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Market Commentary

Natural Gas Market Fundamentals:

• Natural gas in storage has declined substantially since the beginning of December 2009
• Total natural gas in storage now estimated at 1,853 Bcf; this is 0.7% above the 5-year average; the ~20% storage overhang we had going into the winter season has been substantially absorbed
• The number of natural gas drilling rigs active in North America was 905 as of 2/26/10; that is 65 rigs lower than one year ago and 618 rigs lower than the peak experienced at the end of July, 2007
• Weather outlook for the remainder of the winter season is for cooler than normal temperatures for the eastern two-thirds of the U. S.
• We anticipate natural gas in storage to decrease 5% below the 5-year average by April 2010

• Calendar 2010 (CAL 10) strip dropped to a historic low of $4.95 per MMBtu on 12/3/09; since then, the CAL 10 strip has risen ~20%
• We see solid near-term resistance for CAL 10 strip at $6.50 per MMBtu
• We see solid near-term support for CAL 10 strip at $4.95 per MMBtu 

• Demand for natural gas declined ~1.5% in 2009 vs. 2008; primary contributor to decline for natural gas was weakness in industrial and manufacturing segments
• Demand for electricity declined ~3.5% in 2009 vs. 2008; decline also attributable to economic weakness
• We anticipate demand for natural gas to continue to decline in 2010; this decline is attributable to slow economic recovery and higher prices than experienced in 2009
• We anticipate demand for electricity to rise only slightly in 2010, driven by a slow economic recovery

• Given the recent demand destruction precipitated by the economic recession, there is adequate electric generation capacity in the U. S. for 2010 – 2011
• Parts of the U. S., particularly Texas, will see continued development of wind power generation assets; the challenge in Texas will be the development of adequate transmission capacity to get the power to the major markets
• We do not believe that pending cap & trade/carbon legislation will have a substantive impact on the generation mix through at least 2015
• Demand response capacity will continue to grow in all markets; we expect total resource availability to exceed 40 gigawatts in 2010 and 50 gigawatts in 2011

ACCLAIM Energy Advisors is a full-service energy management firm headquartered in Houston, Texas. We help clients take control of their energy costs by providing a full complement of solutions, including: energy markets information, utility bill verification, energy risk management, energy procurement, energy efficiency, measurement and verification, and strategic energy-planning services. We provide services in both the wholesale and retail markets for electricity and natural gas within deregulated and regulated energy markets across the United States.  

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