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BP Captures 25% of Top 20 Gas Marketer Volumes in 2005

The natural gas industry had a lot of troublemakers shaking things up last year, with price spikes, up-and-down weather and hurricane-related supply disruptions. Energy traders, though, managed to take a lot of those lemons and make lemonade, with all but one of NGI's top 10 North American gas marketers squeezing out strong gains for the final quarter of 2005, and all but one showing strong gains for the year.

With physical gas sales up 10% over 2004, London-based BP plc dominated the North American gas sales market once again in 2005, reporting it sold 26.1 Bcf/d. Despite supply disruptions and delays from some of its Gulf of Mexico platforms, BP's 4Q gas sales were up 7%, to 26.3 Bcf/d from a year earlier.

Amazingly, BP was responsible for about 25% of the total physical gas sales by the top 20 gas marketers in North America last year. Overall, the top five merchants sold 63% of the gas sold by the entire top 20 in 2005. And, in a sign that the merchant marketer era has indeed passed, Sempra Energy, in second place, was the only one of the top five marketers on the list not owned by a major producer. Behind BP and Sempra in order were ConocoPhillips, Coral Energy (Shell's trading arm), and Chevron Corp. The producer-marketers' role has grown steadily since 2003 when they were the only entities with the know-how and the credit quality to quickly step into the middle-man wasteland.

Company 4Q2005 4Q2004 Change
BP 26.30 24.50 7%
Sempra 12.10 11.90 2%
ConocoPhillips 11.80 10.80 9%
Coral 11.00 9.61 14%
Chevron* 6.20 4.70 32%
Constellation 5.59 NA NA
Louis Dreyfus 4.37 3.50 25%
Cinergy 4.24 4.61 -8%
Tenaska 4.10 3.70 11%
UBS 3.59 3.14 14%
EnCana 3.33 3.09 8%
Oneok 2.84 3.38 -16%
ExxonMobil 2.53 2.76 -8%
Merrill Lynch 2.23 2.20 1%
Devon 2.12 2.39 -11%
Williams 2.10 2.20 -5%
Nexen 2.00 2.94 -32%
Sequent 1.90 2.20 -14%
Calpine 1.90 2.30 -17%
Hess 1.80 1.80 0%
Total* 106.45 101.72 5%

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 included BP, ConocoPhillips, Coral, Cinergy, Tenaska, Louis Dreyfus, UBS, Merrill Lynch and Constellation. *The total excludes Constellation data because its volumes for 4Q2004 were not provided.

Company 2005 2004 Change
BP 26.10 23.70 10%
Sempra 11.70 13.00 -10%
ConocoPhillips 11.60 10.50 10%
Coral 10.60 9.51 11%
Chevron* 5.58 2.37 135%
Cinergy 5.34 4.51 18%
Tenaska 4.20 3.70 14%
Louis Dreyfus 4.08 NA NA
UBS 3.89 NA NA
Oneok 3.29 3.28 0%
EnCana 3.23 2.97 9%
ExxonMobil 2.66 2.92 -9%
Nexen 2.40 2.94 -18%
Merrill Lynch 2.29 2.04 12%
Devon 2.24 2.41 -7%
Williams 2.18 2.30 -5%
Sequent 2.17 2.10 3%
Calpine 2.06 NA NA
Hess 1.85 1.72 8%
Burlington 1.75 1.73 1%
Total 105.01 NA NA

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 included BP, ConocoPhillips, Coral, Cinergy, Tenaska, Louis Dreyfus, UBS and Merrill Lynch. Constellation is excluded from the full-year 2005 report because it did not begin reporting data to NGI until 2Q2005. Full-year 2004 data was not available for Louis Dreyfus, UBS or Calpine.

The strong push by oil and gas producers to stake out their share of the North American market has proven particularly successful for third-ranked ConocoPhillips, which has steadily seen its gas sales rise in the past four years. Sales were up 10% last year over 2004, to 11.6 Bcf/d from 10.5 Bcf/d. In the final quarter, sales grew 9% to 11.8 Bcf/d from 10.8 Bcf/d.

"We've definitely been...intent on growing our position in North American gas, not only in marketing and trading but also in production and reserves" said Chris Conway, president of gas and power for ConocoPhillips. "We are taking an integrated approach to our business...growing our business in North America in a number of ways."

He noted that ConocoPhillips has its hand in several gas-related North American ventures: the proposed Alaskan pipeline, several liquefied natural gas projects and the acquisition of gas-rich Burlington Resources. Burlington sold 1.75 Bcf/d in North America last year.

"From a marketing perspective, we've certainly improved our overall supply position," Conway said of the Burlington deal. "We've got a broad gas strategy, and marketing is a piece of it, I'd say."

Conway, who also chairs the Natural Gas Supply Association, said, "We have been and continue to be placing our relationships first. We're a strong physical gas player, but our core approach to business is that we're less focused on making money... We want to make money, but we're really more focused on the customer."

Four years ago, Conway was in charge of ConocoPhillips' crude oil sales, and he understands both sides of the business. "More are moving to an integrated approach to business," with upstream and downstream business sense. Overall, having the connected supply is "most important for customers," he said. The top tier of marketers also has "financial backing, and strong balance sheets... There is a value and a premium on the quality of the supplier."

There are, of course, a plethora of players too small or privately owned to make NGI's top 20 list. To compile the list, NGI reviewed filings with the Securities and Exchange Commission and accepted data directly from some marketers. However, the dominance by the producers is no fluke, according to Mark N. Cooper, who recently prepared a study of the gas market for the Midwest Attorneys General Natural Gas Working Group, which includes Illinois, Iowa, Missouri and Wisconsin (see NGI, March 13).

The leading gas marketers, said Cooper, have "deep pockets and access to both physical and financial traders." BP and the other producers have strong balance sheets and access to supply, which they can leave in the ground or sell. "When entities have ownership of the resources and take large positions in the physical, cash and futures markets, they gain leverage," he said.

Besides the strong showing by the producers, other energy trading firms that survived the collapse of the market in 2002 have in many cases partnered with investment banks to improve their operations, giving them increased expertise, more sophisticated tools and risk capital, Cooper noted. In one of the more recent partnership announcements, cash-strapped Calpine Corp. sold off its trading arm to Bear Stearns Companies Inc. to form CalBear Energy LP (see NGI, Sept. 12, 2005). The venture, according to Bear Stearns, is expected to be independent, and it is not expected to be hampered by Calpine's bankruptcy filing late last year (see NGI, Dec. 26, 2005).

However, energy trading is still a finicky business. Just months after expanding its gas and electricity trading business, J.P. Morgan Chase & Co. said in January that bad energy investments hurt its 4Q2005 earnings. Hurricanes Katrina and Rita also pummeled some energy hedge funds, costing Citadel Investment Group an estimated $150 million and Ritchie Capital $100 million.

Some small operations are faring better. Houston-based Centaurus Energy LP, a $1 billion energy fund founded by former Enron trader John Arnold, placed a correct bet on falling prices toward the end of 2005. According to energy trading tracker SparkSpread.com, the Centaurus fund gained about 160% in 2005. Arnold started the company in 2002 with about $8 million he made at Enron.

"Global energy trading is rapidly recovering from any impacts it sustained" following the collapse of Enron, said Peter C. Fusaro, a coprincipal of the Energy Hedge Fund Center LLC. New exchange-based clearing mechanisms have reduced barriers to entry, which has increased market liquidity and impacted risks. "With the recent entry and reemergence of investment banks, hedge funds and multinational oil companies as investors in energy commodities, these markets have dramatically changed over the last four to five years. Indeed, we would argue that there has been a structural change in energy markets."

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