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Gas Marketers: Oblivious to All the Fuss

New mega-marketers, niche players emphasize opportunity.
Fortnightly Magazine - January 1 2002

be isolated, thereby avoiding spillover into unwanted discussions about re-regulation. Industry players were confident that any reasonable person who took the time to examine the overall picture would find that today's gas industry offered a shining example of how a formerly tightly regulated commodity market could function with little government intervention.

But then the trading community was hit by the meltdown of Enron, the biggest and most flamboyant company in the energy marketing business. Many traders were stunned at how the company's financial standing could wither in such a short period of time. At the same time, as Enron grew at a torrid pace during the past 15 years, many traders inside and outside of Enron often found it difficult to determine exactly how the company generated all of its revenue.

"What has happened is perhaps vindication to my theory that it wasn't all real anyway," a trader with a competing marketer says. Another trader said he always thought of Enron as a solid company and was surprised by the severity of the company's downturn. "You're now seeing their dirty laundry," he says. Neither trader wished to be identified, reflecting a trend among marketing officials who are declining to comment for attribution about Enron's misfortunes.

While few competitors are shedding tears over its sudden reversal of fortune, Enron's saga is certain to force other top energy marketing companies to ensure risk management mechanisms are in place that allow them to avoid a similar fate. Based on the reported scope of the Securities and Exchange Commission's investigation into Enron, these other companies must contend with the specter of their trading operations facing closer scrutiny by government officials.

Ron Barone, an analyst with UBS Warburg, speculates that aside from harm to Enron and its shareholders, the Enron debacle could lead to "trading losses beyond VaR [value-at-risk] limits and unfavorable changes in the regulatory environment of the natural gas/power industries."

Once again, though, the Enron saga-combined with all of the other events of 2001 and their potential negative consequences-failed to dampen the optimistic mood that has fueled the gas marketing business since the founding of Natural Gas Clearinghouse (now known as Dynegy) in the mid-1980s. In fact, gas trading companies, especially those with production assets backing them up, had little time for worrying in 2001 because they were busy counting their record profits from last winter's sky-high gas prices.

Conoco Rising: A Gas Trader's Vision

Take a look at a list of the top gas marketers in North America and you won't find many names associated with the upstream end of the business. Most of the high-volume trading companies are the market-maker types who don't have production assets to back up their futures and swap contracts.

One heavy hitter in the exploration and production sector, though, is trying to make a play for the upper echelon currently dominated by financial service-oriented marketers. Conoco-the integrated oil and gas company, linked at different times during the previous hundred years to the Rockefeller and DuPont family fortunes-is enacting a strategy to join the barons of the 21st century