Download - 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
4This 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.
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
5This 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.
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
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
7This 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.
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
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
9This 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.
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)
11This 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.
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
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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Midwest Basis Impact Due To Northeast Production
Source: Bentek
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 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
14This 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.
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
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
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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
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, 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
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 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.
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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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%)
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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MEC: July 2013 – June 2014 Hedges
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%
Ohio School ConsortiumJuly 2013 - June 2014 Hedges
$3.8752 Avg Hedge Price (~ 75% )
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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MEC: July 2014 – June 2015 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%90%
100%
Ohio School ConsortiumJuly 2014 - June 2015 Hedges
$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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