Energy Market Intelligence Webinar. February 20, 2019

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1 Energy Market Intelligence Webinar February 20, 2019

2 Today s Speakers David Ryan Meteorologist Ed Fortunato Managing Director, Wholesale Short-Term Fundamentals Keith Poli Commodities Management Group Brian Habacivch Commodities Management Group Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy, Inc. or Constellation NewEnergy-Gas Division, LLC, affiliates of each other and ultimate

3 Today s Webinar Agenda Weather: Winter Summary - What drove a cold West & mild East? - Will El Niño carry over into summer? Near-Term Market Fundamentals & Key Regional Issues Liquefied Natural Gas (LNG) Projects Coming Online in 2019 & Next Wave? Gas & Power Pricing Trends Your Questions Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy, Inc. or Constellation NewEnergy-Gas Division, LLC, affiliates of each other and ultimate

4 Weather

5 Short-Term Weather Drivers: Cold West/Variable (Colder) East Strong cold is still focused across the West and into the Upper Midwest. The Northeast will see some brief pushes of cold, however the cold may struggle to push into the Southeast for long periods of time. A stronger cold shot is possible in the 8-14 day period from the Midwest into the East. Winter storm track remains active. California will see another cold week next week. Source: NOAA Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC, Constellation NewEnergy, Inc., Constellation Energy Services - Natural Gas, LLC, Constellation Energy Services, Inc. or Constellation Energy Services of New York, Inc., affiliates of each other and ultimate

6 Looking Ahead to March MARCH 2019: NOAA Outlook MARCH 2019: Weak El Niño There are some similarities to the temperature pattern when comparing this February versus March. Weak El Niño correlations suggest some cold connection, but factoring in recent model bias and actual results may yield an outcome similar to the National Oceanic and Atmospheric Administration (NOAA). The risk in March is colder overall, especially South and East with a warmer West. Mean weak El Niño analog PWGHDD is around 680, colder than the 10-year (599) and the 30-year (631). Pacific Northwest hydro is currently forecast at 87% of normal. Downside risks outweigh upside, especially over the next few weeks. California will continue to outperform normal. Source: NOAA /Commodity Weather Group Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC, Constellation NewEnergy, Inc., Constellation Energy Services - Natural Gas, LLC, Constellation Energy Services, Inc. or Constellation Energy Services of New York, Inc., affiliates of each other and ultimate

7 El Niño Situation: Can It Last Into Summer? Water temperature anomalies have dipped slightly below El Niño thresholds in recent weeks but have shown some slight warming recently. Warmer-than-normal water extends under the sea-surface in the West Pacific but some cooler anomalies are present in the East, but fairly deep. There are 4 out 9 major computer models that show El Niño status in July. Correlations with El Niño summer weather are generally cooler than normal nationwide, except possibly Texas and the Pacific Northwest. Summer correlations are weaker than winter for El Niño. Source: Australian Bureau of Meteorology Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC, Constellation NewEnergy, Inc., Constellation Energy Services - Natural Gas, LLC, Constellation Energy Services, Inc. or Constellation Energy Services of New York, Inc., affiliates of each other and ultimate

8 Near-Term Fundamentals

9 Storage Poised to Finish Winter Flat to Year-Ago Levels Lower-48 U.S. working gas inventories stand at 1,882 Bcf, -30 Bcf (-1.6%) below last year and -333 Bcf (15%) lower than the five-year average. The largest withdrawal this winter to date was -237 Bcf for week ending February 1 st ; the result of very strong demand from a polar vortex pattern that in the Midwest that exceeded the polar vortex of 2014 in its intensity but for a shorter duration. The continued below-normal temperatures through the third week of February will continue to draw down storage across the West and Rocky Mountain regions. The Energy Information Administration, in its February Short Term Outlook (STEO), call for end of March at 1.4 Tcf and October reaching 3.8 Tcf. Customer Takeaway: Mother nature has given the storage deficit a reprieve this winter but if new demand (exports and power generation) absorbs the expected growth in production, storage could remain tighter if summer temperatures are strong. Sources: EIA, Constellation Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

