2015SummerNatGas

Natural Gas Production, North America (BI NGASN)

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Overview > U.S. Summer Natural Gas Needs Help From Heat Mizer >> Exhibit 1 of 16

Summer Natural Gas May Get No Reprieve Without Help From HeatAnalysts: Vincent G Piazza & Gurpal DosanjhApr 2, 2015U.S. summer natural gas priceswill likely fall to about $2 per millionBritish thermal units given elevatedoutput and lower Canadian imports,partially offset by higher powergeneration demand and pipelineexports. The shoulder seasonlull has begun with storage levels65% above last year. Marketedproduction growth will averageabout 5.5% from April throughAugust vs. the prior year, yet slowlater in the year and into 2016.Cyclical cooling demand and theshift to gas-fired power could aidprices longer-term.

Key Points (5 of 16):* U.S. Natural Gas Market 'Long' in Summer, Throughout Year* Coal Retirements, Gas Capacity Adds Likely Won't Aid SummerGas* Power-Plant Retirements Pose Structural Coal Hurdle (Correct)* PRB Coal Price Pressures to Linger as Utility Buying Subsides* Northeast Gas Prices May Stay Subdued Until Pipes Come toRescue

Natural Gas Production TeamBloomberg Intelligence




Natural Gas Output to Remain Ebullient, Keep Prices ContainedAnalysts: Vincent G Piazza & Gurpal DosanjhApr 2, 2015U.S. natural gas imbalances willmaintain pressure on benchmarkprices this summer and likely into4Q. Volume growth may average5% yet output should rise at aslower pace toward the end of2015. Prices in the Northeast, areasseeing prodigious output growth andtakeaway bottlenecks, are tradingwell below $2 per million Btu andbelow cash costs, driving operatorsto limit activity. Should seasonaldemand rise, wells drilled but notcompleted, known as DUCs, act asjust-in-time-inventory and suppressprices.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence BI NGASN FLEXP |40-2-W|WL54||USD|L29<GO>




U.S. Natural Gas Market 'Long' in Summer, Throughout YearAnalysts: Vincent G Piazza & Gurpal DosanjhApr 2, 2015The structure of the U.S. naturalgas market will remain long through2016. While incremental coal-to-gas switching, retiring coal-fired power generation, increasedpipeline exports to Mexico andLNG export potential will likelyboost 2015 and 2016 natural gasdemand above expected levels, thepace of output will probably exceednear-term expectations and outrunconsumption. The demand-supplyimbalance should tighten in 2016 asoutput growth slows while structuralshifts in natural gas demand takehold.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence BI NGASN STEO |1535-2-Q-UNITS|ML48||USD|S122,132<GO>




U.S. Gas Storage May Kick Off Next Winter Near Five-Year HighsAnalysts: Vincent G Piazza & Gurpal DosanjhApr 2, 2015U.S. natural gas storage will startthe next winter season near a five-year high, assuming injectionsthrough October are close to the 2.1trillion cubic feet added in the priorfive years. Storage would top 3.6trillion cubic feet when the heatingseason begins Nov. 1. This may beconservative, with March marketedproduction 8% above last year,2015 output possibly growing 5%and inventory 65% higher than lastyear. Without a warmer summerand incremental power generationdemand, benchmark prices may bepressured.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence MMDL 165454696<GO>




Switching, Retirements, Additions to Tighten U.S. Gas Market?Analysts: Vincent G Piazza & Andrew CosgroveApr 2, 2015Price is the primary driver ofcoal to gas fuel switching, thoughpipeline capacity, maintainingsystem redundancy and minimizingtransmission congestion also areconsiderations. With natural gasoutput elevated, U.S. benchmarknatural gas prices sustained belowthe existing $2.64 per MMbtu levelmay further pressure Appalachianand western coal demand dynamics.Switching of 15 million to 20 milliontons of coal to gas may yield 1billion to 1.3 billion cubic feet ofadditional gas demand per day.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence G BI2 1825<GO>

Natural Gas Production, North America (BI EGENN)



Much of U.S. Coal-to-Gas Switching May Have Already OccurredAnalyst: Kit KonoligeApr 2, 2015The planned retirement of 19gigawatts of U.S. coal generationthis year involves older, smallerplants that run at an averagecapacity factor of 25%, or only atpeak times. The surviving coalplants have a high capacity factorof 60%, indicating positive cashflows even with low gas prices.Regional considerations suppressgas switching, such as the scarcityof pipelines into New England andthe Southeast. Regulated coalplants, which account for 75% ofall coal, are relatively insensitive tomarket signals.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence BI EGENN OTHRI |1087-2-A-DATA|A11||USD|S106,107<GO>




Natural Gas Price Drives Switch From Coal, Question Is How MuchAnalyst: Kit KonoligeApr 2, 2015Gas price drops should drivemore generation to gas, yet thequestion is how much. Seasonality,transmission constraints andmore renewables complicate theanalysis. After years of coal plantretirements, many remaining unitsare super-critical machines thatare not vulnerable, even to $3 gas.Super-critical coal plants have acash production cost of about $22/mwh, new gas plants about $25 at$3 gas, and sub-critical coal about$35. Even with prices at 13-yearlows since 2012, gas's share hasnot risen materially.





