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Despite Tough Times, Marketing Has Room to Grow

Despite Tough Times, Marketing Has Room to Grow

Merger turmoil and tight margins are putting the screws to quite a few energy marketers, but Frost & Sullivan still sees plenty of room for the industry to grow. Several of the top-20 marketers of 1998 have exited the market, while other companies have been spurred to acquire assets and start online trading, according to a recent study by the group.

In some cases, marketers are striking alliances to increase market share or just merely survive. At any rate, scores of marketers that have sprung up over the past few years suddenly are evaluating whether to remain in the volatile marketplace, according to Frost & Sullivan's "North American Wholesale Energy Marketing Industry."

"In 1998, energy marketing, which includes both wholesale natural gas and power marketing, was a $157 billion industry, growing almost 30% over the 1997 figure of $123 billion," the report says. "By the end of the forecast period in 2005, the market is expected to reach over $313 billion in revenues, growing at a compound annual growth rate of 10.4%." Last year's "market growth was severely disrupted by marketers' internal restructurings and changes in strategy following two consecutive summers of price spikes in the power industry, coupled with low natural gas prices. This, however, is expected to be an anomaly, and growth is expected to reflect the long-term trend again in 2000."

Dramatic increases in merchant power generation are expected to provide increased volumes in the wholesale market, Frost & Sullivan said. "Deregulation has allowed the number of merchant plants to multiply in North America. Because these plants generate electricity solely for sale in the competitive wholesale market, expansion of this field will drive growth in the power marketing industry."

The study found online trading sites are improving efficiency and decreasing the time needed to complete deals.

"The industry has seen a tremendous increase in the use of cross-commodity deals that leverage the convergence of electricity and natural gas. These types of deals, such as tolling agreements, allow marketers to capture new arbitrage revenues as the prices of each commodity fluctuate against one another."

Joe Fisher, Houston

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