10 A Look at Spring Nuclear Outages Nuclear units refuel on 18-month cycles and these usually occur in the Spring and Fall. The average outage lasts 34 days As a rule, every 5 GW of nuclear outage equals 1 Bcf/day of gas fired generation demand. From March 1st thru May 31 st there are 26.4 GW of nuclear outages scheduled, which will be similar to year ago levels. Customer Takeaway: Nuclear outages support gas-fired generation demand in shoulder months with every 5 GW of outages equating to 1 Bcf/day of gas-fired generation demand. Source: NRC, EIA Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

11 Shale Accounts for 70% of U.S. Gas & 60% Oil Production Dry gas production for February has averaged +87 Bcf/day per the EIA but third party forecasts continue to point to production near 86 Bcf/day. Shale gas dry output has reached 65 Bcf/day in December, 70% of the output that month. The EIA s Short Term Energy Outlook for February forecasts gas production will average 90.2 Bcf/day in 2019, a growth of 6.9 Bcf/day year-over-year. The EIA is forecasting dry production to average 92.1 Bcf/day for Despite growing output (Texas surpassed its 1973 record for oil production), oil and gas rig counts are at a 12-month low of 1,099 as many drilling companies are announcing reduced capital expenditure budgets for Customer Takeaway: Gas production will continue to make new record highs in 2019 but a flat forward curve below $3/MMBtu could begin to slow the rate of growth. Sources: EIA, NYMEX Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

12 Producers Reducing CAPEX for 2019 on Low Forward Prices For , NYMEX natural gas averaged ~$3.10/MMBtu but the current NYMEX forward gas curve does not have an annual price above $3.00/MMBtu through Equity investors are calling for greater financial discipline. Shale plays that are dry vs. wet (i.e., that contain natural gas liquids or NGLs) will face a higher break-even hurdle. Customer Takeaway: The NYMEX strip for is likely not supporting the level of new drilling required to offset existing legacy production declines and meet forecasted demand growth. Source: Antero Resources Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

13 Key Regional ISO Issues

14 Cold & Clouds in California Driving Low Storage & Volatility Customer Takeaway: Below normal temperatures in CA and the West has pushed gas withdrawals to seasonal highs and pushed Day-Ahead Gas Daily prices to near $20/MMBtu. Solar output has been reduced in periods of stormy cloud cover. Below-normal temperatures through the balance of February could strain storage in March. Sources: CAISO, SoCal Gas & PG&E, Platts Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

15 ISO-NE s 13th Capacity Auction Clears Well-Below Expectations All zones cleared at $3.80/kW-month - 83 cents/kw-month lower than FCA12 s clearing price (a 17.93% decrease) Market consensus heading into the auction was $ /kW-month A total of 34,839 MW was secured, a 1,089 MW surplus to the 33,750 MW capacity requirement set NTE Energy s new 650 MW gas-fired plant, Killingly Energy Center, was among over 2,600 MW of new resources that cleared The inaugural substitution auction netted one obligation awarded to Vineyard Wind which means that resource will assume 54 MW of an exiting resource beginning in June Customer Takeaway: Capacity prices in New England continue to decline after peaking in 2018/2019. This auction caught most by surprise by clearing significantly lower than expected, but customers can still amortize higher front-term costs with lower back-end pricing. 14 Source: ISO-NE 2019 Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

16 ERCOT: Shape of the New ORDC Curve & Impact on Prices Review: The Operational Reserve Demand Curve (ORDC) price adder for scarcity pricing. Real-Time LMP + ORDC = SPP From , ERCOT reserves have been above 6.2 GW 90% of hours and below 10%. Current Reserve Margin in 7.4%, below the NERC recommended target of 13.75% In January, PUCT instructed ERCOT to consolidate its current 24 seasonal ORDC curves to a single average curve that is designed to support summer scarcity pricing. Cost Impact: At 3 GW of reserves, the price increases from ~$1,300/MWh in 2018 to ~$2,800/MWh in ORDC pricing is likely to be present when temperatures in Dallas exceed 105 degrees F & 100 degrees F in Houston. Change in ERCOT Operational Reserve Demand Curve (ORDC) for Summer On-Peak Hours 10% of Hours 90% of Hours Incremental ORDC adder for 2019 (orange line) Customer Takeaway: As reserve margins have tightened further for this summer in ERCOT, the Public Utility Commission of Texas (PUCT) is increasing the cost of low generation reserves in the real-time market when they decline below 5 GW. Summer forecasts will be a key driver of forward prices, and prices will rise on above-average temperature forecasts. Sources: ERCOT & PUCT Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

