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Q3 2015 Energy Market Outlook
Energy Prices and Market Intelligence Q3 Update September 10, 2015
Presenter: Jonathan Lee, ...
 Prices are near a three-year low, how did we get here?
• Natural Gas Production, Storage: Near-record pace.
• Power Sect...
 Natural gas production running 7% higher
in first six months of 2015 than 2014
 Dry gas production expected to average
...
SHALE PRODUCTION GROWTH
EIA - September 2015
Marcellus leading
the way, producing
over 15 bcf per day
in 2015.
 Power sector demand growth
 Pipeline infrastructure
expansions
 Liquefied natural gas exports
 Exports to Mexico
 In...
 Cost of production vs.
the price of natural gas
 Decline in oil prices
− Potential reduction
in associated gas
output
−...
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 S...
SUPPLY OUTPACING DEMAND
Gas production continues to
outpace demand, which has put
downward pressure on natural
gas prices....
RECORD GAS-FIRED GENERATION
EIA - September 2015
 The proportion of electricity generated
from natural gas outpaced the p...
The summer of 2015 was mostly in
line with projections. The West was
hot and dry, while the rest of the
country was near n...
FALL TEMPERATURE OUTLOOK
A cooler South Central is likely to persist
through Fall, while the is West, North, and
East Coas...
EARLY WINTER WEATHER OUTLOOK
NOAA, Farmers’ Almanac, AccuWeather - September 2015
Budget Impact:
El Niño to dampen energy
...
El Niño currently has greater than a 90%
chance of strengthening through the
winter, which could help CA drought, and
keep...
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
...
REX ZONE 3 EAST TO WEST
1.2 bcf/day into Chicago
and Michigan.
EIA - September 2015
 One of the longest
pipelines in the ...
NV
PIPELINE CAPACITY AND GAS BASIS
Expected Changes 2015 - 2018
Algonquin
Transco Z6NY
Chicago
Sumas
Dominion South
Columb...
$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
Oc...
NATURAL GAS
$MMBtu (12-Month Strip) – 4 September 2015 – Short Term Trading Channel
OUTLOOK: NATURAL GAS PRICING
In general, pricing is
expected to gradually,
and slowly rise
through the end of
2016. The EI...
WHOLESALE ELECTRICITY
$MWh (12-Month Strip) – 4 September 2015
$25
$35
$45
$55
$65
$75
$85
$95
$/MWh
ERCOT AVG NY ISO J PJ...
WHOLESALE ELECTRICITY YOY DECLINE
Rolling 12-Month Strip: 4 September 2015
NV
ERCOT: -26%
PG&E NP15 West:
-21.5%
NEPOOL:
-...
OUTLOOK: COMMERCIAL ELECTRIC PRICING
EIA Average Retail Rates ($/MWh) - September 2015
$60
$80
$100
$120
$140
$160
$180
$2...
PJM CAPACITY PERFORMANCE
PJM - September 2015
PJM’s goal is to
strengthen grid
performance, but that will
likely lead to i...
CLEAN POWER PLAN
EIA – 3 August 2015
Implementation of the
Clean Power Plan will
cause natural gas and
renewables to becom...
2016 ENERGY BUDGET PLANNING TIPS
 #1: START WITH SITE SPECIFIC BASELINES
− Energy market influencers can vary quite a bit...
 NATURAL GAS AND WHOLESALE ELECTRICITY ARE NEAR THEIR
LOWEST LEVEL SINCE 2012.
 Strong natural gas production weighing h...
NEW! Energy Market Watch Newsletter
Subscribe today: http://www.ecova.com/news-
media/energy-price-hub.aspx
Weekly energy ...
UPCOMING WEBINARS
INSIDE ENERGY & SUSTAINABILITY
 How to Reduce Food Waste– October 8th, 2015
at 11a PST
Q&A
Questions, comments, suggestions?
webinars@ecova.com
Thank you!
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IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 1 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 2 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 3 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 4 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 5 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 6 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 7 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 8 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 9 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 10 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 11 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 12 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 13 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 14 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 15 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 16 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 17 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 18 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 19 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 20 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 21 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 22 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 23 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 24 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 25 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 26 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 27 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 28 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 29 IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING Slide 30
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IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING

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So far, 2015 has brought us low energy prices, record natural gas production and soaring gas-fired electric generation. What should you be planning for as 2016 budget forecasting gears up? Join us for Ecova's third quarter, Energy Outlook webinar. We will review: 2016 budget planning tips and factors to keep in mind, why energy prices are at a three year low and are these prices expected to stay and what is impacting this year's record gas production.

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IES WEBINAR: Q3 ENERGY MARKET OUTLOOK: WHAT TO KNOW FOR 2016 BUDGET PLANNING

  1. 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. 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. 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. 4. SHALE PRODUCTION GROWTH EIA - September 2015 Marcellus leading the way, producing over 15 bcf per day in 2015.
  5. 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. 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. 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. 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. 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. 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. 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. 12. EARLY WINTER WEATHER OUTLOOK NOAA, Farmers’ Almanac, AccuWeather - September 2015 Budget Impact: El Niño to dampen energy price increases this winter?
  13. 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. 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. 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. 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. 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. 18. NATURAL GAS $MMBtu (12-Month Strip) – 4 September 2015 – Short Term Trading Channel
  19. 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. 20. WHOLESALE ELECTRICITY $MWh (12-Month Strip) – 4 September 2015 $25 $35 $45 $55 $65 $75 $85 $95 $/MWh ERCOT AVG NY ISO J PJM NEPOOL PG&E NP15 W 12-Month Rolling Strip ERCOT HZ NY ISO J PJM NEPOOL PG&E (NP15) NYMEX Correlation 98.77% 85.22% 67.40% 81.28% 97.60%
  21. 21. WHOLESALE ELECTRICITY YOY DECLINE Rolling 12-Month Strip: 4 September 2015 NV ERCOT: -26% PG&E NP15 West: -21.5% NEPOOL: -26.1% NYISO Zone J: -18.6% PJM West: -4.1% MISO: -8.1% Mid-C: -22.2%
  22. 22. OUTLOOK: COMMERCIAL ELECTRIC PRICING EIA Average Retail Rates ($/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. 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. 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. 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. 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. 27. NEW! Energy Market Watch Newsletter Subscribe today: http://www.ecova.com/news- media/energy-price-hub.aspx Weekly energy price outlooks and market trends delivered to your inbox
  28. 28. UPCOMING WEBINARS INSIDE ENERGY & SUSTAINABILITY  How to Reduce Food Waste– October 8th, 2015 at 11a PST
  29. 29. Q&A Questions, comments, suggestions? webinars@ecova.com
  30. 30. Thank you!
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So far, 2015 has brought us low energy prices, record natural gas production and soaring gas-fired electric generation. What should you be planning for as 2016 budget forecasting gears up? Join us for Ecova's third quarter, Energy Outlook webinar. We will review: 2016 budget planning tips and factors to keep in mind, why energy prices are at a three year low and are these prices expected to stay and what is impacting this year's record gas production.

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