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Gas Marketers: Oblivious to All the Fuss

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

liquidity in the market," he says. "The Enron credit risk wake-up call was probably good for the industry."

Conoco isn't alone among affiliates of producers expanding marketed gas volumes. BP Energy's gas trading unit has made great strides in the past year with its parent company's emphasis on the "gas economy," and Coral Energy, a subsidiary of Shell, has a natural advantage with its task to market all of Shell's North American natural gas production.

And, of course, there's ChevronTexaco, which owns 26 percent of Dynegy and appears keenly supportive of Dynegy's efforts. In committing $2.6 billion of cash to Dynegy's short-lived takeover of Enron, ChevronTexaco Chairman and CEO David O'Reilly said his company's additional investment "underscores our belief in the long-term value potential" of the energy-marketing sector.

Stice still believes Conoco has an upper hand on many of its producer counterparts. "We steward gas from the wellhead to the customer," he says. He's also optimistic about the marketing business as a whole. "I do not believe this industry will suffer [from Enron's fall]," he predicts. "Gas and power marketing will be a healthy business model. ... Gas will continue to be the fuel of choice."

—M.H.

In announcing his company's decision to call off its merger with Enron, Dynegy Chairman and CEO Chuck Watson said, "While it is regrettable to see a leading industry player in difficulties, this does not reflect a failure of the energy merchant business."

A Long Way To Consolidation

Among the mega-marketers, a shift in power is occurring. Some are focusing on increasing the scale of their business while others are developing new products and improving the "service marketing" aspects of their business. Reliant Energy, American Electric Power, Mirant and BP Energy all have taken dramatic strides in expanding the volume of gas they trade and have joined the league of mega-marketers. Mirant and BP Energy, for example, recently acquired portions of TransCanada PipeLines' significant gas marketing and trading assets.

With the crash of Enron, a scramble promises to ensue for control of the market space left behind. For the third-quarter of 2001, Enron marketed a daily average of 26.7 billion cubic feet (Bcf) of gas. Next in the rankings for the quarter was Reliant Energy, with marketed gas volumes of 15.4 Bcf.

Whether there's consolidation in the marketplace or not, industry players say the rest of the market remains large enough for both mega-marketers and regional players to enjoy a piece of the pie. "There's always room for people who create value for their customers," says Eric Larson, senior vice president of marketing and trading for Entergy-Koch Trading, the marketing partnership established by the merging of certain assets of Entergy and Koch Industries last February.

"We're not anywhere close to an unhealthy consolidation," says Derek Porter, vice president of software products for Henwood Energy Services, a California consulting and software company. "Niche players will not get merged out." If the number of players did shrink considerably, the operating costs would climb too high and other smaller players would be able to enter the market and undercut