NGI The Weekly Gas Market Report
Last year clearly didn’t turn out as most industry officialsexpected, according to a new survey by the Washington InternationalEnergy Group, a Washington, D.C.-based energy consulting firm. Thefirm’s 1999 Energy Industry Outlook notes the retail marketrevolution “wimped out,” mergers were quite a bit larger thanexpected, the oil price glut was more serious than many thought,and power generation became much more important than most initiallybelieved.
Power generation now is viewed as the most profitable businesssector in the industry, ahead of distribution and way ahead ofenergy services, which was the favorite in 1998. A year ago, theindustry was clearly focused on marketing and value-added services.For the utilities it was because of the expected imminent loss ofcustomers through deregulation. That hasn’t panned out, however.
The 40,000 MW of merchant power plants that went to theblueprinter last year illustrates the shift in industryperspectives. Even though only 25% of the 833 survey respondentssaid they would pick generation if they had one business to stayin, the majority of respondents agreed it is possible to make moremoney in generation than was thought last year.
The industry also is more convinced this year compared to lastthat most players will not survive in the coming years. Seventynine percent believe there will be no more than 100 North Americangeneration companies. Only 25% of energy companies are expected tosurvive the transition to competition. Three-quarters of theindustry expect the new retail mass-marketing initiatives to fail,according to the outlook.
“There are two sides to the opening of regulated markets: theexpansion of customer choice and the reduction in the number ofcompanies,” said Washington International Energy Group PresidentRoger W. Gale. “So far in the electric and gas industries in NorthAmerica, we’re seeing consolidation but not much customer interestin shopping. Worst case, we’ll have market power concentration withno incentive to cut costs. Best case, consolidation will optimizeefficiencies, cut costs and stimulate innovation.”
Confidence in natural gas remains high, however. Most believegas will dominate among new generation fuels and will remain insufficient supply at reasonable prices. But the prospects fornuclear power also appear to have improved. For the first time inmany years, the industry is more confident that nuclear powerplants can be operated competitively, the firm said.
The survey was conducted on a random sample of senior U.S. andCanadian energy executives. This year, the sample base also wasbroadened to include the gas industry, the financial community, andstate and federal regulators. More than 8,500 surveys were mailedout and 833 were returned. For copies of the outlook call (202)833-7145 or go to www.wieg.com on the web.
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