1998 Highlights: Oil Prices, Mergers, Power Gen (Retail Wimps Out)
Last year clearly didn't turn out as most industry officials
expected, according to a new survey by the Washington International
Energy Group, a Washington, D.C.-based energy consulting firm. The
firm's 1999 Energy Industry Outlook notes the retail market
revolution "wimped out," mergers were quite a bit larger than
expected, the oil price glut was more serious than many thought,
and power generation became much more important than most initially
Power generation now is viewed as the most profitable business
sector in the industry, ahead of distribution and way ahead of
energy services, which was the favorite in 1998. A year ago, the
industry was clearly focused on marketing and value-added services.
For the utilities it was because of the expected imminent loss of
customers through deregulation. That hasn't panned out, however.
The 40,000 MW of merchant power plants that went to the
blueprinter last year illustrates the shift in industry
perspectives. Even though only 25% of the 833 survey respondents
said they would pick generation if they had one business to stay
in, the majority of respondents agreed it is possible to make more
money in generation than was thought last year.
The industry also is more convinced this year compared to last
that most players will not survive in the coming years. Seventy
nine percent believe there will be no more than 100 North American
generation companies. Only 25% of energy companies are expected to
survive the transition to competition. Three-quarters of the
industry expect the new retail mass-marketing initiatives to fail,
according to the outlook.
"There are two sides to the opening of regulated markets: the
expansion of customer choice and the reduction in the number of
companies," said Washington International Energy Group President
Roger W. Gale. "So far in the electric and gas industries in North
America, we're seeing consolidation but not much customer interest
in shopping. Worst case, we'll have market power concentration with
no incentive to cut costs. Best case, consolidation will optimize
efficiencies, cut costs and stimulate innovation."
Confidence in natural gas remains high, however. Most believe
gas will dominate among new generation fuels and will remain in
sufficient supply at reasonable prices. But the prospects for
nuclear power also appear to have improved. For the first time in
many years, the industry is more confident that nuclear power
plants can be operated competitively, the firm said.
The survey was conducted on a random sample of senior U.S. and
Canadian energy executives. This year, the sample base also was
broadened to include the gas industry, the financial community, and
state and federal regulators. More than 8,500 surveys were mailed
out and 833 were returned. For copies of the outlook call (202)
833-7145 or go to www.wieg.com on the web.
©Copyright 1999 Intelligence Press, Inc. All rights
reserved. The preceding news report may not be republished or
redistributed in whole or in part without prior written consent of
Intelligence Press, Inc.