Transcript Slide 1

SW Educational Purchasing Council
Commodities Management Group (CMG)
April 23, 2012
1
Agenda
1.Impact of Weather
2.State of the Economy
3.Supply & Demand Fundamentals
4.Pricing Trends
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.
2
Supply & Demand
Short-Term Fundamental Drivers
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.
3
Natural Gas Production Continues Pressure Downward
•
•
•
Natural gas directed drilling is off 29% year-over-year, while oil rigs are up 50%
2011 NG production grew at the largest year-over-year volumetric increase in history
Slower 4.5% growth is forecasted for 2012 as low price environment leads to production cuts
Customer Takeaway: US gas production remains steady despite drop in rig counts as oil rig
growth boosts associated dry gas output
Data Source: EIA
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.
4
NG Producers in the News
1. Chesapeake Energy, 10% dry gas production
Curtail up to 1 Bcf/d of production & 67% drop in rigs
w/ shift towards liquids
2. Encana, 2nd largest (reduce 600 mcf of production)
 it is abundantly clear that a continued reduction of
drilling activity will be required to restore market
balance
3. Conoco Philips, 7th largest NG producer
”may have some shut-ins in gas production up to
0.1bcf/d”
4. CONSOL Energy
cuts $200M from 2012 capital budget,
5. ExxonMobil, largest NG producer at 4bcf/d
”We are very bullish on NG as an energy source.
Still running 65 rigs but have relocated a lot to liquids”
Source: EIA, Chesapeake, Encana, Conoco Philips CONSOL, ExxonMobil
Customer Takeaway: Low gas prices due to over-supply has caused many gas producers to
reduce operations or shift to higher value liquids plays to restore market balance
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.
5
Natural Gas Storage Hits All-Time High Of 2,479 Bcf
U.S. storage as of 3/30:
•
56% (+887 Bcf) above year ago
level of 1,592 Bcf
•
60% (+934 Bcf) above 5-yr avg of
1,545 Bcf
•
Net injections began the week
ending Mar 16th
•
Weak winter demand major
contributor to high storage
Source: EIA CNE
Customer Takeaway: As a result of the excess storage and cheap prices, producers
are more likely to reduce output and/or demand is likely to increase via power burns
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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Rockies to East: Dropping More off in Midwest
REX Pipeline: Wyoming - Clarington, OH
REX flows into Ohio have declined this winter due to continued growth in Marcellus but
Data : Kinder Morgan & Bentek
deliveries into Chicago market are slightly up
Customer Takeaway: REX will face increased competition from Marcellus and as a result seek
to deliver more gas to the Midwest Chicago market in competition with Canadian gas
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Supply & Demand
Long-Term Fundamental Drivers
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.
8
EPA’s Regulations Continue Squeezing Coal
EPA Proposal and Standards continue to push the power
industry towards Natural Gas Plants
1. CSAPR Rule to mitigate sulfur dioxide and nitrogen dioxide will be reviewed by
the DC Circuit Court this month and we should have a ruling over the summer
2. Mercury limits set in December of 2011 established new tough limits on all
existing and futures plants
3. First-ever carbon pollution standard limits future power plants a limit of 1,000
pounds of Carbon per megawatt hour
CEO of the American Coalition for Clean Coal Electricity Steve Miller stated – “EPA
regulation are responsible for the announced closure of more than 140 electricity
generating units in 19 states”
Customer Takeaway: Changing emission standards focused on coal power
generation should drive long term growth for NG capacity
Data Source: EIA & US Energy Information Administration, Econoday
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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New Generation Assets Majority Natural Gas
1. EIA estimates 14.7 GW of new gas capacity in 2012 and 2013
2. Apx 42% of new builds in next two years are expected to be gas-fired generation
3. New gas fired plant will have lowest build cost of all technologies
Source: EIA, CNE
Customer Takeaway: High concentration of new gas capacity should increase long term
demand for NG as power input fuel
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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Changing Climate Fueling Generation
•
