Coal Retirements Increase Gas Demand (4 to 6 Bcf/d by 2016)

Industrial Demand Increase (2 Bcf/d by 2016)

Customer Takeaway: U.S. demand growth currently higher than world average and projected to further expand due to changes in power stack, industrial sector, vehicle application and LNG exports


Pricing-In the Impact of Future Natural Gas Demand

Customer Takeaway: Until 2016 and the onset of LNG exports, gas demand growth will primarily be driven by incremental industrial gains and the electric power sector

Based on differing views of the future marketplace, analyst forecasts vary as to the impact that heightened demand and new supply will have on prices through 2020

Source: EIA, NYMEX, World Bank


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Source: NYMEX

Agenda

1. Weather Demand



4.Pricing Trends

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Market Pressing Lower Ahead of the Looming Winter

Source: Constellation, PJMThis presentation has been prepared solely for informational purposes relating to CNE’s business as a physical energy provider. CNE does not provide and is not providing advice regarding the value or advisability of trading in “commodity interests” as defined in the Commodity Exchange Act, 7 U.S.C. §§ 1-25, et seq., as amended (the “CEA”), including futures contracts, swaps or any other activity which would cause CNE or any of its affiliates to be considered a commodity trading advisor under the CEA.

• Front-month gas up over +6% last two days after being down -5% in previous two weeks due to some technical buying after prices were unable to break $3.50 support level

• Resistance area from $3.83 to $3.90; Support area from $3.45 to $3.55Customer Takeaway: Despite recent support from technical buyers and Gulf shut-ins, many traders are skeptical of upside risk in the near-term due to current weak fundamentals


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Source: NYMEX, Constellation

Long-Term Prices Very Close to All-Time Lows

Customer Takeaway: Low gas prices from shale have spurred capital expense projects that will dramatically increase demand in the next few years

1. In early 2009 the price range of long-term NYMEX contracts was $7-82. By mid 2011 the market fell to around $5-6, as production continued to surged3. Winter 2011/12 demand erosion + excess supply lead to historical lows in

20124. Market is more balanced today; however long-term prices are still close to all-

time lows


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NYMEX forward strips near all-time lows

Term Trading Range

NYMEX Gas Curve Compare

Current vs. Max

Current vs. Min Y-t-D M-o-M

12 Month Rolling -71% 55% 13% 4%2014 -64% 7% -1% 2%2015 -64% 4% -2% 1%2016 -64% 2% -4% 0%2017 -64% 1% -6% 0%

Customer Takeaways: NYMEX prompt has rallied since Q3 lows on 8/9; the 12 month strip and Cal ‘14 terms are up over the past month, 11% and 7% respectively

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NYMEX Forward Pricing - Current Contract

Source: NYMEXThis presentation has been prepared solely for informational purposes relating to CNE’s business as a physical energy provider. CNE does not provide and is not providing advice regarding the value or advisability of trading in “commodity interests” as defined in the Commodity Exchange Act, 7 U.S.C. §§ 1-25, et seq., as amended (the “CEA”), including futures contracts, swaps or any other activity which would cause CNE or any of its affiliates to be considered a commodity trading advisor under the CEA.

Aug 9th - $3.74

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NYMEX Forward Pricing - Extended Term

Source: NYMEXThis presentation has been prepared solely for informational purposes relating to CNE’s business as a physical energy provider. CNE does not provide and is not providing advice regarding the value or advisability of trading in “commodity interests” as defined in the Commodity Exchange Act, 7 U.S.C. §§ 1-25, et seq., as amended (the “CEA”), including futures contracts, swaps or any other activity which would cause CNE or any of its affiliates to be considered a commodity trading advisor under the CEA.


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MEC: July 2012 – June 2013 Hedges

July

Augus

t

Septem

ber

Octobe

r

Novem

ber

Decem

ber

Janu

ary

Februa

ryMarc

hApri

lMay

June

0%

10%

20%

30%

40%

50%

60%

70%

80%

Ohio School ConsortiumJuly 2012 - June 2013 Hedges

$3.5053 Avg Hedge Price (~ 57%)


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July

Augus

t

Septem

ber

Octobe

r

Novem

ber

Decem

ber

Janu

ary

Febru

aryMarc

hApri

lMay

June

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


$3.8752 Avg Hedge Price (~ 75% )


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July

Augus

t

Septem

ber

Octobe

r

Novem

ber

Decem

ber

Janu

ary

Februa

ryMarc

hApri

lMay

June

0%10%20%30%40%50%60%70%80%90%

100%


$4.0611Avg Hedge Price (~75%)

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Summary

Forward markets are still near

all-time lows

1 2 3 4

Understand evolving market risks and options to manage that

risk

Define goals/objectives

and manage cost (P*Q) over

time

Establish price targets to

capitalize on pullbacks and

protect against upside risk

A

C

B

Contact Information

Bill StickaDirector, Technical Sales / Marketing StrategyCommodities Management Group Telephone 410.470.5308

Email: [email protected]

Constellation Energy

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