September 12, 2013

Natural Gas Weekly

And then there were four

Commodities Research

The DOE approves a fourth LNG export terminal

The US Department of Energy (DOE) today (September 11, 2013) approved Dominion Cove Point LNG to export up to 0.77 Bcf/d of domestically produced LNG out of its proposed 1 Bcf/d capacity to non-FTA countries. To date, the announcement brings the DOEs total export approvals to nonFTA countries to 6.37 Bcf/d, also including Sabine Pass (already under construction), Freeport LNG and Lake Charles. The Cove Point project is still awaiting FERC approval to start construction, as is the case with the Freeport LNG and Lake Charles projects.

Samantha Dart
+44(20)7552-9350 samantha.dart@gs.com Goldman Sachs International

Daniel Quigley
+44(20)7774-3470 daniel.quigley@gs.com Goldman Sachs International

Jeffrey Currie
(212) 357-6801 jeffrey.currie@gs.com Goldman, Sachs & Co.

and Cove Point has already secured long-term off-take agreements

In our view, there is still uncertainty surrounding the ability of proposed LNG export projects to attract financing, given that an overbuild of US export terminals might leave global LNG markets over supplied, leading to lower LNG prices. As a result, and as we have discussed in previous reports, we currently include in our global LNG balance only the 5.9 Bcf/d of US LNG proposals that have announced off-take agreements, including Cove Points volumes, in addition to Sabine Pass, Freeport LNG and Cameron. In particular, Cove Point has signed 20-year terminal service agreements with Sumitomo (0.35 Bcf/d) and Gail (0.35 Bcf/d). At this point we still refrain from adding potential Lake Charles export volumes to our balance table and would look for announcements of Sales and Purchase agreements with end-users or other signals to increase the likelihood of financing of that project.

US LNG exports as part of a structural change in the market

We continue to see LNG exports as one of the four major drivers of the 21 Bcf/d of US demand growth we expect in the next seven years, with the other three main drivers being pipeline exports to Mexico, industrial demand for gas and regulation-induced coal-to-gas switching, as coal-fired power generators are retired, benefitting gas-fired generation at the margin. We continue to believe this structural change in demand will ultimately move the market away from pricing fuel substitution and towards pricing marginal cost of production, as natural gas drilling and, ultimately, supply, will need to rise more significantly to accommodate the changes in US natural gas demand.

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html.

The Goldman Sachs Group, Inc.

Goldman Sachs Global Economics, Commodities and Strategy Research

September 12, 2013

Global

Current trading recommendations

Current trades First recommended Initial value Current Value Current profit/(loss)
1

June 13, 2013 - Agriculture Update Short new-crop soybean and corn basket Basket short two Dec-13 CBOT corn, one Nov-13 CBOT soybeans Long NYMEX natural gas call options Buy $4.20 Nov-13 NYMEX natural gas call option

100.00

95.97

4.03%

April 4, 2013 - Natural Gas Watch

$0.31/mmBtu

$0.02/mmBtu

($0.29/mmBtu)

As of close on September 10, 2013. Inclusive of all previous rolling profits/losses.

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

September 12, 2013

Global

Price actions, volatilities and forecasts

Prices and monthly changes1 units Energy WTI Crude Oil Brent Crude Oil RBOB Gasoline NYMEX Heating Oil NYMEX Nat. Gas UK NBP Nat. Gas Industrial Metals LME Aluminum LME Copper LME Nickel LME Zinc LME Lead Precious Metals COMEX Gold COMEX Silver Agriculture CBOT Wheat CBOT Soybean CBOT Corn ICE Cotton ICE Coffee ICE Cocoa ICE Sugar CME Live Cattle CME Lean Hog
1
4

