The bear case for natural gas has gained
momentum due to a string of negative data points,
focused primarily on the demand side.
1) Weak electricity generation (EG) trends – down
4% YoY in 2Q09. This likely portends to even weaker
natural gas demand of 1.5-2x these levels; weather
adjusted demand down 1-1.5 Bcf/d equates to 2-3% of
total demand loss from the EG segment alone. Coal to
gas switching has likely been less than anticipated due
to high coal stocks at utilities. While easy weather
comps should improve the YoY demand gap over July /
Aug, demand is likely to prove insufficient to avoid the
full storage scenario by Sep / Oct, in our view.
2) Industrial demand destruction. Chemical
producers (e.g. DOW, SUN) have announced the
closure of 3 ethylene facilities over the past week.
Permanent demand loss here could be in the 0.2-0.3
Bcf/d range from full capacity levels. Elsewhere, the
anticipated uptick in industrial production, led by
re-stocking of the auto supply chain has proven slow to
materialize. Our auto industry colleagues expect a
delayed uptick in the US SAAR, given the size and delay
of the scrapping program and the weak sales levels
witnessed in 1H09.
Our supply outlook remains intact, and we look for
evidence of production declines and improving
supply / demand balances over the coming weeks.
The ~25% pullback in the EPX since the June highs
provides opportunity. While we expect volatility to
continue driven primarily by the global macro outlook
and oil prices, risk / reward for the E&Ps has improved
markedly. Top gas-levered ideas are CHK, EOG, and
XTO
Upstream Takeaways from the Morgan Stanley
Energy Conference –- Last week we hosted a one-day
conference in New York. We summarize our takeaways
on pages 4-5.

Contents
Natural Gas - The Bear Case Gains Momentum 2
Investment Perspective 6
Coverage Universe: Ratings & Investment Theses 7
Morgan Stanley Estimates vs. Consensus 8
Consensus EPS Revisions & Short Interest 9
Comparative Valuation Tables 10
Investment Thesis 13
Commodity Macro 14
Commitments of Traders Report 15
Natural Gas Markets 16
Differentials 17
Supply & Demand 18
Fundamental Drivers 19
Sw itching Economics 20
US Power Market Metrics 21
Crude Oil Markets 22
Crude Fundamentals 23
US Gasoline Fundamentals 24
US Distillate Fundamentals 25
Production Hedges 26
Exploration Calendar 29
GDP Forecast, Leading Indicators & Actuals 30
Publications & Content Index 31
Valuation Methodologies & Risks 32