Top Gas Gorillas Show Phenomenal Volume Growth
Top North American Gas Marketers :
Ranking by 2000 Sales Volume
Ranking by Fourth Quarter 2000 Sales Volume
The year 2000 was a banner year for the top players in gas
marketing, with huge increases in gas prices, enormous volatility,
continuing growth in sales volumes and major potential for profits.
Physical gas sales volumes for the top 20 marketers in NGI's
ranking grew 17% to nearly 150 Bcf/d, and profits among the larger
players came in very strong with companies such as Williams
reporting 2,000% profit increases from energy merchant operations.
However, for many of the smaller players it was a tough year.
"The big news here is probably the price pressure the marketers
have had to withstand," said Ben Schlesinger, president of
Maryland-based consulting firm Schlesinger and Associates, which
tracks energy marketing. "These people have price exposure on both
sides of their business: the buy side and sell side. They've
actively sought to hedge these risks, but there's no question that
there have been some real stresses in their businesses as a result
of quadrupling gas prices in 2000."
Significant shuffling has begun to take place and will continue,
not just among the leadership but among the whole roster of 500
marketing companies, predicted Schlesinger. "For the first time I'm
not sure all 500 will make it because of the price volatility, and
the stresses that it creates on their balance sheets and their
ability to meet the different needs of their customers." If you are
on the wrong side of a transaction these days in California, you
are going to suffer significantly. It's not much different at the
Henry Hub either, he noted. The harsh reality is that only the
strong will survive.
Ronald J. Barone of UBS Warburg believes the California energy
crisis and fears of lack of gas supply and capacity are driving
customers to the strongest marketers. "I think that over the long
term it will be a positive for the bigger players, such as Enron.
Customers want to go with somebody who is big, has facilities,
somebody who is going to guarantee it, somebody who can do risk
management for them. Enron is the 800-pound gorilla here."
Enron has been the 800-pound gorilla in gas marketing for years
but there were always plenty of 750-pound gorillas around. Last
year, however, Enron found a way to trade natural gas over the
Internet and at last glance was well over 1,600 pounds, more than
double the size of its next closest rival gorilla, Duke Energy.
Enron sold 23.8 Bcf/d of gas last year compared to only 13.3 Bcf/d
the year prior and compared to the 11.9 Bcf/d sold by Duke Energy,
which came in second place in NGI's ranking of gas marketers by
physical sales volume. It was the largest annual gas sales volume
increase for Enron in its history.
Believe it or not, 23.8 Bcf/d is the real number, said Enron
spokesman Eric Thode. "That includes only wholesale physical gas
sales volumes for North America.
"Gas and power use was up all across the U.S. for a variety of
reasons and EnronOnline certainly brought a great deal more traffic
to Enron than we had ever seen in the past. Whereas someone may
have done 10 transactions a month with us in the past last year
they were doing 20."
Enron completed its first full year in 2000 of deploying
EnronOnline, a web-based proprietary energy and commodity trading
system, which quickly became the world's largest web-based
e-commerce site. During the year, Enron executed 548,000
transactions online with 3,000 customers, totaling $336 billion of
The tremendous success of EnronOnline catapulted Enron far above
the rest of the marketing crowd and led many observers to wonder
whether market concentration was beginning to take place in the
industry. Enron's 23.8 Bcf/d is pretty large (35%) when compared
with the 69 Bcf/d that is actually consumed in North America. But
many observers forget that natural gas is traded multiple times -
one marketer trades a given molecule of gas to another marketer and
According to Schlesinger, the so-called "churning factor" is
close to three. "In the past several years when we've been polling
marketers, we got numbers (in 1999) that came to about 60 Tcf. We
added up all the physical sales by all the marketing companies. We
did not have 100% response in our survey --- some of the mid-sized
and smaller companies didn't respond. We reasonably extrapolated
that about 65 Tcf, maybe even 70 Tcf of gas was traded each year in
North America. Physical consumption in North America is about 25
Tcf, so 70 divided by 25 is about 2.8."
Using that calculation, Enron with 23.8 Bcf/d of physical gas
sales in 2000 ends up with a not unreasonable 12% market share.
When the Federal Trade Commission looks at markets and market
share, it uses several tools, one of which is the
Herschman-Herfindahl Index, a measure of market concentration. It's
the sum of the squares of the market share of each participant. If
one company owns the entire 100% of the market, that's an HHI of
The Department of Justice has been using 1,800 as a red flag
when it considers approval of mergers and acquisitions. According
to Schlesinger, the total gas industry has an HHI of only about
200, way below any suggestion of market concentration.
"It's so low that it's unbelievable," he said. "It's a highly
competitive business. Even if one competitor has 12% of the market
(HHI of 144) and the next competitor has 6% and on down, it
certainly doesn't send up any red flags.
"It could be that market concentration in the gas industry has
risen a bit in 2000, but this information alone would not diminish
the fact that the industry is one of the most competitive
businesses in the United States. However, there may be some
regional issues we have to think about," he added. "We haven't
looked at that, so I can't comment on whether anyone has undue
market power in a particular region or state, for example."
There is a snowball effect going on among the top marketers. The
leaders keep getting larger. Volume growth averages at least 10%
per year or more. Several factors should fuel future growth. Price
increases, volatility and uncertainty of supplies are driving
buyers to the larger marketers, according to both Schlesinger and
Barone. Online trading has become a new springboard for additional
growth by allowing greater efficiency and many more trades to take
Schlesinger said he believes electronic trading was responsible
for a good part of the 17% increase in total sales volumes last
year. Enron attributed much of its growth to the online business.
According to many observers, online trading still has plenty of
room to grow. "We certainly think it could continue to grow, no
doubt," said Enron's Thode. "I don't know that we would necessarily
say at that rate."
Altra Energy CEO Paul Bourke believes about 30% of all gas
trading now takes place over the Internet. Bourke said Altra had
8,000 natural gas trades on its system in December.
However, Barone predicts there eventually will be a slowdown in
gas marketing growth in the United States as international energy
markets grab the attention of many marketers. "International should
pick up the slack and contribute increasingly to the bottom line,"
he said. Enron's international natural gas sales volumes grew 131%
in contrast to the 80% growth in North American gas sales.
Barone also said he expects the current market situation and the
continued interest in service, supply and commodity versatility to
continue driving marketing companies together. "I think size, scope
and scale are incredibly significant."
Only one of the top 20 major marketers last year resulted from
the combination of two separate predecessors: Axia, which grew out
of the combination of Koch Energy and Entergy. The rest of the
group achieved its growth without major acquisitions or mergers.
Thirteen out of the 20 top marketers showed double- or
triple-digit volume growth with only two companies in the minus
column. PG&E had the largest volume deterioration of any of the
large marketers with a 40.1% decline in annual volumes and a 42%
decline in quarterly volumes. PG&E went through a significant
reorganization last year. The move of its National Energy Group
(NEG) to Bethesda, MD, from Houston, had the greatest impact on its
trading activity. But the company also sold its energy services
business and its Texas gas transmission assets among other changes.
"It really slowed down our trading [and] a large number of people
stayed behind in Houston," said company spokesman Patrick Hurston.
At the time of the move, the company estimated about half, or 100,
would make the move. Hurston wouldn't say how many actually made
the trip, but the company is still actively hiring. TransCanada,
which also underwent a massive reorganization last year, was the
other company in the minus column with a 3% decline in sales
The remainder of the group experienced large increases in
volumes: Enron at 80%, Duke with 13% growth, Sempra with 53%, BP
Amoco with 56% growth, AEP with a 42% volume increase, and Mirant
and Reliant with 28% growth.