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Natural Gas Price Volatility Leads to 4% Sales Increase for Marketers

Natural gas marketers experienced a welcome jump in sales during the second quarter of 2012, according to NGI's 2Q2012 Top North American Gas Marketers Ranking, with 16 companies overall and eight of the top 10 -- including all of the top six -- reporting sales increases compared with 2Q2011.

Twenty-seven leading gas marketers reported combined sales transactions of 135.86 Bcf/d for 2Q2012, a more than 4% increase (5.68 Bcf/d) from 130.18 Bcf/d in 2Q2011. Note that the NGI survey is of sales transactions, not production. Transactions may include a company's own gas and that of others.

Company 2Q2012 2Q2011 Change
1. BP 23.60 21.30 11%
2. ConocoPhillips 16.27 14.96 9%
3. Shell Energy NA 13.13 12.00 9%
4. Macquarie Energy* 10.13 9.79 3%
5. EDF Trading NA 7.30 7.00 4%
6. Tenaska 6.50 5.90 10%
7. JP Morgan 6.28 6.40 -2%
8. Louis Dreyfus 5.64 4.91 15%
9. Chevron 5.60 6.23 -10%
10. Sequent 4.90 4.70 4%
11. ExxonMobil ** 4.29 4.31 -0%
12. J. Aron & Co.*** 4.13 3.12 32%
13. Citigroup 3.20 3.61 -11%
14. Chesapeake** 3.02 2.57 18%
15. Encana** 2.80 3.31 -15%
16. Devon** 2.57 2.64 -3%
17. Anadarko 2.54 2.33 9%
18. Hess 1.86 1.90 -2%
19. Southwestern Energy Co 1.85 1.69 9%
20. ONEOK 1.65 2.11 -22%
21. Apache** 1.46 1.52 -4%
22. CenterPoint Energy 1.40 1.38 1%
22. Gavilon 1.40 1.22 15%
24. Canadian Natural 1.26 1.24 2%
25. Gazprom 1.14 2.00 -43%
26. BOA Merrill Lynch 1.08 1.07 1%
27. Atmos 0.86 0.97 -11%
  Total 135.86 130.18 4%

Source: Quarterly financial reports with the Securities and Exchange Commission, or if necessary, statements signed by company officials and provided to NGI. Some previous-year data has been updated by the companies since it was originally reported.

Companies providing data directly to NGI include Bank of America Merrill Lynch, BP, Chevron, Citigroup, ConocoPhillips, EDF Trading NA, Gavilon, Gazprom, J. Aron & Co., JP Morgan, Louis Dreyfus, Macquarie Energy, Shell Energy and Tenaska. *Macquarie Energy data reflects Macquarie Energy LLC's transactions in the United States and Macquarie Energy Canada's transactions in Canada. **The gas volume figures for Apache, Chesapeake, Devon, Encana and ExxonMobil represent the amount of North American gas produced in the quarter. Those companies may be marketing more third-party gas for sale. ***J. Aron & Co. is the commodity trading subsidiary of Goldman Sachs.

Despite the flood of natural gas on the market and stubbornly low prices, the higher trading volumes reflected in the survey were to be expected, according to market consultant Rusty Braziel of RBN Energy LLC.

"It really doesn't surprise me much, because natural gas prices have been hugely volatile over the past quarter," Braziel told NGI. "Prices were down below $2 in May and up above $3 in July. On a percentage basis that's a huge swing, and that sort of price volatility tends to attract players who make money off of volatility in prices."

Energy giant BP plc led the surge higher, reporting 23.60 Bcf/d in 2Q2012, an 11% (2.30 Bcf/d) increase from 21.30 Bcf/d in 2Q2011. BP last week said it would sell some deepwater Gulf of Mexicoproperties to Plains Exploration & Production Co. for $5.55 billion (see related story).

ConocoPhillips, the second-ranked company in NGI's survey, continued its run of quarterly increases, reporting 16.27 Bcf/d in 2Q2012, up 9% from 14.96 Bcf/d in 2Q2011, in the midst a major reorganization. ConocoPhillips left the ranks of the Big Oil integrated producers and became the leading pure-play explorer in North America during the quarter when Phillips 66, the refining and marketing arm, was spun off (see NGI, April 23).

