1.
Q3 2015 Energy Market Outlook
Energy Prices and Market Intelligence Q3 Update September 10, 2015
Presenter: Jonathan Lee, Sr Energy Market Intelligence Manager, Ecova

2.
 Prices are near a three-year low, how did we get here?
• Natural Gas Production, Storage: Near-record pace.
• Power Sector Demand: Helped keep the downside limited.
• Summer Recap: Near the 10-year norm.
 What’s on the horizon?
– Natural Gas Pipeline Projects: Impact to volatility and basis prices.
– LNG Exports: First LNG export facility coming online late 2015.
– PJM Capacity Performance: FERC approved PJM’s new capacity structure.
 2016 Budget Influencers
– Downside Pressure: Gas production, healthy natural gas storage, weak winter demand,
pipeline capacity additions.
– Upside Potential: Gas-fired generation growth, LNG exports, EPA regulations, unexpected
weather, reliability enhancements.
ENERGY MARKET INTELLIGENCE

3.
 Natural gas production running 7% higher
in first six months of 2015 than 2014
 Dry gas production expected to average
around 74 bcf/day in 2015
 Continued growth seen through 2016
STRONG NATURAL GAS PRODUCTION
EIA - September 2015
Boom largely due to shale
production in PA, OH, and WV,
which accounted for 2.4% of
U.S. production in 2008 and
now accounts for nearly 25%.

4.
SHALE PRODUCTION GROWTH
EIA - September 2015
Marcellus leading
the way, producing
over 15 bcf per day
in 2015.

5.
 Power sector demand growth
 Pipeline infrastructure
expansions
 Liquefied natural gas exports
 Exports to Mexico
 Increases in industrial demand
due to chemical plant additions
FACTORS FOR INCREASED PRODUCTION
EIA - September 2015
0
5
10
15
20
25
30
35
2014 2015 2016 2017 2018
Bcf/day
Additional Pipeline Capacity

6.
 Cost of production vs.
the price of natural gas
 Decline in oil prices
− Potential reduction
in associated gas
output
− LNG market less
attractive
 Interest rate hikes
 Environmental
regulations
RISKS FOR SLOWING PRODUCTION
EIA - September 2015
Budget Impact:
Lower supply would
place upward pressure
on natural gas prices.

7.
2015 STORAGE REPLENISHMENT
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
NaturalGasStorageLevel(Bcf)
Natural Gas Storage
Low
Peak
2015 Refill Rate:
Could push total
supplies to record high.
Budget Impact:
Sufficient storage
alleviates supply
concerns and leads
to lower prices.

8.
SUPPLY OUTPACING DEMAND
Gas production continues to
outpace demand, which has put
downward pressure on natural
gas prices.
 Power Sector experiencing
large increases in 2015, but
expected to decline in 2016
 Industrial demand
anticipated to see
continued annual growth
EIA – September 2015

9.
RECORD GAS-FIRED GENERATION
EIA - September 2015
 The proportion of electricity generated
from natural gas outpaced the previous
five-year average by 5.1%.
 During 2012, low gas prices led to
record annual gas-fired generation at
24.9 bcf/day
 EIA predicts 2015 annual power sector
demand will average 25.2 bcf/day 0%
5%
10%
15%
20%
25%
30%
35%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
U.S. Electricity Generation from Natural Gas (%)
2010-2014 Avg 2015
Budget Impact:
In 2012, record
power sector
demand pushed
prices higher as the
year progressed.

10.
The summer of 2015 was mostly in
line with projections. The West was
hot and dry, while the rest of the
country was near normal.
Increased power sector
demand limited the decline in
natural gas prices.
SUMMER 2015 RECAP
NOAA, AccuWeather; EIA - September 2015

11.
FALL TEMPERATURE OUTLOOK
A cooler South Central is likely to persist
through Fall, while the is West, North, and
East Coast are projected to be above-
normal for much of the time.
NOAA, AccuWeather: September 2015
Fall Outlook

12.
EARLY WINTER WEATHER OUTLOOK
NOAA, Farmers’ Almanac, AccuWeather - September 2015
Budget Impact:
El Niño to dampen energy
price increases this winter?

13.
El Niño currently has greater than a 90%
chance of strengthening through the
winter, which could help CA drought, and
keep the North drier and warmer this
winter.
El Niño patterns, as shown below, primarily
reach maximums during Dec-Feb and
typically persist for 9-12 months.
EL NIÑO WINTER IMPACT
NHC/NOAA; AccuWeather: September 2015

14.
NATURAL GAS PIPELINE PROJECTS
NE PA Dry
9.1 Bcf/day
West
Marcellus/Utica
23.9 Bcf/day
An estimated 33
Bcf/day of takeaway
capacity expansions
by 2018
 3.1 Bcf/day of
expansions in 2014 to
benefit Northeast
 4.9 Bcf/day of
expansions planned for
2015 to benefit
Northeast
 New England to see
additional pipeline
capacity in 2016

15.
REX ZONE 3 EAST TO WEST
1.2 bcf/day into Chicago
and Michigan.
EIA - September 2015
 One of the longest
pipelines in the U.S.,
measuring 1,700 miles
long.
 Zone 3 fully bi-directional.
 Only U.S. pipeline directly
linking Rocky Mountain
and Appalachian supply
basins to consumers in the
Midwest.

