A Fundamental Look At The Winter Natural Gas Market Heading Into The Back Half of Winter WHERE ARE WE?

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1 A Fundamental Look At The Winter Natural Gas Market Heading Into The Back Half of Winter WHERE ARE WE? Prepared By Our Team For Our Customers Dr. Jim Duncan

2 2 Source DOE, Industrial Information

3 The Internet of Everything 3 February Source 5, DOE, 2018Industrial Information

4 Global Economy Outlook Not Too Hot Not Too Cold 4 February Source 5, DOE, 2018Industrial Information

5 Global Economic Outlook Good Chance of Continued Growth 5 February Source 5, DOE, 2018Industrial Information

6 China Mega Trade & Development Initiative or Geopolitical Strategy? 6 February Source 5, DOE, 2018Industrial Information

7 Impact of Tax Repatriation How Much Will Be Thrown At Capital Investments? 7 February Source 5, DOE, 2018Industrial Information

8 Global Economic Outlook 8 February Source 5, DOE, 2018Industrial Information

9 U.S. Macro Economic Outlook 9 February Source 5, DOE, 2018Industrial Information

Consumer Debt Problem? $3,827,220,000 2008 $2.

10 Consumer Debt Problem? $3,827,220, $2.6 Billion 10 Source DOE, Industrial Information

11 U.S. Industrial Plant Spending Forecast By Region 11 Source DOE, Industrial Information

12 Global Power Generation Projects 24 Month Outlook Active Capital & Maintenance Projects 12 Source DOE, Industrial Information

13 North American Power Industry Grassroot Project Kick Off Source DOE, Industrial Information

Energy Storage 1. Hydrocarbon fuels represent the current best energy storage medium/model. 2. The power stack is the current method of managing incremental demand. 3.

14 Energy Storage 1. Hydrocarbon fuels represent the current best energy storage medium/model. 2. The power stack is the current method of managing incremental demand. 3. The lack of efficient and dependable batteries limits the development of everything from electronics to hybrid vehicles. But new designs are offering better, safer alternatives. 4. Pumped Storage 5. Compressed Air 6. Flywheels 7. Supercapacitors 8. Superconducting Magnetic Energy Storage 9. Batteries 1. Trailer sized flow batteries vanadium redox and zinc bromide 2. high temperature batteries like sodium sulfur 3. Lead acid batteries are commonly used for high burst applications 4. Other batteries include metal air, lithium ion, nickel cadmium and leadcarbon 14 February 5, 2018

15 Global Oil & Gas Project Spending Outlook Total Active Projects By Market Region 15 February Source 5, DOE, 2018Industrial Information

S/D Wave Dynamics Will Predict Crude Prices

crude oil and, therefore, the global price.

OPEC have been met by US shale producers.

move like a supply/demand controlled sine

16 S/D Wave Dynamics Will Predict Crude Prices The increased availability of crude oil due to shale has put OPEC in a bind. They no longer control the output of global crude oil and, therefore, the global price. Recently, any cuts in production made by OPEC have been met by US shale producers. This means the crude oil market price will move like a supply/demand controlled sine wave. 16 Source: IEA, DOE, EIA, Industrial OPEC Information

17 Oil & Gas Industry (US and Canada) Project Spending Analysis by Year 17 February Source 5, DOE, 2018Industrial Information

18 Global Crude Demand Outlook The Imbalance is Shifting 18 Source DOE, Industrial Information

19 Crude Oil Production US Major Oil Basins Still a Major Contributor 19 Source DOE, Industrial Information

20 Onshore Natural Gas Production US Remains Strong Despite Lower Rig Count 20 Source DOE, Industrial Information

21 NGL Demand US NGL Demand Growth Source DOE, Industrial Information

22 Natural Gas Demand US Natural Gas Cumulative Demand Growth ( ) 22 Source DOE, Industrial Information

23 Mexico Project Spending 24 Month Outlook 23 Source DOE, Industrial Information

24 Mexico New Gas Pipelines Tapping into US Gas 24 Source DOE, Industrial Information

25 LNG Liquefaction Capacity Build Out Is The Spending Over? 25 February Source 5, DOE, 2018Industrial Information

26 U.S. & Canada Chemical Industry Construction Starts by Probability Factor 2017 vs February Source 5, DOE, 2018Industrial Information

