Attempting to ascertain how much natural gas is being traded by every single energy merchant in North America is a gambler's game at best. Trends, however, are another story, and in a review of 1Q2007 gas marketing data, the Barnett Shale appears to be making an impact, albeit small, on the markets.

NGI's quarterly ranking of the top North American gas marketers relies on data obtained in two ways: from companies that agree to submit information for the survey and from Securities and Exchange Commission Form 10-Q filings. To see the full listing of NGI's Top North American Natural Gas Marketers for 1Q2007, visit http://intelligencepress.com/features/rankings/gas/. There are many large (Goldman Sachs, JPMorgan, Lehman Brothers, Deutsche Bank AG, etc.) and small energy merchants that, for one reason or another, do not participate in the survey, which may lead some to conclude that the surveys are not particularly noteworthy. Ben Schlesinger is not one of those people.

Schlesinger, a Bethesda, MD-based consultant, provides gas and power market analyses and forecasts for clients throughout North America. He said the numbers, no matter how small, often offer a clear indication of how the gas market in North America is trending.

"The fact that there are generally gains across the board from companies that have reported for a long time is a good sign," Schlesinger told NGI. "The way companies report their data is not the same, and the numbers may not appear accurate for all of the companies because of the way they put the data together. But taken together, you can see from the numbers where the growth is coming, whose sales are declining."

The continued addition of some of the larger unconventional gas producers is a sure sign that the U.S. gas shale basins are coming of age, said Schlesinger.

"I will say, the Barnett Shale players are interesting," he said. "This is a sure sign that gas shale, especially from the Barnett, is helping the market." The producers heavily weighted to gas production in the Rocky Mountains also are helping to boost the physical sales.

ConocoPhillips, in the No. 2 spot behind BP plc, is the only major producer operating in the Barnett now, said Schlesinger. ConocoPhillips' physical gas sales grew 2% from a year ago, rising to 13.20 Bcf/d from 13.00 Bcf/d in 1Q2006. Other Barnett-heavy producers that showed gains in the past year include EnCana Corp., up 3%; Devon Energy Corp., 5%; Chesapeake Energy Corp., 14%; and XTO Energy Corp., 18%. Anadarko Petroleum Corp., which has extensive operations in the Rockies, reported a 57% increase for the quarter from a year ago.

Company 1Q2007 1Q2006 Change
BP* 21.60 24.80 -13%
ConocoPhillips 13.20 13.00 2%
Coral 12.50 11.60 8%
Sempra 9.10 9.50 -4%
Chevron 8.60 7.50 15%
Constellation 8.20 6.00 37%
Nexen 5.40 5.40 0%
Tenaska 5.30 4.10 29%
Louis Dreyfus 5.00 5.00 0%
Oneok 3.70 3.40 9%
UBS 3.60 3.00 20%
EnCana 3.40 3.30 3%
Hess 2.50 2.10 19%
Sequent 2.40 2.10 14%
Williams 2.40 2.20 9%
ExxonMobil 2.30 2.60 -12%
Devon 2.20 2.10 5%
Anadarko 2.20 1.40 57%
Merrill Lynch 2.20 2.30 -4%
Enserco 1.90 1.30 46%
CenterPoint Energy 1.72 1.76 -2%
Chesapeake 1.60 1.40 14%
XTO Energy 1.30 1.10 18%
El Paso 1.10 1.20 -8%
Total* 123.42 118.16 4%

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 ConocoPhillips, Constellation Energy Commodities Group, Coral Energy Holding (Shell Trading), Louis Dreyfus Highbridge Energy, Merrill Lynch Commodities, Tenaska Marketing Ventures and UBS Energy. 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 5.00 Bcf/d in gas sales in 1Q2006.

"Over the long haul, these numbers can be quite valuable," Schlesinger noted. "We see the trends from the Barnett in Central Texas, and that is really, really encouraging for the other gas shale basins like the Appalachian, which is just starting to come to the fore. Gas supplies are aligning in a way that no one expected 30 years ago. Now they are opening up the Bossier [Sands] in Texas and to the north of the Barnett they are drilling and then well to the east in Alabama...this is a very good sign. These numbers are an indication that the production is making a difference."

