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North American Marketers Report Steady Rise in 3Q Trading Volumes

North American natural gas marketing showed steady growth in 3Q2006, with several of the perennial top performers posting double-digit gains in wholesale gas sales volumes, compared with a year ago. Wholesale gas sales reported to NGI for the period by the top 20 marketers were up 10% over a year ago to reach 120.42 Bcf/d, nearly 11 Bcf/d more than the 109.67 Bcf/d reported in 3Q2005.

The latest survey, which NGI tallied using Securities and Exchange Commission (SEC) filings and individual company reports, indicates the wholesale gas market is steadily growing in liquidity. NGI traced the quarterly evolution to 2003, when marketers had regrouped and new players, led by producers and investment bankers, began to emerge. That year, wholesale gas sales volumes reported by the top 20 gas marketers to NGI averaged nearly 95 Bcf/d. In 2004, gas sales volumes by the top 20 rose slightly to average around 100 Bcf/d. By the end of 2005, the average volume sold by the top 20 had grown another 5 Bcf, to average around 105 Bcf/d.

Growth in gas sales volumes has continued into 2006. In the first quarter, the volume of gas sales by the top 20 marketers averaged about 108 Bcf/d, which was about 2% higher than the same period a year earlier (106 Bcf/d in 1Q2005). Three months later, sales were up 6% year over year, or almost 10 Bcf/d, to 118 Bcf/d from 112 Bcf/d in 2Q2006. This volume growth appears to indicate a more liquid marketplace with gas being resold a number of times on its way to the burner tip.

Company 3Q2006 3Q2005 Change
BP* 23.34 24.56 -5%
ConocoPhillips 13.60 12.20 11%
Sempra 11.80 11.70 1%
Coral 11.60 9.80 18%
Chevron 8.34 6.14 36%
Constellation 8.15 5.12 59%
Louis Dreyfus 5.66 4.25 33%
Nexen 5.53 5.04 10%
UBS 4.93 4.57 8%
Tenaska 4.30 4.40 -2%
EnCana 3.40 3.20 6%
Oneok 3.02 3.02 0%
Williams 2.55 2.34 9%
ExxonMobil 2.50 2.50 0%
Devon 2.35 2.24 5%
Sequent 2.30 2.30 0%
Merrill Lynch 2.10 2.10 0%
Anadarko 1.74 1.44 21%
Enserco 1.67 1.52 10%
Chesapeake 1.54 1.23 25%
Total* 120.42 109.67 10%

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 include Cinergy, ConocoPhillips, Constellation, Coral, Louis Dreyfus, Merrill Lynch, Tenaska and UBS. BP's figure is for U.S. natural gas production, not natural gas sales. BP does not issue quarterly data for its North American gas sales. Fortis, which bought the Duke/Cinergy marketing arm, did not have figures available for the quarter. Cinergy reported 5.05 Bcf/d in gas sales in 2Q2006 and 5.38 Bcf/d in gas sales in 3Q2005.

"Clearly, the market is extremely active and continues to show staying power to a degree that we haven't seen in recent memory," said Patrick Reames, vice president of trading and risk management for Utilipoint International. "Even for those that have been somewhat jaded by the historically cyclical nature of the industry, the apparent fundamental strength has proven impressive."

Reames, whose company surveyed the U.S. energy trading and risk management business as part of a review on marketing technology and software, noted that "high commodity prices, combined with high volatility, have forced many energy traders and marketers to review their current systems in an effort to ensure that they are as well equipped as possible to operate within, and address the risks associated with, this marketplace."

Asked where future growth in physical energy trading is coming from, Reames said several marketers "are looking toward [liquefied natural gas] LNG." Even though the "momentum toward increased LNG imports in North America has cooled somewhat recently," he said "many felt that it was time...to address specialized features and/or functionality that the commodity requires..."

As has been the case in NGI's previous compilation of top North American gas marketers, the latest survey is only one indication of the state of the marketplace, and it is open to interpretation. The SEC does not require physical gas sales to be reported, but many companies voluntarily provide this data in their quarterly filings or provide the data to NGI. However, many large and small gas marketers do not provide data in filings or upon request. And there are a number of participants that are not included in the latest survey.

For instance, Duke Energy unit Cinergy Marketing and Trading LP (CMB) reported 5.38 Bcf/d in 3Q2005. CMT was one of NGI's perennial top marketers, but the unit was sold to European investment banker Fortis earlier this year (see Daily GPI, Oct. 27; June 28). Fortis, which will base its marketing offices in Houston, plans to participate in the survey, but it was not able to provide 3Q data because of the recent purchase.

Also, the numbers for London-based BP plc are estimates because the company only provides data on an annual basis. Rather than leaving the top marketing company out of the ranking entirely, NGI relied on the company's quarterly SEC filing, which detailed its gas production only in the United States, in order to come up with an estimate of its North American gas sales volumes.

ConocoPhillips reported 13.6 Bcf/d in sales for the quarter, 11% higher than the 12.2 Bcf/d it reported a year earlier, and an easy second-place finisher. Sempra's energy trading unit reported a 1% increase in its quarterly gas sales, with 11.8 Bcf/d sold compared with 11.7 Bcf/d in 3Q2005.

Sempra CEO Donald Felsinger said in November that Sempra Commodities may consider a partner for its trading unit to expand it worldwide (see Daily GPI, Nov. 7). "Trading is strategic to us, and as it continues to grow there is a point in time when it will get bigger [in a capitalization sense] than what Sempra is prepared to deal with," Felsinger said last month. "So we have been thinking about strategic partners, and the good news [for us] is that we have time..."

As Sempra looks to the future, in 2008 and beyond, "there could be a time when we would need a strategic partner to let this business grow at the rate it can grow," he said. "That is sort of what we think about; it is not to exit the business, but look at how we can allow it to have unfettered growth in the next decade."

Coral, Shell's trading arm, was in fourth placing, with an 18% jump in business from a year ago, to 11.6 Bcf/d from 9.8 Bcf. Chevron, which has gained following its acquisition of Unocal last year, rounded out the top five, boasting a 36% rise in trading activity, to 8.34 Bcf/d from 6.14 Bcf/d in 3Q2005.

The biggest gains in the quarter were posted by sixth-place Constellation Energy Group, which reported a 59% gain in trading from a year ago, to 8.15 Bcf/d from 5.12 Bcf/d. And Louis Dreyfus Energy Services, in seventh place, was up 33%, to 5.66 Bcf/d from 4.25 Bcf/d a year earlier. Rounding out the top 10 were Nexen, up 10%, to 5.53 Bcf/d from 5.04 Bcf/d; UBS, up 8% at 4.83 Bcf/d from 4.57 Bcf/d; and Tenaska, was nearly flat at 4.3 Bcf/d from 4.4 Bcf/d in 3Q2005.

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