Shell Energy NA, the third-ranked company in the survey, also reported a 9% increase with 13.13 Bcf/d in 2Q2012, compared with 12.00 Bcf/d in 2Q2011. Parent company Royal Dutch Shell plc recently said it plans to invest $1 billion a year in unconventional natural gas exploration in China and also export liquefied natural gas (LNG) from British Columbia to Asia Pacific markets (see NGI, Aug. 27). Shell is selling its 50% working interest in the Holstein Field to Plains for $560 million, Plains said Monday.

Other top 10 companies posting increases compared with 2Q2011 were Macquarie Energy (10.13 Bcf/d, up 3% from 9.79 Bcf/d), EDF Trading NA (7.30 Bcf/d, up 4% from 7.00 Bcf/d), Tenaska (6.50 Bcf/d, up 10% from 5.90 Bcf/d), Louis Dreyfus (5.64 Bcf/d, up 15% from 4.91 Bcf/d) and Sequent (4.90 Bcf/d, up 4% from 4.70 Bcf/d).

Lower natural gas prices have prompted plenty of fuel switching at facilities that had been burning coal. Natural gas duked it out with coal at a record pace in 2Q2012, and third-in-a-row hot summer temperatures helped to knock out more of the gas storage overhang, Barclays Capital energy analysts said recently (see NGI, Sept. 3). U.S. natural gas prices in the second half of 2012 should average $2.85/MMBtu, which is "influenced greatly" by expectations of more coal displacement, they said.

The Energy Information Administration last week said it expects natural gas inventory levels at the end of October will set a new record of 3,950 Bcf (see related story).

"Basically what happened this summer is we burned a lot of gas for power generation," Braziel said. "Gas prices are cheap and because gas prices were cheap it nudged coal out of the power generation sector...what started off as a summer where we had huge amount of natural gas in inventory ended up as a summer where at the end of it we have a lot of natural gas in inventory, but no longer huge."

Natural gas prices aren't likely to return to the $5 level "for a very long time," according to Braziel, and even a more moderate increase may remain elusive for some time.

"In terms of what it's going to take to increase natural gas prices beyond the $3 level, the only answer is demand. Supply is not falling down. Supply has been flat since November of last year. There are some fields that have dropped off, some other fields have increased to make up the difference, so the total overall volume is hanging in there. The only thing that is going to correct the oversupply of natural gas in the short term is to burn more to generate more power, which means burning less coal. Some of that is going to be just like what we had this summer, where we run the power plants that burn natural gas more often, more frequently than we have in the past.

"Over the next two or three years we'll actually see new natural gas power generation facilities built and they'll take even more share away from coal generation. That will increase prices for some time. It is probable, though, that natural gas production will increase and keep at least some downward pressure on natural gas prices, and that will probably continue until we finally get to the point where we're exporting natural gas as LNG, and that's probably at least 2016."

Highlights of NGI's 2Q2012 Top North American Gas Marketers Ranking include a 32% increase for J. Aron & Co. (4.13 Bcf/d, compared with 3.12 Bcf/d in 2Q2011), an 18% increase for Chesapeake Energy Corp. (3.02 Bcf/d, compared with 2.57 Bcf/d in 2Q2011), a 9% increase for Anadarko Petroleum Corp. (2.54 Bcf/d, compared with 2.33 Bcf/d in 2Q2011), a 9% increase for Southwestern Energy Co. (1.85 Bcf/d, compared with 1.69 Bcf/d in 2Q2011) and a 15% increase for Gavilon (1.40 Bcf/d, compared with 1.22 Bcf/d in 2Q2011). The 2Q2012 survey also saw a 1% increase for CenterPoint Energy (1.40 Bcf/d, compared with 1.38 Bcf/d in 2Q2011), a 2% increase for Canadian Natural Resources (1.26 Bcf/d, compared with 1.24 Bcf/d in 2Q2011) and a 1% increase for BOA Merrill Lynch (1.08 Bcf/d, compared with 1.07 Bcf/d in 2Q2011).

The survey ranks marketers on sales transactions only. BP, ConocoPhillips, Shell and Macquarie were also the top four companies in NGI's recent analysis of 2011 Form 552 filings with the Federal Energy Regulatory Commission, which detailed total combined natural gas purchase and sales volumes (see NGI, June 4). The total yearly combined volume last year was the highest recorded since the Commission began releasing the data in 2009.

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