Coal Retirements, Gas Capacity Adds Likely Won't Aid Summer GasAnalysts: Vincent G Piazza & Andrew CosgroveApr 2, 2015Support for summer natural gasprices in the U.S. from additionaldemand sources may not be asprevalent given the strength ofoutput growth in 2015. Yet slowervolume growth in 2016 and heatingdemand next winter may helpsupport medium-term prices. Also,more than 15 gigawatts of gas-firedcapacity demand could be added in2015 and 2016. This year, 19 GWof U.S. coal-fired generation is setto retire, with utilization of just 25%,limiting the gas demand increase toless than 1 billion cubic feet a day.





Will LNG Exports Starting in 2015 Truly Provide a Secular Boost?Analysts: Vincent G Piazza & Syarifa GalebApr 6, 2015Longer-term U.S. LNG exportopportunities may be more mutedthan expected if the drop in oilbenchmark prices is sustained,restraining the competitivenessof future U.S. capacity. The firstLNG export flows from the lower48 states are expected in late 2015from the 2.7 billion cubic-feet-a-daySabine Pass terminal, one of fivefacilities with 9.2 bcfd of approvedcapacity. Global LNG demand maygrow at a more subdued pace andglobal supply trends might restrainmargins, offering less of a boost toU.S. exporters.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence BI NGASN 1098 |1098-2-Q-UNITS|M48||USD|

S169,211,212,213,215,216<GO>

Natural Gas Production, North America (BI COALN)



Natural Gas Weakness May Pose Contract Risk for U.S. Coal MinersAnalysts: Andrew Cosgrove & William FoilesMar 17, 2015If natural gas prices drift lower in2Q and remain subdued into 3Q,the pace of contract signings for2016 coal tons may slow materiallyas buying power shifts away fromminers. On average, U.S. coalproducers are only 50% contractedfor 2016 thermal coal volumes,leaving many exposed to reductionsin realized pricing. Foresight hasthe highest percentage (76%) of2016 shipments committed andpriced while Hallador (34%) andArch (37%) have the lowest.





Gas Share of U.S. Power Generation at Record Rate as Coal FallsAnalyst: Kit KonoligeApr 2, 2015The natural gas percentage of totalU.S. power generation is running ata record pace year-to-date, reaching28% in January vs. 24% the prioryear. Gas capacity has continuedto rise and coal to fall, albeit slowly.Gas already has substantially morecapacity than coal, so there maybe more room for gas to grow aselectricity demand increases. TheEnergy Information Administrationexpects additions of 8 gigawatts ofgas in 2014-15, followed by 10 GWsin 2016.





Power-Plant Retirements Pose Structural Coal Hurdle (Correct)Analysts: Andrew Cosgrove & William FoilesMar 18, 2015As falling natural gas prices presenta cyclical demand challenge forU.S. coal in 2015, a more structuralchallenge will come in the form ofcoal-fired power-plant retirements.About 19 gigawatts of coal-firedgeneration capacity is set to retirethis year, removing at least 25million tons of coal demand. Whilesome projected retirements may bedelayed into 2016 and 2017, thefirst compliance deadline is in April,when all companies must providedetails on their strategies. (Correctsamount to be retired.)





PRB Coal Price Pressures to Linger as Utility Buying SubsidesAnalysts: Andrew Cosgrove & William FoilesMar 9, 2015Powder River Basin coal pricesmay stay under pressure during thenext few quarters, given that utilitieshave little incentive to buy morethan they've already contracted.As a result, days-of-burn, or theforward-looking estimate of coalsupply, may remain tame as utilitiesget more comfortable with holdingless inventory. Sub-bituminouscoal stockpiles, made up mainlyof PRB coal, have risen 32% fromAugust lows as rail bottlenecks havesubsided.





Northeast Gas Prices May Stay Subdued Until Pipes Come to RescueAnalysts: Vincent G Piazza & Gurpal DosanjhApr 2, 2015Prodigious domestic natural gasoutput will continue to constrainnot only benchmark prices butalso regional trading hubs, hurtinggas-levered operators. Northeastnatural gas price differentialswill remain more constrainedrelative to benchmarks andother trading hubs in the near-term given that production in theMarcellus and Utica is growingfaster than infrastructure. Reversinglegacy systems and adding newinfrastructure to push flows to otherregions will support prices.





Appalachia E&P Valuations May Fall on Natural Gas InjectionsAnalysts: Gurpal Dosanjh & Vincent G PiazzaApr 2, 2015Appalachia E&Ps may see relativevaluations to U.S. peers decline ifrobust natural gas injections andcapacity constraints pressure prices.Inventory levels have recovered,and are 65% higher than a yearago. Production will likely continueto grow in the Marcellus andUtica shale plays. This will furtherpressure existing infrastructure andlead to lower realized prices forcompanies without firm takeawaycapacity commitments to higher-value markets away from theNortheast, where prices may fallbelow $2.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence BI NGASN VALU |113-3-RATIO-14646||#14646|USD<GO>




Texas, PJM Add the Most Gas, Aiding NRG, Dynegy, Exelon MarginsAnalyst: Kit KonoligeApr 2, 2015As one of the few regions withmaterial load growth, the Texasgrid (Ercot) is actually adding totalgeneration capacity -- much of itgas and renewables. This ensuresthat incremental Texas demand willbe fueled with natural gas, thoughit doesn't replace much existingcoal. The other major region forgas additions is the mid-Atlantic(PJM), where merchant builders aretaking advantage of relatively highercapacity prices. The biggest users ofgas in 2013 were Texas, Florida andCalifornia.

Natural Gas Production Team For interactive exhibit on Bloomberg, run:Bloomberg Intelligence BI EGENN OTHRI |1087-2-M-DATA|M12||USD|B62<GO>

2015SummerNatGas

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