16.
NV
PIPELINE CAPACITY AND GAS BASIS
Expected Changes 2015 - 2018
Algonquin
Transco Z6NY
Chicago
Sumas
Dominion South
Columbia App
SoCal Border
El Paso Permian
Opal
NGPL Midcon
Henry Hub

17.
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00 Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
$/MMBtu
09/04/14
03/04/15
09/04/15
NATURAL GAS FORWARD CURVE
(NYMEX) – 4 September 2015
YOY Decline: 26.6%
Six-Month Decline: 9.6%

18.
NATURAL GAS
$MMBtu (12-Month Strip) – 4 September 2015 – Short Term Trading Channel

19.
OUTLOOK: NATURAL GAS PRICING
In general, pricing is
expected to gradually,
and slowly rise
through the end of
2016. The EIA
anticipates Henry Hub
spot prices will remain
below $3.50/MMBtu.
This appears to be a
reasonable cap level
for settlement prices
as well based on
current fundamentals
and trend lines.
EIA - September 2015

20.
WHOLESALE ELECTRICITY
$MWh (12-Month Strip) – 4 September 2015
$25
$35
$45
$55
$65
$75
$85
$95
$/MWh
ERCOT AVG NY ISO J PJM NEPOOL PG&E NP15 W
12-Month Rolling Strip ERCOT HZ NY ISO J PJM NEPOOL PG&E (NP15)
NYMEX Correlation 98.77% 85.22% 67.40% 81.28% 97.60%

21.
WHOLESALE ELECTRICITY YOY DECLINE
Rolling 12-Month Strip: 4 September 2015
NV
ERCOT: -26%
PG&E NP15 West:
-21.5%
NEPOOL:
-26.1%
NYISO Zone J:
-18.6%
PJM West:
-4.1%
MISO:
-8.1%
Mid-C: -22.2%

22.
OUTLOOK: COMMERCIAL ELECTRIC PRICING
EIA Average Retail Rates ($/MWh) - September 2015
$60
$80
$100
$120
$140
$160
$180
$200
$/MWh
East North Central Mid-Atlantic New England
Pacific South Atlantic South Central
Average 2016 Commercial
Rates Compared to 2015:
East North Atlantic: +0.8%
Mid-Atlantic: +1.7%
New England: +8.8%
Pacific: +3.0%
South Atlantic: +1.9%
South Central: +1.3%

23.
PJM CAPACITY PERFORMANCE
PJM - September 2015
PJM’s goal is to
strengthen grid
performance, but that will
likely lead to increased
costs for consumers.
 Restructuring of PJM’s capacity market
due to deteriorating resource
performance and ongoing change in
generation mix
 Stems from the poor generator
performance during the price spikes in
January 2014
 Phased In, but initially effective June
2016, with transitional auctions for
planning years 2016/2017 and
2017/2018. Base auction for 2018/2019
to include
 2016/2017 transitional auction results
showed increases between 23%-63%
from base auction (still below
2015/2016)
Budget Impact:
Increased capacity
prices from June
2016 to May 2017.

24.
CLEAN POWER PLAN
EIA – 3 August 2015
Implementation of the
Clean Power Plan will
cause natural gas and
renewables to become a
much bigger part of the
U.S. generation mix.
 Clean Power Plan goal to reduce carbon
dioxide emissions from power plants
 Carbon pollution from power sector set to be
32% below 2005 levels by 2030. (An
increase of 2% from last year’s proposal)
 States must submit initial plans to EPA on
how they will meet the standards by Sept
2016 and final complete plan by Sept 2018
 Must meet progressive goals starting 2022
through 2029. (Two year delay to start of
program, originally 2020)
 Coal expected to fall to 27% of generation
mix by 2030, while renewables expected to
double to 28%

25.
2016 ENERGY BUDGET PLANNING TIPS
 #1: START WITH SITE SPECIFIC BASELINES
− Energy market influencers can vary quite a bit by region. Know the potential risks in each
market and tailor your energy procurement buying strategy to meet your budget needs.
 #2: ENGAGE STAKEHOLDERS EARLY AND OFTEN
− Communicating the fundamental factors affecting regional energy markets can help reduce
surprises when they occur (i.e. extreme winter of 2013/2014). It also develops further
communication around energy procurement strategy, potential building enhancements, and
cost-cutting initiatives.
 #3: TRACK VARIANCES FOR COST AND USAGE
− By tracking variances in cost and usage, you can better understand what’s driving the
variance. Also analyze multiple levels (portfolio, regional/division, site) to identify trends or
isolate poor performers.
 #4: ADJUST AND COMMUNICATE AS NEEDED
− The energy markets are in a constant state of change. Identify fundamental shifts in the
market to evaluate whether the current strategy needs to be adjusted.

26.
 NATURAL GAS AND WHOLESALE ELECTRICITY ARE NEAR THEIR
LOWEST LEVEL SINCE 2012.
 Strong natural gas production weighing heavily on wholesale natural gas and electricity prices
 POWER SECTOR DEMAND FOR NATURAL GAS TO INCREASE
 With around 14,000 MW of coal-plant retirements scheduled for 2015, gas-fired generation
will continue to grow and potentially introduce more volatility.
 EL NIÑO STRENGTHENING INTO WINTER
 El Niño typically brings warmer/drier conditions to the major gas consuming North during
winter, which could reduce pipeline constraint related volatility in New York and New England
 NATURAL GAS PRICE FORECAST
 Wholesale natural gas prices are expected to slowly rise into 2016. At this point, upside risk is
more likely than further downside moves
MAJOR TAKEAWAYS

27.
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28.
UPCOMING WEBINARS
INSIDE ENERGY & SUSTAINABILITY
 How to Reduce Food Waste– October 8th, 2015
at 11a PST

29.
Q&A
Questions, comments, suggestions?
webinars@ecova.com

30.
Thank you!