17 Save the Date for the Houston Executive Energy Forum April 1-2, 2019 Join us Monday, April 1, as we kick off our first-ever Constellation Executive Energy Forum in Houston with welcome cocktails at the Houstonian Hotel beginning at 6:00 p.m. CT. On Tuesday, April 2, you ll hear from industry-leading experts on market trends, innovation and technologies impacting your procurement strategy. Featured Industry Keynote Speaker Contact your BDM to receive the invitation or type Houston EEF in the Webinar Questions Panel to receive additional information. If you can t join us in Houston, future Executive Energy Forums will be hosted in: Baltimore Boston Chicago Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

18 Liquefied Natural Gas (LNG) Exports: Current and Future Demand Growth

19 U.S. Liquefied Natural Gas (LNG) Export Update Source: Antero Resources U.S. LNG export demand hit an all-time daily high of 5.5 Bcf/day last month as Sabine Pass Train 5 and Corpus Christi Train 1 near commercial operation. FERC approved fuel gas deliveries to Corpus Christi Train 2, implying that commissioning is imminent. Cheniere announced a 20-year deal to sell LNG from Sabine Pass Train 6 to Petronas in Malaysia (Train 6 is approved, but not yet under construction). In Q4-18, U.S. net exports of natural gas were up 3.3 Bcf/day versus Q4-17. Customer Takeaway: The EIA expects 4.5 Bcf/day of new LNG export capacity to come online in the U.S. in 2019, doubling capacity versus end-of-year Sources: EIA, DOE, FERC, S&P Platts 2019 Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

20 Existing and Second Wave Liquefied Natural Gas Projects Existing & Proposed Delfin (off shore) There are four projects; Magnolia (1.1 Bcf/day), Lake Charles (2.3 Bcf/day), Golden Pass (2.2 Bcf/day) and Delfin (1.8 Bcf/day), representing an additional 7.4 Bcf/day of export capacity that have received Federal Energy Regulatory Commission (FERC) & Department of Energy (DOE) approvals but have not yet started construction. Golden Pass, a joint venture of Exxon Mobil and Qatar, reached a Final Investment Decision (FID) in February to proceed without a long-term offtake agreement. Assuming a four-year construction timeline, it is not likely to come online until There are an additional 13 projects proposed to FERC and awaiting approval the represent an additional 21 Bcf/day of capacity. Not all will get built, but it illustrates the potential export capacity that the U.S. could build in the next 10+ years. Customer Takeaway: The announcement in February that Golden Pass will begin construction this year could usher in second wave of LNG projects to come online post Look for Lake Charles, Magnolia and Delfin to line up long-term contracts in Sources: EIA, DOE, Platts, ESRI, FERC Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

21 LNG Exports: Proposed Terminals Pending FERC Approval Customer Takeaway: Liquefied natural gas (LNG) exports could grow by another net 21 Bcf/day if projects proposed to FERC receive approval and proceed to construction. Not all of the 12 Lower 48 state projects above will likely advance to final investment decisions. Sources: FERC Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

22 Natural Gas and Power Pricing Trends

23 NYMEX Finds Support at $2.60 on Short-Term Weather Moving Averages: Purple Line: 20 Day Green Line: 100 Day Key Support: $2.55 March 16: 17 Year NYMEX Low Customer Takeaway: After settling at the lowest level since August 2016 last Thursday, prices have rebounded 2.5% on cooler weather and some short covering. We could see some volatility in gas with changing weather forecasts but barring a strong change in fundamentals, expect limited sustainable volatility in the near term. Sources: Reuters; NYMEX Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

