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Gas Marketing Declined in 2Q2009; Market 'Plagued by Wishful Thinking'

Weak national demand led all but a handful of companies to see natural gas marketing declines during the second quarter as the total volume sold in North America fell 9% -- almost 11 Bcf/d -- according to NGI's 2Q2009 Top North American Gas Marketers Ranking.

The 23 reporting marketers -- excluding fourth-ranked Macquarie Cook Energy, for which 2Q2008 data was not available -- transacted 114.20 Bcf/d in 2Q2009, compared with 125.05 Bcf/d in 2Q2008.

BP plc, the top marketer in the survey, reported physical sales of 27.70 Bcf/d, a 9% decline from 30.30 Bcf/d in 2Q2008. ConocoPhillips reported 14.20 Bcf/d, the same as a the year-earlier period, breaking a stretch of seven consecutive quarterly increases for the Houston-based producer. All of the other top 10 companies in the survey reported decreases in 2Q2009 compared with 2Q2008 numbers.

The only marketers reporting increases in 2Q2009 were Devon Energy Corp. (2.79 Bcf/d, up 11% from 2Q2008), Sequent Energy Management (2.60 Bcf/d, up 8%), XTO Energy Inc. (2.35 Bcf/d, up 31%), Anadarko Petroleum Corp. (2.33 Bcf/d, up 25%), Chesapeake Energy Corp. (2.25%, up 5%) and Atmos Energy Corp. (0.84%, up 2%).

Company 2Q2009 2Q2008 Change
BP* 27.70 30.30 -9%
ConocoPhillips* 14.20 14.20 0%
Shell Energy NA* 13.50 13.70 -1%
Macquarie Cook Energy*** 8.12 n/a n/a
Louis Dreyfus* 7.67 7.95 -4%
Chevron* 6.29 8.32 -24%
RBS Sempra* 6.05 8.90 -32%
Tenaska* 4.80 5.10 -6%
Nexen 4.60 7.30 -37%
EnCana** 3.79 3.84 -1%
ONEOK 2.84 2.91 -2%
Devon** 2.79 2.52 11%
Sequent 2.60 2.40 8%
XTO** 2.35 1.80 31%
Anadarko 2.33 1.87 25%
Chesapeake** 2.25 2.15 5%
ExxonMobil 1.89 1.97 -4%
Merrill Lynch* 1.65 2.43 -32%
Enserco 1.58 1.60 -1%
Canadian Natural 1.35 1.53 -12%
CenterPoint Energy 1.25 1.42 -12%
Apache** 1.04 1.12 -7%
El Paso 0.84 0.90 -7%
Atmos 0.84 0.82 2%
Total* 122.32 n/a 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, Chevron, ConocoPhillips, Louis Dreyfus, Macquarie Cook Energy, Merrill Lynch, RBS Sempra, Shell Energy NA and Tenaska. **The gas volume figures for Apache, Chesapeake, Devon, EnCana, ExxonMobil and XTO represent the amount of North American gas produced in the quarter. Those companies may be marketing more third-party gas for sale. ***Macquarie Cook integrated Constellation Energy's gas trading business into its operation at the beginning of April 2009. No combined data is available for 2Q2008. Macquarie Cook Energy data reflects Macquarie Cook Energy LLC's transactions in the United States and Macquarie Cook Energy Canada's transactions in Canada.

The drop in the volume of gas being sold by marketers comes even as the Energy Information Administration (EIA) reported that total gas production rose in June (see NGI, Aug. 31). Prices remained depressed and there was a decline in drilling activity, according to EIA.

On Sept. 4 the front-month natural gas futures contract reached a new low for the move at $2.409, down 82% from summer 2008's high of $13.694.

Production in the Lower 48 and the Gulf of Mexico combined rose 0.5% to 63.28 Bcf/d in June, the latest month for which production statistics are available, from 62.96 Bcf/d in May, according to the EIA-914 monthly natural gas production report. Onshore production was 56.09 Bcf in June, down slightly from 56.2 Bcf/d in May, while the Gulf of Mexico accounted for 7.2 Bcf/d, up from the 6.71 Bcf/d output level in May.

The "falling rig count is impacting production. Onshore production has declined four consecutive months and is down 1 Bcf/d (2%) from February [2009] levels," said Houston-based Tudor Pickering Holt & Co. LLC.

