Energy Prospectus

Note from EBW Analytics Group

Natural Gas Retreats as Wait for Bullish Catalysts Extends

The July natural gas contract stumbled lower to open the week as bullish momentum has
been sagging. LNG feedgas demand is at five-month lows; June-to-date cooling demand
is the second-lowest in five years. Production readings are edging lower early this week,
but ethane rejection concerns may be adding to bullish caution.

The natural gas market is waiting for bullish catalysts that have yet to arrive. A prolonged
stretch of mild weather and deep LNG maintenance may result in the eighth consecutive
100+ Bcf injection for the current storage week ending June 13. Henry Hub spot prices
rose to $3.09/MMBtu, supported by a pipeline outage yet still 55¢ back of July.

Technical support at $3.57 may be a notable inflection point. Higher demand for natural
gas is likely to ignite a rally into mid-summer—but in the interim, the market is waiting on
bullish catalysts to break through.
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MY FORECAST: Demand for power generation will go way up in July & August, LNG exports will increase, Associated Gas production will decline. HH gas price will go over $4.00 in July and average $4.50 in Q4. My Q2 forecasts are based on HH gas averaging $3.25 for the quarter. Actual so far in Q2 is over $3.40.

PS: If the WTI oil price stabilizes over $65/bbl a lot of money will be rotated into our upstream companies.

US LNG feedgas demand is near the lowest levels of the year, with
a 7-day average at just 13.5 Bcf/d due to maintenance at one train
at Cameron LNG and two trains at Sabine Pass. While prompt
demand is very weak, concluding maintenance may boost feedgas
demand as much as 2.5 Bcf/d.

Further, a new midscale train at Corpus Christi Stage 3 could add
0.2 Bcf/d by the end of June. Plaquemines has demonstrated
feedgas intake 0.2 Bcf/d above current levels. LNG Canada's 1.0
Bcf/d Train 1 may begin commissioning cargoes within 30-45 days.

Although the seasonality of power burns may be amplified this year
due to a mild spring, LNG feedgas rising into mid-summer could
turbocharge seasonal demand gains for natural gas.

Ethane exports to China remain a political flashpoint in the ongoing trade war, with the Trump Administration newly requiring licenses for
ethane exporters to sell to China. Almost half of US ethane exports—227,000 b/d out of 492,000 b/d—went to China last year, and there
are few additional spot markets to mop up supplies. Instead, with collapsing demand, spot ethane prices are crashing. Mt Belvieu pricing
suggests ethane front-month prices fell to $2.87/MMBtu—equivalent last week before recovering toward $3.41/MMBtu Monday—cheaper
than the NYMEX front-month natural gas contract. If ethane is cheaper than natural gas, ethane can be sold as natural gas (within limits),
boosting functional natural gas supply. While ongoing trade talks with China may resolve the impasse, if half of Chinese ethane exports are
subject to “ethane rejection” and sold as natural gas, it may boost US natural gas supply by 0.3 Bcf/d.

New analysis from Wood Mackenzie highlights the trade war with China could raise battery storage costs as much as 50% amid steep
tariffs. Anza Renewables contends that the cost of battery storage may have already increased nearly 39% since April’s Liberation Day.
Further, as a result of the trade war, solar may cost 50% more in the United States than in Europe or China. While final outcomes are still
in flux with the latest US-China trade negotiations, disruptions to the battery storage supply chain could disproportionately slow clean
energy adoption and deployment in the US—leading to upside risks for electricity pricing and, on the margins, increasing power sector
demand for natural gas.