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Goldman Sachs Global Economics, Commodities and Strategy Research 1July 16, 2010
Commodities
Natural Gas
Lowering our price forecasts on the back of surging US production
We are lowering our 2010 and 2011 US and European naturalgas price forecasts as stronger-than-expected US natural gasproduction will likely require lower prices for longer in orderto restrain global LNG production.
US natural gas production continues to surge forward, exceedingour expectations…
US natural gas production continues to surge this year, driven by the shalegas revolution. As US production has exceeded our expectations, we areincreasing our 2010 production by 3.0 bcf/d to 58.5 bcf/d on average for2010. In addition, we are raising our 2011 production forecast by 3.7 bcf/dto 58.1 bcf/d. We still factor in a slightly declining production path over therest of 2010, as we continue to expect some response to production fromthe lower conventional rig counts.
… requiring reduced LNG production to balance the global market
We expect US LNG imports will need to remain low in order accommodatethe increased US production. While we expect a tighter European marketwill be able to absorb a substantial portion of the LNG supply, we expectthat global LNG production will need to remain restrained in order to keepthe global gas market in balance. Consequently, we expect that global LNGproduction will likely be the price setting margin for gas in 2H10 and 2011.
We are lowering our 2010 and 2011 forecasts as we expect lowerprices will be required to restrain LNG production going forward
We are lowering our NYMEX natural gas prices forecasts to $4.63/mmBtuin 2H10 and $5.25/mmBtu in 2011, from $5.60 and $6.00 respectively.Further, while we expect stronger US production will put downwardpressure on UK NBP prices, we expect UK NBP prices will need to exceedUS prices in order to direct LNG toward Europe. Net, we are lowering ourUK NBP price forecast to $5.13/mmBtu (34.05 p/th) in 2H10 and to$5.75/mmBtu (35.20 p/th) in 2011, from $5.40/mmBtu (34.20 p/th) and$5.80/mmBtu (36.00 p/th), respectively. Should US production continue tosurprise to the upside, a return to more coal-to-gas substitution in powergeneration would likely be required to balance the market.
David Greely
(212) 902-2850 david.greely@gs.comGoldman Sachs & Co.
Jeffrey Currie
+44(20)7774-6112 jeffrey.currie@gs.comGoldman Sachs International
Allison Nathan
(212) 357-7504 allison.nathan@gs.comGoldman Sachs & Co.
Johan Spetz
+44(20)7552-5946 johan.spetz@gs.comGoldman Sachs International
The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singlefactor in making their investment decision. For important disclosures, see the text preceding the disclosures or go towww.gs.com/research/hedge.html.
The Goldman Sachs Group, Inc. Goldman Sachs Global Economics, Commodities and Strategy Research
 
July 16, 2010 CommoditiesGoldman Sachs Global Economics, Commodities and Strategy Research 2
Hedging and trading recommendations
Hedging recommendations
Consumers
:
We see the US NYMEX natural gas forward curve as fairly priced relative toour expectations. However, we believe that despite strong US production, the gas marketremains subject to other shocks to the balance, particularly weather. This makes hedgingstrategies by consumers a continuing risk management tool. However, we believe that thefactors that have lent substantial support to UK NBP prices in the recent period will likelyprove temporary, leaving UK NBP price risk skewed to the downside. We therefore believehedging opportunities for consumers exposed to UK NBP prices are currently limited.
Producers
:
We believe that compelling hedging opportunities for US producers are limitedalthough they are more attractive for producers exposed to the European spot market gasprices given the recent price strength.
Trading Recommendations
We do not have natural gas trading recommendations at this time.
 
July 16, 2010 CommoditiesGoldman Sachs Global Economics, Commodities and Strategy Research 3
Current trading recommendations
Source: Goldman Sachs Global ECS Research.
 
Long Platinum
Buy October 2010 NYMEX PlatinumJuly 15, 2009 -
Commodity Watch
$1,595.5/toz$1,533.7/toz
$364.3/toz
Long WTI
Buy December 2010 NYMEX WTIFebruary 5, 2010 -
Commodity Watch
$77.75/bbl$78.45/bbl
$0.70/bbl
Long Copper
Buy December 2010 CopperMay 18, 2010 -
Metals 
$6,508/mt$6,687/mt
$179/mt
¹As of close on July 15, 2010. Inclusive of all previous rolling profits/losses.
Currentprofit/(loss)
1
Rolled on June 20, 2010 from a Buy July 2010 NYMEXPlatinum for a $426.1/toz gain
Current trades First recommended Initial value Current Value
of 00

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