On the storage side, weak working capacity as of April was 3,889 Bcf, an increase of 100 Bcf from a year ago, according to EIA, while working design capacity was 4,313 Bcf, an increase of 177 Bcf from a year ago (see Daily GPI, Sept. 7).

The results of NGI's 2Q2009 Top North American Gas Marketers Ranking survey "make it clear why we're at historic storage levels," said Amy Myers Jaffe, the Baker Institute's Wallace S. Wilson fellow in energy studies at Houston's Rice University.

"What is happening is that people are getting hit on the demand end; you have lost a lot of industrial demand for gas...the Northeast did not have a very hot summer and so the usual outlets that people who market gas would have had to sell that gas were hit this year," Jaffe told NGI.

"If you want to come up with an explanation for why the forward price of the natural gas is not as low as the front month, it's because the market is anticipating this conventional gas rig count is going to kick in as lower supply as we move into the fall. And then if the economy picks up you're going to have this pull from storage and we're going to work off the excess. And there's a lot of 'ifs' in that -- the economy has to actually pick up, the production has to actually drop off -- and those things could happen, but we really haven't seen that yet. Because one of the things that has happened is that even as the rig count has dropped a little bit, we haven't really seen yet a correlation to drops in production. So there's some question about whether people are actually able to produce more with fewer rigs."

According to Bentek Energy LLC, industrial demand is recovering, but a return to pre-recession levels is not expected until the end of the third quarter in 201 (see NGI, Sept. 7). Next year total domestic industrial demand is expected to grow about 0.4 Bcf/d, followed by a similar gain in 2011, Bentek said. But Bentek warned that a demand recovery will be slow in coming and, according to Jaffe, overly optimistic planning is not wise in the current economy.

"This is a market plagued by wishful thinking," Jaffe said. "And the wishful thinking ranges from summer lasting through October to production falling like a stone to the recession ending overnight. But it is likely that all three of those things are not going to happen together, so we are not likely to have the perfect storm in natural gas, and that market is not out of the woods."

Highlights of NGI's 2Q2009 Top North American Gas Marketers Ranking include XTO's 31% increase from 2Q2008, the largest percentage increase in the survey. Last month XTO said it had record production, "exceeding expectations" in 2Q2009 (see NGI, Aug. 10).

"Looking ahead to 2010, we anticipate a recovering economy, decreasing natural gas supply and increasing natural gas demand," according to XTO Chairman Bob R. Simpson.

Calgary-based Nexen Inc., which experienced the largest percentage decline in the survey (down 37% to 4.60 Bcf/d compared with 7.30 Bcf/d in 2Q2008), said in July that it is reviewing alternatives for its natural gas and power marketing businesses, which may include the sale of all or part of them (see NGI, July 27). Earlier this year Nexen scaled back its marketing operations (see NGI, May 4; Feb. 16). Nexen has operations in the North Sea, Western Canada (including the Athabasca oil sands of Alberta and unconventional gas resource plays such as shale gas and coalbed methane), the deepwater Gulf of Mexico, offshore West Africa and the Middle East.

Macquarie Cook integrated Constellation Energy's gas trading business into its operation at the beginning of April 2009 (see NGI, April 6). The divestitures completed two initiatives that Constellation took to reduce risk in its merchant businesses and improve liquidity through the return of posted collateral. In a related transaction, Constellation struck a gas supply agreement with Macquarie Cook to supply gas to Constellation's Louisville, KY-based retail division, Constellation NewEnergy Gas. In the second quarter of 2008 Constellation ranked second on NGI's ranking of top gas marketers by volume at 14.2 Bcf/d, behind BP plc at 30.3 Bcf/d and tied with ConocoPhillips, which also reported 14.2 Bcf/d.

In July the Canadian trading arm of Shell Energy North America LP said it would buy nearly all of the natural gas and power customer contracts of Integrys Energy Services of Canada Corp. (see NGI, July 20). Integrys Energy Services Inc., a subsidiary of Integrys Energy Group Inc., is a nonregulated energy supply and service company that serves residential, commercial, industrial and wholesale customers in the United States and Canada. The Canadian contracts being sold would become part of Shell Energy North America (Canada) Inc. The purchase price was not disclosed.

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