Energy Prospectus

Opining Prices:
> WTI is down 54c to $53.03/Bbl, and Brent is down 80c to $55.62/Bbl.
> Natural gas is up 8.2c to $2.748/MMBtu.

Aegis Morning Notes
Crude Oil

WTI is trading lower this morning in response to renewed lockdowns in China
Renewed lockdowns in China threaten oil demand growth, as the country has served as a bulwark for oil demand during the pandemic

President-elect Joe Biden unveiled a $1.9 trillion stimulus package that aims to jump-start the economy and accelerate the coronavirus vaccine rollout
President-elect Biden will assume office on January 20, 2020, and will focus his attention on getting the proposed $1.9 trillion stimulus package through congress
The package includes another stimulus payment of $1,400, to bring the total amount to $2,000 as well as an additional $400 in supplemental unemployment benefits
The plan also includes funds to be directed towards rolling out the coronavirus vaccine at a rapid pace.
The president-elect has said that he plans to have 100 million Americans vaccinated in his first 100 days in office

China reported its highest number (144 cases) of COVID-19 cases in more than ten months
The country says it is now treating more than 1,000 people for COVID-19. The new resurgence has prompted the PRC to impose restrictions on 28 million people to mitigate the spread
The country has begun preparing for the resurgence, even constructing a new quarantine center outside the provincial capital of Shijiazhuang
AEGIS notes that oil prices have yet to reach solid ground and a significant resurgence in China threatens the recent rally.
China has served as a bulwark for oil prices as demand has faltered in other countries around the globe

Natural Gas

Prompt natural gas reverses its Thursday losses in overnight trading partly due to some cooler weather pattern changes in the 11-14 day window
NG for January is nearly 3% higher this AM after giving up a little over 2% yesterday
Cal 2021 is also stronger this morning, trading about 2% higher to $2.84/MMBtu

The gas market sold off on Thursday despite a 134 Bcf withdrawal from underground storage that beat analysts’ estimates
The U.S. Energy Information Administration’s report showed a 134 Bcf draw versus the expected 128 Bcf pull expected by a consensus of analysts
Gas storage was reduced to 3.165 Tcf as of Friday, January 8, 2021 and this puts stocks at 126 Bcf higher than this time last year and 218 Bcf above the five-year average of 2.978 Tcf

Tellurian announced Thursday that it is targeting this summer to begin construction of its $16.8 billion Driftwood LNG export terminal in Louisiana (Reuters)
The past several years have seen multiple projects slated to be built in North America that were delayed, including Driftwood, because customers were unwilling to sign long-term deals needed to finance the projects
CEO of Tellurian Charif Souki, the CEO and founder of Cheniere, said “The level of (customer) interest has increased pretty dramatically over the past month” and “There is a strong need for additional liquefaction capacity and we’re probably the project that is closest to starting construction”
Driftwood’s first phase is slated for operation in 2025, and will produce about 2.2 Bcf/d

ScotiaBank updates their natural gas price deck for modeling
Natural gas pricing revisions: We have made modest changes to our near-term
forecast, bumping 2021 by $0.10 to $2.80 and 2022 by $0.10 to $2.65. We have left
2023E, 2024E and our long-term price of $2.80 beginning in 2025E unchanged.

BULLISH SCENARIO
 Production declines as a result of weakening liquids pricing. Should oil pricing sink back below $45/bbl,
associated gas production will be further challenged. Associated production averaged 31.1 bcf/d in 2020,
up ~750 mmcf/d and approximately one-third of US production. Outside of the Permian, production fell 1
bcf/d in 2H20 vs. the Permian that rose 631 mmcf/d in the last six months, suggesting the lion’s share of
oil capex is going to the Permian.
 Strong end to winter creates heightened call on storage. Assuming 5% colder-than-normal weather
beginning in February and lasting through March, we estimate an additional 500 bcf pulled out of
storage, resulting in end of withdrawal inventory balance of 1.6 Tcf compared to our current forecast of
~2.1 Tcf.
 Risked assumptions related to pandemic weakness proves too conservative. We have assumed a
more normal consumption pattern in 2H21 but if the economy reopens at a faster pace, we could see
both commercial and industrial levels above our forecast, which could result in combined growth of over
1.0 bcf/d y/y.
 Call on LNG more resilient in 2021. We see significant improvement in the LNG market in 2021
following a 2020 that was marred by record low pricing and cargo cancellations. In 2021, we expect a
~30% improvement in LNG flows to provide a more sustained demand pull during the year.

BEARISH SCENARIO
 Higher oil pricing drives a larger recovery in associated gas volume. While we believe producers
will preach capital discipline, rising oil prices will incentivize a higher level of growth, even if it is only modest
growth. Even just arresting the decline outside of the Permian creates a bearish outlook for associated
gas supply.
 Pandemic has a longer impact on consumption than forecasted. Between res / com, industrial and
electric sector demand, we are currently estimating growth of 650 mmcf/d or 1%. An increase in, as well
as the duration of stay-at-home orders will impact this growth. A decline in these main demand
components will put more emphasis on the necessity of growing export volumes.
 LNG send-outs repeat summer 2020. Although we expect higher flows this summer, a far cry from the
2020 cargo cancellation theme, continued improvement in the global demand market is necessary to
sustain U.S. flows. A slower international COVID-19 recovery could stymie those gains.

Closing Prices;
> WTI prompt month (FEB 21) was down $1.21 on the day, to settle at $52.36/Bbl.
> In contrast, NG prompt month (FEB 21) was up $0.071 on the day, to settle at $2.737/MMBtu.

IMO WTI got a bit ahead of the fundamentals. If $52/bbl holds we are still way above what I am using in my models.