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Gas.com Inc? A Smokestack Industry Faces the E-Future

Fortnightly Magazine - April 15 2000

manufacturers or retailers had to cede control to the customer base. The newly empowered masses forced the changes in power and caused explosive growth on customer-driven Internet sites - most notably Amazon and E-bay.

The end-users, both wholesale and retail, are the weakest segments within the gas value chain. Wholesale end-users are small in number and therefore lack a power base.

The retail end-users, household customers, while large in numbers, are difficult to energize because buying utility services is not seen as exciting, glamorous, or even fun to do. Consumers are unlikely to initiate change for a service or adopt additional purchasing effort for a service or benefit that they view as transparent.

What are the most successful e-commerce strategies for the natural gas industry?

I'm not aware of any companies in the natural gas industry that have anything approaching a real e-commerce strategy. Most are busy trying desperately to not join the Internet revolution.

On the Physical Side: An Interview with Edward M. Kelly on Global Markets for Gas

Will overseas liquefied natural gas imports play a role in North American markets?

The need is there. The demand potential is real and the cost of supply has come down.

The amount of distressed methane [distributors] that would not have the market other than liquefied [natural gas] or [to] pipe to some difficult local market situations is growing. In addition, there are two written-down, inactive import and regasification facilities in North America, and the cost of liquefaction has come down. We are looking at an LNG value chain that is very competitive into the East Coast in the U.S. The range is in the low- to high-$2.00 range, [with] a flexible service capability.

I think there has been a lot of recent interest in LNG because of all of the pools of natural gas that don't have an alternative home and the cost reductions to the new technologies in building liquefaction and export facilities.

What are the risks for U.S. natural gas companies if a world market for natural gas emerges?

The risks are probably somewhat limited by the availability of import capacity....So we are really talking about an important marginal source of supply but not a source of supply that is likely to threaten the underlying price structure available to U.S. producers.

What will LNG mean for LDCs?

More LDCs will face the challenge and opportunity of what to do with their existing LNG liquefaction and regasification facilities - by that I mean the pipeline. Many LDCs have their own LNG facilities that liquefy, store and revaporize gas from the pipeline system.

The larger issue for LDCs is the value of those facilities in an increasingly competitive marketplace, and to have rights to that value. We are talking about two types of LNG and two types of uses that are possible.

In a conceptual free-market environment, if those facilities got their cost structure lowered, [they] could begin to compete for peaking services with LNG imports. There is a certain regasification capability, but over time, to be competitive is not likely.

The