Announced coal retirements total 16 GW in PJM from 2012-2016, but combined cycle additions
will help offset decline to meet demand
Source: EIA, CNE
Customer Takeaway: Cheap and abundant gas, along with future EPA restrictions to curb
emissions, will likely cause a shift between coal-fired and gas-fired generation in PJM
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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Long-Term NG Demand Changes
- Only 2 of 54 Japanese reactors operating
- Y-Y Japan LNG Dec’11 imports +40%
- Potential 13.73 Bcf/d ramping up in 2015
- EIA report, possible 18% additional NG demand
Source: DOE, EIA, FERC
EIA Conclusions: The introduction of natural gas exports will lead to increased natural gas and
electricity prices under all EIA modeled scenarios
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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Technical Analysis & Pricing Trends
Technical Drivers
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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NYMEX Forward Pricing (Cal’13 – Cal’15)
NYMEX
Cal'13 Cal'14 Cal'15
Current Price $3.30
$3.76 $4.02
5-Year Avg
$6.62
$6.77 $6.93
Curr vs. Avg -50%
-44% -42%
Max
$10.87 $11.09 $11.33
Curr vs. Max -70%
-66% -65%
Min
$3.30
$3.76 $4.02
Curr vs. Min
0%
0%
0%
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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Price Change of NYMEX NG
•
•
•
Y-Y changes in NYMEX NG are off between 23-47%
Majority of decline has come since beginning of Winter ‘11/’12
Back of curve has stayed more firm has near term supplies increase and winter demand wanes
Source: NYMEX, CNE
Customer Takeaway: Weak winter demand with growing supply had resulted in shift downward
of entire NYMEX curve with more pressure on front years
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.
NYMEX Forward Gas Curves (2012-2016)
DATE
May-12 $
Jun-12 $
Jul-12 $
Aug-12 $
Sep-12 $
Oct-12 $
Nov-12 $
Dec-12 $
Jan-13 $
Feb-13 $
Mar-13 $
Apr-13 $
May-13 $
Jun-13 $
Jul-13 $
Aug-13 $
Sep-13 $
Oct-13 $
GAS
1.92
2.00
2.12
2.19
2.23
2.32
2.58
2.93
3.09
3.10
3.08
3.06
3.11
3.16
3.22
3.24
3.24
3.28
2008
2009
2010
2011
2012
Source: NYMEX, CNE
Customer Takeaway: Forward curve has experienced a steady progression downward due to
weak demand (recession) and record production (horizontal drilling)
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.
Supply Impact on Natural Gas
Current Price
Since 11/1/11
Last Year
Vs. 5-Yr Avg
$ 3.38
-29%
-37%
-41%
1.
2.
3.
4.
Growth in supply since 2006 (+25%)
Decline in demand as result of recession
Prices decline since 2008 (-79%)
EIA forecast 2013 spot price +36% y-y
Source: NYMEX, CNE
Customer Takeaway: Growth in production coupled with a lack in demand has resulted in gas
prices currently being at 10-year lows
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.
17
EPC Gas Procurement Suggestions
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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Contact Information
• Bill Sticka, Director Technical Sales / Market
Strategy
• Commodities Management Group (CMG);
Constellation Energy
• Email: [email protected]
• Telephone 410.468.3476
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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Disclaimer
The information contained in this document has been obtained from sources which
Constellation NewEnergy (“CNE”) believes to be reliable. We do not represent or warrant as to
its accuracy or completeness. All representations and estimates included in this presentation
constitute CNE's judgment as of the date of the presentation and may be subject to change
without notice. This presentation has been prepared solely for informational purposes. CNE
does not provide 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.
CNE shall not be responsible for any reliance upon any information, opinions, or statements
contained herein or for any omission or error of fact. This document shall not be reproduced
(in whole or in part) to any other person without the prior written approval of CNE. Copyright
2012
© 2012. Constellation Energy Group, Inc. The materials provided and any offerings described
herein are those of Constellation NewEnergy, Inc., a subsidiary of Constellation Energy Group,
Inc. Brand names and product names are trademarks or service marks of their respective
holders. All rights reserved. Errors and omissions excepted.
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.
20