Sequent Hopes to Break Open Southeast Wholesale Market

Created from an existing company in March, Sequent Energy Management LP, a subsidiary of AGL Resources, is taking the natural gas wholesale trading, marketing and asset management industries by storm, drawing traders from many of the major players in the energy trading business. "We are not making any friends at Dynegy or Enron," said Rick Duszynski, CEO and president of Sequent Energy.

Duszynski said that Paula G. Rosput, CEO of AGL Resources, brought him on at the beginning of the year because she believed there was unlocked value in the company's assets. After AGL "dipped its toe in the water" and made some trades in the volatile markets last January, she concluded that there is some value in AGL Resources' assets that are currently just lying "fallow," so why not leverage them.

Although there was a predecessor company called AGL Energy Services that did some gas supply and capacity release, the company only started trading in January. In March, the experiment was deemed a success, and the board of AGL Resources approved a new business plan, which would focus on wholesale trading, marketing and asset management. Upon approval, the company changed its name to Sequent and moved to Houston.

Duszynski said the Southeast has been a market where LDCs have had a tight grip on the market. They used their assets as a big safety margin to protect their ratepayers, he said. "So the Southeast has pretty much been a closed market to asset optimization and arbitrage and really just gas trading in general because to effectively participate in that market you need to have access to a certain amount of assets," Duszynski told NGI.

Classifying the Southeast as an untapped market, Duszynski and Rosput started to put together an organization in January around the assets of AGL Resources' three utilities: Chattanooga Gas Co., Virginia Natural Gas Co. and Atlanta Gas Light Co.

Instead of jumping into the trading industry and basically getting "kicked to death by Enron, Dynegy, Williams, El Paso and Reliant, we decided to build a front office that is capable of going toe-to-toe with Enron, Dynegy and anybody else in our backyard," Duszynski said. "We are not looking to be nationwide, we are not looking to be a big trading house. What we are looking to be is the commercial entity that makes the Southeast market efficient. Right now it is inefficient because the assets are held by the utilities and not allowed to be optimized. We are going to go in there and make it efficient, provide some liquidity in the market and invite the trading houses and others to come and participate in that market."

The executive said that Sequent has hired top-notch people from around the industry, including employees from Enron, Dynegy, Coral and Amerada Hess. He said the company has been able to attract some of the top talent because to be an effective trader in the Southeast you have to have assets to optimize, which Sequent does through AGL Resources. While he said he believes some of the larger trading houses might be upset with some of their employees leaving to come to Sequent, he said he believes that at the same time they respect Sequent's position and have lined up to be a counterparty to the company. "We now have 65 counterparties, where as at the beginning of the year we basically had none," Duszynski said. He added that the counterparties are everybody with interest from the production zone up through New York along the Transco corridor and the Southern Natural system.

On AGL Resources' third quarter 2001 books, the company reported that Sequent made a positive contribution, offsetting start-up expenses and low trading volatility in the quarter.

"We are not trying to be everything to everybody, but we are going to look for assets east of the Mississippi, particularly along the Transco corridor," he said. "If you can get through the Virginia bottleneck, there are some real opportunities there." Duszynski said its marketing and trading expansion is likely to take place over the next three years. The company will expand regionally and along the East Tennessee and Texas Eastern pipeline systems. He added that he expects the company to get into trading and managing other fuels, particularly power, over the next few years.

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