24 NYMEX Natural Gas Calendar Strips $/MMBtu Bal 19 Cal 2020 Cal 2021 Cal 2022 Cal 2023 Current $2.77 $2.72 $2.64 $2.65 $ Year Avg $ 2.80 $ 2.69 $ 2.65 $ 2.68 $ 2.74 vs. Avg -1% 1% -1% -1% -1% Vs. High -13% -2% -7% -8% -8% Vs. Low 5% 5% 4% 4% 5% Customer Takeaway: The NYMEX 12-month strip has plummeted from previous highs due to a shrinking storage deficit brought on by milder temperatures, while near-record production has kept pressure on deferred calendar strip prices. Sources: Constellation, NYMEX; Prices as of COB 2/18/ Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

25 Index Power Prices (6-Month History) New England Texas SoCal Mid-Atlantic Northern Illinois Hudson Valley (NY) Note: These energy-only power prices are an indicative, non-transactable snapshot of the wholesale market as of COB 2/18/19. Customer Takeaway: The late January cold snap resulted in a brief uptick in index power price volatility across the Midwest and East. A sustained cold spell across the West along with ongoing gas market concerns have resulted in elevated index prices in the California market. Source: Constellation Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC, Constellation NewEnergy, Inc., Constellation Energy Services - Natural Gas, LLC, Constellation Energy Services, Inc. or Constellation Energy Services of New York, Inc., affiliates of each other and ultimate subsidiaries of Exelon Corporation. Brand names and product names are trademarks or service marks of their respective holders. All rights reserved. Errors and omissions excepted

26 Forward Power Price Trends (6-Month History) New England Texas SoCal Mid-Atlantic Northern Illinois Hudson Valley (NY) Note: These energy-only power prices are an indicative, non-transactable snapshot of the wholesale market as of COB 2/18/19. Customer Takeaway: With the late January cold shot in the rearview, the market is starting to discount winter risk. Energy buyers should look for seasonal buying opportunities to emerge in the next few months, especially if warmer than normal weather forecasts dampen late winter demand. Source: Constellation Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC, Constellation NewEnergy, Inc., Constellation Energy Services - Natural Gas, LLC, Constellation Energy Services, Inc. or Constellation Energy Services of New York, Inc., affiliates of each other and ultimate subsidiaries of Exelon Corporation. Brand names and product names are trademarks or service marks of their respective holders. All rights reserved. Errors and omissions excepted

27 Forward Power Price vs. All-Time Lows Prices as of COB 2/19/ Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy-Gas Division, LLC or Constellation NewEnergy, Inc., affiliates of each other and ultimate

28 Until Next Time April 17th Thank you for your participation. Please join us on Wednesday, April 17th, at 2 p.m. ET, for our next webinar, where we will update listeners with key weather drivers for summer 2019 and current supply and demand metrics. Feel free to reach out to the Commodities Management Group (CMG) with questions/requests at CMG@Constellation.com. We look forward to and appreciate your feedback Constellation Energy Resources, LLC. The offerings described herein are those of either Constellation NewEnergy, Inc. or Constellation NewEnergy-Gas Division, LLC, affiliates of each other and ultimate

29 Disclaimer The information contained herein has been obtained from sources which Constellation NewEnergy, Inc. and Constellation NewEnergy-Gas Division, LLC (together, Constellation ) believe to be reliable. Constellation does not represent or warrant as to its accuracy or completeness. All representations and estimates included herein constitute Constellation s judgment as of the date of the presentation and may be subject to change without notice. This material has been prepared solely for informational purposes relating to our business as a physical energy provider. We are 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 us or any of our affiliates to be considered a commodity trading advisor under the CEA. Constellation does not make and expressly disclaims, any express or implied guaranty, representation or warranty regarding any opinions or statements set forth herein. Constellation shall not be responsible for any reliance upon any information, opinions, or statements contained herein or for any omission or error of fact. All prices referenced herein are indicative and informational and do not connote the prices at which Constellation may be willing to transact, and the possible performance results of any product discussed herein are not necessarily indicative of future results. This material shall not be reproduced (in whole or in part) to any other person without the prior written approval of Constellation.