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Power Generation, Gas Production Showed Strong 3Q Returns

Power Generation, Gas Production Showed Strong 3Q Returns

Power generation and natural gas production operations were the big earners during the third quarter of 2004, while financial and performance results from four other major energy industry segments, including natural gas transportation, gas distribution, power distribution and gas and power marketing were down substantially compared to the same quarter a year earlier, according to a comprehensive analysis by Maryland-based Energy Performance Review (EPR).

Examining the results of 31 major power generators, including independent power producers as well as utility affiliates, EPR found that earnings before special items more than tripled compared to the second quarter and were up 28% compared to the same quarter in 2003 despite lower sales volumes. The 31 power generation companies in the survey reported earnings totaling $2.5 billion, or $5.30/MWh.

Power distributors didn't fare so well. While the results from 65 major electric distribution companies were up 61% sequentially from the second quarter to $6.1 billion, or to 1.05 cents/kWh sold, earnings were off 7% from 3Q2003 levels. Nine-month net returns before special items fell 4% to $13.6 billion, or 84 cents/kWh, while nine-month revenues were up 2% to $118 billion.

In comparison, gas distribution showed substantial seasonal declines. Fifty-five major local distribution companies reported losses before special items totaling $228 million, or 16 cents/Mcf of total gas throughput for the third quarter, compared to earnings in the second quarter of $221 million and losses in 3Q2003 of $173 million, or 12 cents/Mcf. Gas throughput was flat at 1.8 Tcf compared to 3Q2003 volumes. However, average revenue on gas sales was a record $11.81/Mcf, up from $10.93 in 3Q2003. Nine-month earnings fell 8% while revenues were up 6%.

Gas transmission results also fell, declining 6% both sequentially and compared to the same quarter in 2003. The primary factor among the 14 companies examined was reduced revenue per unit delivered, which averaged 54 cents/Mcf compared to 52 cents in the prior quarter and 57 cents in 3Q2003. Volumes also were off 5% sequentially, but were up 1% from the prior-year quarter. Nine-month earnings were up 3% from 3Q2003.

One other bright spot was the gas and power marketing sector, which continued a recovery. Twenty-five companies reported earnings before special items of $403 million, up 25% from 2Q2004 but off 33% from 3Q2003, reflecting volumes that were down 14%. Revenues were up 20% sequentially and 6% from the year-ago period. Nine-month earnings were off 20% while revenues were flat.

Strong returns were seen in the gas producing segment of the energy industry. Producers chalked up a 6% earnings increase sequentially and a 33% increase compared to the third quarter of last year mainly as a result of higher commodity prices. Earnings from 35 large producers totaled $3.7 billion, or $1.56/Mcfe. Record oil prices rose to an average of $34.52 compared to $26.21 in 3Q2003, while natural gas prices averaged $5.03. Production volumes were up 6% from the prior year quarter. Nine-month earnings before special items were up 20% to $10.4 billion, or $1.52/Mcfe. Revenues were up 21%.

For more information from EPR, go to www.energyperformancereview.com.

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