Canada, which has been waylaid by the recent reports that its conventional oil and gas production is in "perpetual" decline, "may start looking at some of these numbers more and more and think about dealing with the coalbed methane [CBM] that's in Alberta," Schlesinger added. "Alberta has a lot of coal, lots of CBM."

The gas shale in the Barnett is making a difference for the producers in the survey, but Schlesinger predicted that in the long run, CBM and tight gas production also will grow, leading to more changes within the gas markets in North America. However, one of the biggest changes will be the near tripling of liquefied natural gas (LNG) capacity by 2009, he said.

"In the next several years there will be a huge increase in LNG," the consultant noted. "By 2009, receiving capacity will have [nearly] tripled from 5.2 Bcf/d today to 12.6 Bcf/d. It's going to be an impressive increase. We may see some slowdowns in the construction planned and maybe there will only be a doubling of capacity, but the likelihood is that capacity will at least more than double. It will be interesting to see how the energy shale, Kinder Morgan's Rockies Express Pipeline and LNG all play together."

Energy merchants also are paying attention to the influx of private equity funds into some stable operations. New York-based hedge fund Highbridge Capital Management, majority owned by JPMorgan, announced earlier this year that it would invest in Louis Dreyfus Group's merchant energy arm to form a new trading partnership (see Daily GPI, Jan. 9). In May, Williams agreed to sell most of its power trading book to Houston-based Bear Energy LP, a unit of Bear Stearns (see Daily GPI, May 22). Just this week, Sempra is said to be considering offers to sell a stake in its commodities business to some financial player, the latest rumored to be the Royal Bank of Scotland (see Daily GPI, June 20). Next?

In any case, the North American energy merchants overall have moved into a "symmetrical, mature business model," said Schlesinger. According to NGI's survey of the top North American gas marketers, physical gas sales grew 4% from 1Q2006, to 123.42 Bcf/d from 118.16 Bcf/d.

BP, the London-based behemoth, reported 21.60 Bcf/d of gas production in the United States, down 13% from 24.80 Bcf/d in 1Q2006. BP no longer provides its North American natural gas marketing data, but its gas production is said to be close to the amount for sale, and as such, it remains on top of NGI's quarterly survey. ConocoPhillips, which reported its North American trading data to NGI, continued its momentum upward, growing its gas sales for the quarter by 2% to reach 13.20 Bcf/d, compared with 13.00 Bcf/d a year earlier.

In third place was Coral Energy Holding LP, Shell's North American trading arm. Coral reported an 8% gain for the quarter to 12.50 Bcf/d from 11.60 Bcf/d for the same period of 2006. In the past few months, Coral strengthened its North American prowess in the Pacific Northwest and Western Canada after purchasing Avista Corp.'s merchant energy operations (see Daily GPI, April 18). CEO Mark Hanafin said Coral plans to increase "scale, resources and experience through this transaction, which will allow us to offer a broader portfolio of value-added services to our customers in the region."

Sempra Commodities' gas transactions fell 4% in the quarter, but it still managed to place fourth in the survey, with 9.10 Bcf/d compared with 9.50 Bcf/d in 1Q2006. Rounding out the top five was Chevron Corp., which reported a 15% gain for the first three months of the year, selling 8.60 Bcf/d, compared with 7.50 Bcf/d a year ago.

The biggest gain among the top 10 was Constellation Energy Commodities Group, whose physical gas sales jumped 37% from a year ago. Constellation, already the top U.S. wholesale power supplier, reported physical gas sales of 8.20 Bcf/d, up from 6.00 Bcf/d in 1Q2006. Nexen was in sixth place, reporting sales of 5.4 Bcf/d, mirroring its numbers a year ago. Tenaska, meanwhile, gained 29%, reporting 5.30 Bcf/d compared with 4.10 Bcf/d for the same period of 2006. Louis Dreyfus reported 5.00 Bcf/d, the same as a year earlier. Rounding out the top 10 was Oneok, up 9% to 3.7 Bcf/d from 3.4 Bcf/d.

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