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Marketer Rankings to Shift Following Wall Street Shake-Up

With physical sales of 30.3 Bcf/d in 2Q2008, BP plc easily surpassed all other companies in NGI's latest survey of North America's natural gas traders. However, the real news looking forward is just how many 2Q2008 marketers might be absent from the 3Q2008 version of the survey.

Solid gains were reported by nearly all of the survey participants from the same period of 2007. The surveyed marketers sold 149.06 Bcf/d, compared with 99.04 Bcf/d in 2Q2007. However, BP and Lehman Brothers did not participate in the survey a year ago. Discounting their gas sales (Lehman sold 5.83 Bcf/d in 2Q2008), the total gas sold in the quarter reached 112.93 Bcf/d, which was 13.89 Bcf/d higher than a year ago.

The two companies that tied for second place in the survey didn't sell half as much gas as BP did during the quarter: ConocoPhillips and Constellation Energy each reported selling 14.2 Bcf/d. Shell Energy NA was in third place with sales of 13.7 Bcf/d, and RBS Sempra moved into fourth place, reporting 8.9 Bcf/d. Rounding out the top five was Chevron, whose gas sales totaled 8.32 Bcf/d.

With the upheaval in the financial markets. NGI's survey is certain to change over the course of the coming months. In some ways, it's deja vu all over again for the wholesale gas market, which suffered through the implosion in late 2001 of once mighty marketer Enron Corp. Enron's demise led to a complete overhaul among gas marketers, with some dropping out completely. The revamp led to the rise of BP and other solidly financed producers like ConocoPhillips, Shell and Chevron.

The producers again may benefit from the financial fall-out as "pure" marketers are squeezed for cash, but only time will tell. Certainly in question for future surveys will be Constellation Energy Group, which Berkshire Hathaway's MidAmerican Energy Holdings made a $4.7 billion definitive deal for on Friday afternoon (see related story).

Constellation, whose gas sales climbed higher than any other participant with a 73% increase from a year ago, has been one of NGI's top North American physical gas marketers since it joined the survey three years ago (see NGI, Oct. 3, 2005). Whether MidAmerican has the same interest in the risky energy trading arena remains to be seen.

"Obviously we're in unprecedented times," MidAmerican CEO Gregory Abel said Thursday. "Liquidity and solvency issues are a top priority for many companies. We don't have any of those concerns, again, at MidAmerican and Berkshire."

However, Abel told reporters in Baltimore during a press conference Thursday that while Constellation's business plan is solid, the energy trading business may be revamped.

"I do think going forward you may see it managed down in a fashion such that we're not using the balance sheet of either Constellation Energy or MidAmerican Energy Holdings Co. to grow it," Abel said. "But we are comfortable that business can stand on its own and continue to prosper, absolutely."

Post Enron, the physical gas market was retooled not only by the producers but also financial institutions -- and some names are gone, others may follow.

UBS, a subsidiary of Switzerland-based UBS AG, beat out Citigroup in 2002 as the high bidder for Enron's energy trading unit. Merrill Lynch & Co. bought Entergy Koch's substantial trading arm four years ago (see NGI, Nov. 8, 2004). To expand its energy trading business, Lehman Brothers bought Houston-based marketer Eagle Energy Partners, formed by former Dynegy Inc. executives (see NGI, May 14, 2007). Bear Stearns launched Bear Energy, which tried and failed to buy Calpine Corp.'s trading unit and then attempted to start a new trading unit based in Houston (see NGI, April 17, 2006).

JPMorgan Chase rescued Bear Stearns in March (see NGI, March 24). Lehman Brothers Holding Inc. filed for bankruptcy protection last week, and Merrill Lynch agreed to be sold to Bank of America Corp. (BofA) (see related story). UK-based Barclays then agreed last Tuesday to pay about $1.75 billion for some of Lehman's U.S. assets, including its commodities business.

"The crown jewel for BofA from the Merrill deal may be Merrill's investment advice business but we shouldn't forget that the commodity trading division of Merrill is a gem too," wrote Matt McCormick, analyst at Bahl and Gaynor Investment Counsel Inc. "Barclays, of course, got the second biggest deal on the Street after BofA, as Lehman's investment banking and commodity sections look to ensure higher revenue streams and compatibility."

Barclays began to expand its commodities business in the late 1990s, and it now is a player in precious and base metals, crude oil and refined products, emissions, U.S. power and gas, UK and European power and gas, agriculture, freight, coal and investment products.

Tenaska Marketing Ventures (TMV), another of NGI's top marketers, is half owned by AIG Financial Products Corp., a subsidiary of the insurance giant (see NGI, April 9, 2007). AIG, which went into meltdown and narrowly escaped bankruptcy through a bailout by the federal government, already has announced plans to sell some of its businesses as it restructures. But the privately held Tenaska is expected to thrive. TMV in 2006 was ranked by Forbes magazine as the 16th largest private company in the United States, based on 2005 revenues.

In any case, if the physical gas or electricity marketers liquidity begins to tumble, Federal Energy Regulatory Commission (FERC) Chairman Joseph Kelliher said Thursday that the Commission is prepared to act quickly (see related story).

Kelliher noted that "some of the turmoil these companies are experiencing raises credit and collateral issues," but commissioners are "monitoring the situation and the Commission's ready to act."

Company 2Q2008 2Q2007 Change
BP plc 30.30 n/a n/a
ConocoPhillips 14.20 13.50 5%
Constellation 14.20 8.20 73%
Shell Energy NA 13.70 12.60 9%
RBS Sempra 8.90 7.70 16%
Chevron 8.32 8.76 -5%
Louis Dreyfus 7.95 5.18 53%
Nexen 7.30 4.90 49%
Lehman Brothers 5.83 n/a n/a
Tenaska 5.10 4.50 13%
EnCana 3.84 3.51 9%
UBS 3.00 5.10 -41%
ONEOK 2.91 2.83 3%
Devon 2.53 2.33 9%
Merrill Lynch 2.43 2.19 11%
Sequent 2.40 2.00 20%
Chesapeake 2.14 1.72 24%
ExxonMobil 1.93 2.30 -16%
Anadarko 1.87 1.80 4%
XTO 1.80 1.33 35%
Hess 1.70 1.60 6%
Enserco 1.60 1.58 1%
Canadian Natural 1.53 1.72 -11%
CenterPoint 1.41 1.32 7%
Apache 1.12 1.19 -6%
El Paso 1.05 1.18 -11%
Total* 149.06 99.04 n/a

Source: Quarterly financial reports with the Securities and Exchange Commission, or if necessary, statements signed by company officials and provided to NGI.

*Companies providing data directly to NGI include BP plc, Chevron Corp., ConocoPhillips, Constellation Energy Commodities Group, Lehman Brothers, Louis Dreyfus Energy Services, Merrill Lynch Commodities, Shell Energy North America, Tenaska Marketing Ventures and UBS Energy. BP and Lehman did not participate in the 2Q2007 survey.

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