Energy Prospectus

Our revised commodity price forecasts are as follows:
Estimate Changes New Prior % Change New Prior
WTI Crude Oil (Cushing, US$/Bbl) $56.00 $54.00 4% $72.00 $74.00
Brent Crude Oil (US $/Bbl) $61.00 $60.00 2% $77.00 $79.00
Henry Hub Natural Gas (US$/mmBtu) $2.96 $2.97 0% $3.45 $3.45
Mont Belvieu NGL composite (US$/bbl) $23.15 $23.97 -3% $30.81 $34.82
Exchange Rate ($CAD/$US) $1.24 $1.25 -1% $1.23 $1.24
Source: RBC Capital Markets estimates

Crude Oil1:
 We are maintaining our outlook for an oil price recovery during the
second half of 2015 and into 2016 predicated upon decelerating non-
OPEC supply growth and better than expected global oil demand
growth of 1.6 million b/d this year and 1.0 million b/d next year.
 Our modified Brent and WTI price estimates reflect mark-to-market
adjustments, modestly higher global stock builds in 2015, and higher
OPEC production. An uptick in Iranian output during the second-half
of 2016 remains factored into our outlook.
 Brent Price Outlook: 2015: $61/b (vs. $60/b previously); 2016: $77/b
(vs. $79/b); long term: $90/b (unchanged).
 WTI-Brent Spread: 2015: $5/b (vs. $6/b previously); 2016: $5/b
(unchanged); long term: $6/b (unchanged).
 WTI Price Outlook: 2015: $56/b (vs. $54/b previously); 2016: $72/b
(vs. $74/b); long term: $84/b (unchanged).

More from RBC report:

Natural Gas:
 Our natural gas price forecasts remain relatively unchanged at $2.96/MMBtu (2015),
$3.45/MMBtu (2016), and $4.50/MMBtu for our long‐term price outlook. Based on
current supply‐demand fundamentals, the domestic natural gas market is around 2.0
Bcf/d over supplied, which likely weighs on pricing dynamics through the remainder of
2015 and into 2016.

MY TAKE: The North American natural gas market is going to be much tighter within six months. U.S. production is now falling by 0.2 BCF per day month after month. Plus, exports (as LNG and by pipeline) will increase by an estimated 1.8 BCF per day in 2016. See Slide 28 of the presentation I made at our luncheon on July 14 (you can find them on the EPG website after you log on).

NGLs:
 Lowering 2015 and 2016 NGL prices: We are revising our Mont Belvieu NGL composite
price forecast downward by ~3% in 2015 and ~11% in 2016. Our estimate revision is due
primarily to our reduced propane forecasts, which account for ~one-third of the MB
barrel. We expect propane prices to average ~$0.58/gal in 2H15 (was $0.70/gal) and
~$0.71/gal during 2016 (was $0.99/gal). Our natural gas price forecast remains
unchanged, and we consequently have not altered our view of continued ethane
rejection (with total ethane rejection of ~485 Mbpd). We hold our ethane price
assumptions steady.
 Propane prices driving NGL barrel lower: We have reduced our propane price forecasts
and now believe that a price recovery will be an early 2016 event (versus late 2015
previously). In 2Q15, the Mont Belvieu propane price averaged $0.47/gal, down 11%
Q/Q and 56% Y/Y. We expect propane prices to remain challenged near term, given the
seasonal demand slowdown and high inventory levels. As of early July, propane
inventory stocks were ~80 MMbbls versus a five-year average of 52 MMbbls, and stocks
already exceed the highest level witnessed during 2014. We expect improvement in
propane prices over the next 12–18 months as PDH and additional LPG export capacity
come online, which should add ~400 Mbpd of incremental propane demand. In addition,
new vessels should come online over the next 12–18 months, which should alleviate the
shortage of export ships.
 Minor tweaks to heavier components tied to crude oil prices: We have made small
tweaks to our forecasts of the heavier end of the NGL barrel due to changes in crude oil
price forecasts. We still expect iso-butane and normal butane to hold at ~60% of WTI
longer term; however, we note that the relationship has weakened and we expect
butanes to track closer to ~55% until mid-2016. We expect natural gasoline to track
~95% of WTI. We incorporate our new WTI price outlook and adjust our heavier
component forecasts accordingly.