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Marketers Search for Way Out of $2 Doldrums; Sales Flat in 1Q2012

Relatively warm weather during winter's final months and a halting economic upturn continued to keep a lid on natural gas sales during the first quarter of 2012, according to NGI's 1Q2012 Top North American Gas Marketers Ranking, which found a majority of companies reporting sales declining or flat compared with 1Q2011.

Twenty-seven leading gas marketers reported combined sales transactions of 141.75 Bcf/d for 1Q2012, a less than 1% decline (0.73 Bcf/d) from 142.48 Bcf/d in 1Q2011. Two of the top three marketers, six of the top 10, and 14 overall posted declines in sales in 1Q2012 compared with 1Q2011.

BP plc reported 24.30 Bcf/d in 1Q2012, a 2% decline from 24.70 Bcf/d in 1Q2011, but it still holds a firm grip on the top spot in the NGI survey. The energy giant has divested almost $23 billion since 2010 and plans to sell one Gulf of Mexico (GOM) field and stakes in four others (see Daily GPI, May 2) and its lucrative stake in TNK-BP, which is owned equally with Russia's Alfa Access Renova (see Daily GPI, June 4). Analysts estimated that the TNK-BP sale, if completed, could garner up to $30 billion for BP, basically erasing all of its estimated financial obligations related to the Macondo well blowout and oil spill in the GOM in April 2010. The London-based producer is the largest leaseholder in the GOM deepwater with more than 650 leases in water more than 1,250 feet deep.

ConocoPhillips, the second-ranked company in NGI's survey, continues a spate of quarterly increases, reporting 16.20 Bcf/d in 1Q2012, up 5% from 15.40 Bcf/d in 1Q2011, even in the midst of a major reorganization. ConocoPhillips left the ranks of the Big Oil integrated producers and became the leading pure-play explorer in North America when Phillips 66, the refining and marketing arm, was spun off May 1 (see Daily GPI, April 17). ConocoPhillips curtailed about 100 MMcf/d of domestic natural gas production in January (see Daily GPI, Jan. 26) and in April said it would continue to shut in "around 9,000 boe/d" in North America because of low gas prices (see Daily GPI, April 25). More gas also may be curtailed following further evaluation, according to CFO Jeffrey Sheets.

Shell Energy NA remained in the third position in the survey, reporting 13.80 Bcf/d, a 1% decline compared with 13.90 Bcf/d in 1Q2011. Peter Voser, CEO of parent company Royal Dutch Shell plc, recently said the catalyst for the Europe-based major's future growth will continue to be natural gas (see Daily GPI, May 23). Globally, Shell expects to produce more gas than oil for the first time this year, Voser said.

Rounding out the top five in the 1Q2012 survey were Macquarie Energy, which reported 10.99 Bcf/d, a 4% increase compared with 10.52 Bcf/d in 1Q2011; and EDF Trading NA, which reported 7.07 Bcf/d, a 1% uptick from 6.98 Bcf/d in 1Q2011. JP Morgan was ranked sixth in the survey with 6.70 Bcf/d in 1Q2012, compared with 7.26 Bcf/d in 1Q2011.

The survey ranks marketers on sales transactions only. BP, ConocoPhillips, Shell, Macquarie, EDF and JP Morgan (with EDF and JP Morgan reversing positions) were also the top six companies in NGI's recent analysis of 2011 Form 552 filings with the FERC, which detailed total combined natural gas purchase and sales volumes (see Daily GPI, May 30). The total yearly combined volume last year was the highest recorded since the Federal Energy Regulatory Commission began releasing the data in 2009.

Flat or sagging sales experienced by marketers reflect the "watching and waiting period" the industry is experiencing, according to Maryland-based energy consultant Ben Schlesinger. As it has at other times in the past, the natural gas industry has again become heavily dependent on the oil industry, he told NGI.

"The best thing we can say is oil -- as long as its price remains comfortably high -- can continue to supply the gas industry," Schlesinger said. "However, we do have a market that's highly developed in North America, like no other, and as a result I don't think that we can continue to sustain this market, let alone grow it, unless we drill for gas preferentially at some point.

"The moment people see a peaking of gas supply, markets will react immediately and swiftly with a price increase...the best we can do is watch closely as the curve begins to shift because I really think that traders, especially people who trade solely in the two- to three-year time frame or the three- to five-year time frame, are going to snap."

The International Energy Agency recently said that China will more than double its natural gas consumption over the next five years, while low gas prices will continue to support the U.S. economy and the United States becomes a net exporter of liquefied natural gas (LNG) (see Daily GPI, June 6). Asia will represent the "lion's share" of natural gas demand growth in the coming years, according to Royal Dutch Shell plc's Marvin Odum, director of the company's America's upstream business (see Daily GPI, June 12).

Exports could help to soak up some of the supply glut, but that won't help boost prices in the short term, according to Andy Huenefeld, a market analyst at Louisville, KY-based energy consulting and management firm Fellon-McCord & Associates.

"That's definitely one of our longer-term risk factors for upward price action," Huenefeld told NGI. "I think that by the time LNG exports would come to fruition it would be 2015 at the absolute earliest, with the lead project being out of Sabine Pass in Louisiana. By the time that comes around, we think prices are probably going to be back to above $3 anyway."

Increased demand from the power sector due to accelerated coal-fired plant retirements and the potential for government regulation of hydraulic fracturing could have more immediate impacts on prices, he said. LNG exports "aren't necessarily at the forefront of any of the market participants' thinking as of today."

Highlights of NGI's 1Q2012 Top North American Gas Marketers Ranking include a 3% increase for Sequent (6.00 Bcf/d, compared with 5.80 Bcf/d in 1Q2011), a 10% increase for Chesapeake Energy (2.98 Bcf/d, compared with 2.70 Bcf/d in 1Q2011), a 10% increase for Southwestern Energy Co. (1.75 Bcf/d, compared with 1.59 Bcf/d in 1Q2011), a 27% increase for Gavilon (1.47 Bcf/d, compared with 1.16 Bcf/d in 1Q2011) and a 12% increase for BOA Merrill Lynch (1.23 Bcf/d, compared with 1.10 Bcf/d in 1Q2011). The 4Q2011 survey also saw a 4% increase for Devon (2.63 Bcf/d, compared with 2.53 Bcf/d in 1Q2011), a 3% increase for CenterPoint Energy (1.77 Bcf/d, compared with 1.72 Bcf/d in 1Q2011). and a 3% increase for Canadian Natural (1.30 Bcf/d, compared with 1.26 Bcf/d in 1Q2011).

Not included in the survey for the first time since 4Q2002 is Enserco Energy Inc., which reported 1.73 Bcf in the year-ago survey. Rapid City, SD-based Black Hills Corp. said in January that it was selling the energy marketing unit to Houston-based Twin Eagle Resource Management LLC for $160-170 million (see Daily GPI, Jan. 20). That deal closed on Feb. 29 and Black Hills reported the segment as discontinued operations (see Daily GPI, March 5).

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