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Metropolitan Purchasing Council

Metropolitan Purchasing Council. Commodities Management Group October 10, 2013. Agenda. Weather Demand State of the Economy Supply & Demand Fundamentals Pricing Trends. Source: NYMEX. Lower Cooling Demand Pressures Prices Downward.

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Metropolitan Purchasing Council

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  1. Metropolitan Purchasing Council Commodities Management Group October 10, 2013

  2. Agenda Weather Demand State of the Economy Supply & Demand Fundamentals Pricing Trends Source: NYMEX 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. 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 • 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 Data Source:: EarthSat, NOAA 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. Initial Winter Forecast Risk in Jan-Feb • 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 Source:, NOAA 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. 12 Named Tropical Storms Season-to-Date • 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 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 Source: NOAA, 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.

  6. Agenda Weather Demand State of the Economy Supply & Demand Fundamentals Pricing Trends Source: NYMEX 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.

  7. Will Shutdown Hinder GDP Growth? • 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 Sources: WSJ, Labor Dept, Commerce Dept, Business Insider 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. Agenda Weather Demand State of the Economy Supply & Demand Fundamentals Pricing Trends Source: NYMEX 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.

  9. Record U.S. gas production pushes prices down • 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 Natural gas rig count near 13-year lows (-50% decline over past two years) 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 Source: Baker Hughes, 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.

  10. U.S. Natural Gas Production Surprises • 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 U.S. Natural Gas Production Billion cubic feet per day (bcf/d) Natural gas production at a record high Source: Baker Hughes, EIA 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

  11. Gas Injections On Pace to Meet Winter Demand • Current storage is 3,487 Bcf, 49 Bcfabove 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 Customer Takeaway: Gas supplies look adequate for normal winter heating demand, but will still drive NYMEX price valuations in the coming months Sources: 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.

  12. 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.

  13. 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) • Industrial Demand Increase (2 Bcf/d by 2016) • Coal Retirements Increase Gas Demand (4 to 6 Bcf/d by 2016) • LNG And CNG Vehicles • (2 to 4 Bcf/d by 2020) 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 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.

  14. Pricing-In the Impact of Future Natural Gas Demand 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 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 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.

  15. Agenda Weather Demand State of the Economy Supply & Demand Fundamentals Pricing Trends Source: NYMEX 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.

  16. Market Pressing Lower Ahead of the Looming Winter • 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 $3.55 Customer 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 Source: Constellation, 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.

  17. Long-Term Prices Very Close to All-Time Lows In early 2009 the price range of long-term NYMEX contracts was $7-8 By mid 2011 the market fell to around $5-6, as production continued to surged Winter 2011/12 demand erosion + excess supply lead to historical lows in 2012 Market is more balanced today; however long-term prices are still 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 Source: NYMEX, Constellation 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.

  18. NYMEX forward strips near all-time lows Term Trading Range 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 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.

  19. NYMEX Forward Pricing - Current Contract Aug 9th - $3.74 Source: NYMEX 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. NYMEX Forward Pricing - Extended Term Source: NYMEX 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.

  21. MEC: July 2012 – June 2013 Hedges 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.

  22. MEC: July 2013 – June 2014 Hedges 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.

  23. MEC: July 2014 – June 2015 Hedges 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.

  24. Summary 1 3 4 2 C B A Define goals/objectives and manage cost (P*Q) over time Forward markets are still near all-time lows Understand evolving market risks and options to manage that risk Establish price targets to capitalize on pullbacks and protect against upside risk

  25. Contact Information Bill Sticka Director, Technical Sales / Marketing Strategy Commodities Management Group Telephone 410.470.5308 Email: William.Sticka@Constellation.com Constellation Energy

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