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Gas Marketing Flat in 1Q2009; Signs of Upturn Elusive

Some companies saw substantial growth and others saw their numbers fall, but the total volume of natural gas sold in North America in 1Q2009 remained basically flat, falling less than 0.5 Bcf/d from the same period last year, according to NGI's 1Q2009 Top North American Gas Marketers Ranking.

The top 22 reporting marketers for the quarter transacted 123.50 Bcf/d, compared with 123.93 Bcf/d in 1Q2008.

As it did in the previous quarter, BP was able to bolster its North American physical sales in 1Q2009, this time to 31.80 Bcf/d, up 17% from 27.10 Bcf/d in 1Q2008. At the same time, ConocoPhillips reported its seventh consecutive quarterly increase, 14.40 Bcf/d in 1Q2009, up 7% from 13.50 Bcf/d in 1Q2008. The increase came through a growing list of customers, according to John Wright, president of ConocoPhillips Gas & Power, who told NGI that "assessing and managing counterparty credit risk continues to be a significant issue."

At Intelligence Press Inc.'s GasMart 2009 in Chicago last month, Will Hussey, senior vice president of origination for ConocoPhillips Gas & Power, said gas buyers will have to be on their toes to prepare for what may be intense competition later this year (see Daily GPI, May 21a). ConocoPhillips is estimating that total U.S. gas output will be down 4 Bcf/d by the end of this year from 2008.

While a growing number of analysts are predicting the recession to lift by year's end, the natural gas industry may not be as close to an upturn as much of the rest of the economy, Houston Energy Partners co-manager John Olson told NGI.

"With this deep recession, where we don't have a steel industry, we don't have an auto industry and we don't have a petrochemical industry; with huge inventory cycles happening in the second, third and to a lesser degree the fourth quarter, I suspect that gas demand will be lagging," Olson said. "When you're talking about Chrysler shutting down seven to eight plants and GM shutting down 15-20 and all of the ripple effects down the supply chain -- the auto dealerships, the auto parts industry -- I cannot help but think that the industrial load for natural gas will be lagging this time around...I think we're on the slow recovery track as opposed to the fast one."

A recent Baker Hughes report concluded that supply continues to remain healthy, despite the fact that the number of rigs currently searching for natural gas in the United States continues to decline as prices hover under $4/MMBtu (see Daily GPI, May 27). The oil and gas drilling services firm said there are 700 rigs actively exploring for gas in the United States, which is down 56% from the 1,606 rigs that were operating during the week ending Sept. 12, 2008 and 53% lower than the 1,493 rigs that were searching for gas one year ago.

The steep drop in the rig count can be directly related to the even steeper drop in prices. After recording a $13.694/MMBtu high in early July last year, front-month natural gas futures values plummeted 77% to reach a low of $3.155 on April 27. On Friday July natural gas futures rose 5.8 cents to $3.868 and August gained 7.2 cents to $4.042 as markets responded to an employment report showing fewer job losses than had been anticipated and traders expressed interest in the more distant portion of the price curve.

Even with an anticipated 70% cut to the U.S. natural gas rig count and an increasing number of uncompleted wells and summer shut-ins, domestic supply won't fall fast enough to solve the overcapacity problem this year, analysts with Raymond James & Associates Inc. said Monday (see related story).

Highlights of NGI's 1Q2009 Top North American Gas Marketers Ranking include 2.72 Bcf/d production for Devon Energy Corp. in 1Q2009, an 11% increase compared with 2.44 in 1Q2008. The Oklahoma City-based company recently said it would cut back on its natural gas drilling until prices begin to rebound (see Daily GPI, June 4a). Devon's go-forward approach will be to "preserve liquidity, scale back short-cycle projects, maintain momentum with long-term projects and maintain organizational capacity," according to CEO Larry Nichols.

Company 1Q2009 1Q2008
BP 31.80 27.10
Shell Energy NA 14.70 15.40
ConocoPhillips 14.40 13.50
Chevron 7.17 8.54
RBS Sempra 6.91 7.10
Louis Dreyfus 6.22 8.43
Tenaska 5.60 6.40
Nexen 5.10 6.60
EnCana** 3.87 3.73
ONEOK 3.29 3.40
Sequent 3.10 2.70
Devon** 2.72 2.44
Anadarko 2.32 2.14
Enserco 2.25 1.79
XTO** 2.23 1.71
Chesapeake** 2.17 2.06
Merrill Lynch 1.97 2.50
ExxonMobil** 1.88 1.95
CenterPoint Energy 1.57 1.52
Canadian Natural 1.37 1.54
Atmos 1.05 1.20
Apache** 0.97 1.10
El Paso 0.84 1.08
Total* 123.50 123.93

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, ConocoPhillips, Louis Dreyfus Energy Services, RBS Sempra, Shell Energy North America 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.

XTO saw an impressive 30% production increase to 2.23 Bcf/d in 1Q2009, up from 1.71 in 1Q2008, even as it continued to trim the number of rigs it has in operation. XTO averaged 81 rigs in 4Q2008, about 70 in 1Q2009, and expects to average about 55 rigs in 2Q2009, the company recently said (see Daily GPI, May 7). XTO had one of the largest increases in NGI's 4Q2008 Top North American Gas Marketers Ranking with a 30% jump from 1.67 Bcf/d to 2.17 Bcf/d. Highlights of NGI's Top North American Gas Marketers Ranking for the full-year 2008 included XTO's 31% growth from 1.46 Bcf/d during 2007 to 1.91 Bcf/d for 2008.

Chesapeake Energy reported a modest increase, up 5% to 2.17 Bcf/d in 1Q2009 from 2.06 Bcf/d in 1Q2008. CEO Aubrey McClendon said recently he thinks his company will "repass" BP plc by the end of the year to again be the largest U.S. gas producer (see Daily GPI, June 1). Chesapeake, he said, is drilling about one out of every nine gas wells onshore in the United States.

Nexen Inc., which decided earlier this year to scale back its marketing division to minimize losses on closing positions and to refocus on physical transportation and storage (see Daily GPI, Feb. 13), saw a 23% decline in the survey, to 5.10 Bcf/d in 1Q2009 compared with 6.60 Bcf/d in 1Q2008. Steep declines were also reported by Louis Dreyfus (6.22 Bcf/d, down 26% from 8.43 Bcf/d in 1Q2008) and Merrill Lynch (1.97 Bcf/d, down 21% from 2.50 Bcf/d).

Despite the short-term gloom and continual comings and goings among energy traders, recent moves by some international corporations demonstrate their confidence in the North American natural gas market's long term prospects. Just last week a spokesman for Mercuria Energy Group Ltd., which claims to be one of the world's five largest independent energy traders, told NGI the European company will open an office in Houston some time in the fall (see Daily GPI, June 4b). The Houston office will trade natural gas, power and petroleum products, he said. Industry press reports have said Mercuria has hired at least nine traders, originators and analysts from Merrill Lynch Commodities in Houston. Russia's Gazprom also is opening a trading operation in Houston that will include natural gas as well as emissions credits (see Daily GPI, May 21b; Aug. 21, 2006).

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