Volatilities (%) and monthly changes2

Historical Prices

Price Forecasts3 3m 6m 12m

10 Sep Change Implied2 Change Realized2 Change 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13

$/bbl $/bbl $/gal $/gal $/mmBtu p/th

107.39 111.25 2.74 3.07 3.58 66.58

3.03 -0.17 0.07 0.35 1.25

1.42

23.4 22.2 23.1 21.2 30.4 11.9

2.23 2.19 0.36 1.75 -0.54 -0.06

21.8 19.9 28.8 16.5 27.5 11.5

1.4 7.9 9.1 1.9 -1.9 4.5

103.03 93.35

92.20

88.23

94.36

94.17 104.00 100.00

96.00

118.45 108.76 109.42 110.13 112.64 103.35 110.00 108.00 105.00 3.06 3.16 2.50 57.46 2.95 2.89 2.35 55.89 2.95 3.00 2.89 56.92 2.73 3.05 3.54 66.12 2.99 3.04 3.48 67.58 2.83 2.89 4.02 65.08 2.70 3.10 4.00 81.30 2.70 3.10 4.25 71.50 2.70 3.00 4.25 72.00

$/mt $/mt $/mt $/mt $/mt

1,797 7,170 13,740 1,876 2,135

-74 -105 -940 -68 51 51 2.6 13 173 9 -5 -11 81 0.2 2.5 -9.7

19.1 20.5 23.8 17.7 21.7

-0.30 -1.42 -0.57 -0.72 -0.20

17.6 15.9 19.9 17.9 16.8

-0.8 -5.7 -4.4 1.7 -0.9

2,219 8,329

2,019 7,829

1,950 7,721

2,018 7,924

2,041 7,958

1,871 7,190

1,850 7,000

1,900 6,600

2,000 6,600

19,709 17,211 16,396 17,025 17,375 15,035 13,500 14,500 15,000 2,042 2,117 1,932 1,986 1,905 1,989 1,978 2,200 2,054 2,308 1,876 2,065 1,900 2,050 2,000 2,150 2,100 2,300

$/troy oz $/troy oz

1,364 23.0

20.1 32.4

0.38 2.47

18.2 39.4

-0.4 8.8

1,693 32.7

1,612 29.4

1,654 29.9

1,719 32.6

1,631 30.1

1,417 23.2

1,300 21.7

1,300 21.7

1,175 19.6

Cent/bu Cent/bu Cent/bu Cent/lb Cent/lb $/mt Cent/lb Cent/lb Cent/lb

647 1,355 475 84 112 2,544 17.2 125.0 90.9

22.2 19.5 24.4 21.1 25.0 24.5 17.0 8.4 15.2

-0.63 -0.60 -0.80 0.01 -0.38 1.78 -0.47 -0.17 -0.55

18.4 29.8 37.4 28.4 20.3 22.2 16.4 12.7 57.6

4.2 9.8 -55.8 10.7 -15.5 -0.5 0.6 6.1 45.7

643 1,272 641 93 205 2308 25 125 87

641 1,426 618 80 170 2,222 21 117 88

871 1,677 783 73 172 2,438 21 122 83

846 1,484 737 73 152 2,421 20 127 82

739 1,450 716 83 143 2,175 18 128 84

695 1,468 661 86 132 2,278 17 122 92

650 1,050 425 75 130 2,400 16.5 128.0 82.0

650 1,050 425 75 130 2,400 17.5 130.0 81.0

650 1,050 425 75 130 2,500 19.0 128.0 87.0

Monthly change is difference of close on last business day and close a month ago. 2 Monthly volatility change is difference of average volatility over the past month and that of the prior month (3-mo ATM implied, 1-mo realized). 3 Price forecasts refer to prompt contract price forecasts in 3-, 6-, and 12-months time. 4 Based on LME three month prices.

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Economics, Commodities and Strategy Research

September 12, 2013

Global

Disclosure Appendix
Reg AC
We, Samantha Dart, Daniel Quigley and Jeffrey Currie, hereby certify that all of the views expressed in this report accurately reflect our personal views, which have not been influenced by considerations of the firm's business or client relationships.

Disclosures
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