27 Storage 27 February Source 5, DOE, 2018Industrial Information

28 Storage 28 February Source 5, DOE, 2018Industrial Information

29 The 2017 Hurricane Season 29 February Source 5, DOE, 2018Industrial Information

30 Maximum Temperature Departure from Normal This Past Winter Winter 2016/2017 Winter 2016/2017 proved to be a warm one. Departures from normal averaged +5 F for most of the high population areas of the CONUS. 30 Source: NOAA, DOE, Industrial MDA EarthSat Information

31 Winter Weather Has Been Anything But Consistent In summary 4 top 20 cold winters 6 top 20 warm winters 5 middle of the road winters 31 February Source 5, DOE, 2018Industrial Information

Current ENSO Values Suggest a Neutral Configuration Unfortunately, ENSO values are more toward the neutral configuration, which would suggest a winter

32 Current ENSO Values Suggest a Neutral Configuration Unfortunately, ENSO values are more toward the neutral configuration, which would suggest a winter driven by other systems than El Niño or La Niña. You have to be careful with neutral ENSO winters. 32 February Source 5, DOE, 2018Industrial Information

Expert Winter Outlooks NOAA scientists lined up

just because of their lack of originality.

33 Expert Winter Outlooks NOAA scientists lined up to predict their third warmer than average winter in a row. It almost made me want to come out FRIGID COLD just because of their lack of originality. I fear they ve got fear of forecast itis. 33 February Source 5, DOE, 2018Industrial Information

34 Some issues I ve noticed pointing to a colder winter. We did some work on an observed phenomenon from August and September, which could point to a cold winter 34 Source: NOAA, DOE, Industrial MDA EarthSat Information

temperatures for the eastern half of the CONUS, which fits the

35 2017 August September Temperature Departure from Normal So Far Through September 20 th the August September timeframe showed belownormal temperatures for the eastern half of the CONUS, which fits the statistically colder than normal winter. 35 Source: NOAA, DOE, Industrial MDA EarthSat Information

Additionally, over the past five years the sun has steadily

years after, the US experienced colder than normal winters.

36 Additionally, over the past five years the sun has steadily decreased in intensity to the point that we ve not seen in the data since Following the completion of that cycle, and for several years after, the US experienced colder than normal winters. Again I expect cold winters to start stacking up. 36 February 5, 2018 Source DOE, Industrial Information

37 Together The QBO and Lower Flux Progression Yields Further, empirical evidence suggests that when the easterly QBO is combined with relatively low solar UV output (SUNSPOTS), colder risks are further enhanced. If we look at all year with easterly QBO and solar flux less than 900 W/m 2, we get the following, rather dramatic, winter aggregate. 37 February Source 5, DOE, 2018Industrial Information

The Past Year Traded In An Acutely Narrow Trade Range A final note A close up view of the past year of futures trading shows some deep volatility around the winter timeframe.

38 The Past Year Traded In An Acutely Narrow Trade Range A final note A close up view of the past year of futures trading shows some deep volatility around the winter timeframe. Highly dependent outcomes from the analysis we ve done point to regional volatility due to cold weather incursion patterns that are already in place. Winter cold is expected to come into the US Lower 48 out of Alberta, into the Plains, expanding down the eastern slope of the Rockies across the Plains and encompassing the Great Lakes. Then cold will sweep down into Texas and across the Southeast while eventually taking in the Eastern Seaboard. The only caveat will be the late start. We have noticed a seasonal shift to our weather patterns that has delayed the onset of every season by three to five weeks. April is colder than November, in general, so don t expect a traditional start to winter until we re into December. Bottom Line Fundamental Observations Injections in 2017 YTD are the 5 th lowest since Temperature profile suggests injections should be the 4 th or 5 th largest. Since September 2015, temperature profile has reduced demand by 1,857 Bcf compared to normal. All other things equal, current storage would be just ~1,600 Bcf, and storage would have run out if temperatures were equally as bullish. Finally, the forward curve continues to be flat and that will remain until actual cold shows up. I m still expecting a cold winter. Call for details Rolling forward curve of NATURAL GAS FUTR NOV

39 39 Thank You

2005 North American Natural Gas Outlook Client Presentation

2005 North American Natural Gas Outlook Client Presentation January 17, 2005 Ron Denhardt Vice President, Natural Gas Services Strategic Energy & Economic Research Inc. 781 756 0550 (Tel) Copyright 2004