ECM TALKS ENERGY

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April 1, 2016

4th Quarter Pricing Results and Outlook

by Margie Miller

Pricing

Day Ahead Market (DAM) pricing continued to fall throughout the entire quarter due to the mild winter weather and the surplus of Natural Gas in storage. Forward pricing for 2016 contracts continued to trade at a two year low while day ahead and real time pricing reached historical lows. The average DAM price for Zone J for the entire year (2015) reached an all-time low of $38.58 per MWh. The average hourly DAM price for Zone J for the month of December 2015 was $20.24 per MWh. Prices in PJM and NEISO reflected the same historical lows as experienced in Zone J. Natural Gas storage reached 3,643 billion cubic feet (Bcf) on January 1st, 2016 which is 15% higher than the previous five year average for that week. The high level in Natural Gas storage gave continued support for the low electrical pricing in all interconnections.

Pricing Outlook

EIA projects the average price of Natural Gas at the Henry Hub to be approximately $2.65 MMBtu’s in 2016 as compared to the average price of Natural Gas at the Henry Hub of $2.63 MMBtu’s in 2015. Even though the total number of Natural Gas rigs are beginning to decline, the increase in Renewable Power generation has begun to displace Natural Gas generation and maintaining downward pricing pressure on Natural Gas. The EIA projects that the percentage of generation from Natural Gas will continue to decline from 33% in 2015 to 31% in 2017. Hydro generation is projected to increase from 6% in 2015 to 7% in 2017 and the share from other types of renewables are projected to increase from 7% in 2015 to 9% in 2017. Growth from utility-scale solar power generation is projected to increase 45% from the 2016 level. Higher Natural Gas prices are projected to appear by 2017 due to pressure from increased consumption growth emanating from the industrial sector. Consumption growth in the industrial sector is projected to increase by 3.5% in 2016 and 2.5% in 2017. LNG exports are also projected to increase in 2016 with the start-up of Chenier’s Sabin Pass LNG liquefaction plant which will put additional upward pressure on Natural Gas pricing at the end of 2016.

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