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Capacity Release Deals Decreasing

Capacity Release Deals Decreasing

Judging from a recent survey, the secondary capacity market appears to be working efficiently and not putting a crimp on gas industry competition. While deal activity is leveling off, the market is still dynamic enough to accommodate new entrants, according to energy industry consulting firm Skipping Stone Inc.

Secondary capacity transaction activity leveled off from the first six months of 1998 to the first six months of 1999. On 42 pipelines tracked daily, there were 13,816 capacity acquisitions in the first six months of 1999 compared to 18,885 during the same period in 1998. Skipping Stone noted the leveling off of activity to about 27,000 deals/year but pointed out some big movers among those playing the capacity release game.

For instance, in the first six months of 1999, Enron dominated the list of the most active capacity traders, doing 973 deals in the period. No. 2 behind Enron was Duke Energy, which did 590 deals during the period. Enron's year-to-year growth in capacity trades was substantial. In the first six months of 1998, it only did 554 deals and was No. 2 behind Sonat Marketing, which did 563 deals during that period.

A big mover on the ranking of capacity traders was Reliant Energy which moved from No. 9 to No. 3 in Skipping Stone's tally. "You've seen strong advance of other companies, Reliant among them. And companies that weren't in the top-20 radar screen in '98, like PG&E Energy Services, Enline Energy Solutions and Sempra really came out of nowhere from '98 to '99," said Greg Lander, Skipping Stone principal.

Skipping Stone presented some results from the survey "The Secondary Capacity Market - Who's Up - Who's Down" last week at the fifth annual meeting of the Gas Industry Standards Board in San Antonio. More details are available from Skipping Stone for a fee.

Absent from Skipping Stone's list of the most active capacity traders during the first half of 1999 are Dynegy, TransCanada Gas Services, KN Energy, CNG Energy Services, Allenergy Marketing, Seagull Energy and Williams Energy. All of these companies had appeared in the top 20 list of most active capacity traders in the first half of 1998. CNG Energy Services exited the wholesale business, and Dynegy acquired a bundle of capacity on El Paso. However as for the other companies, Skipping Stone noted that nothing in the data it analyzed explained the absence of these companies from the top 20 most active capacity traders in the first half of 1999.

A significant new entrant to the top 20 list is PG&E Energy Services, which ranked No. 9 for the first six months of this year, having done 201 deals during the period. For the first six months of 1998, PG&E Energy Services was ranked No. 27 among capacity traders.

"Even in a market that's now five years along and very mature, to have companies sort of come from nowhere and be able to get in means there aren't barriers to entry. A company that puts its mind to getting into the capacity business gets to do so and move commandingly into a position of presence in a broad way," Lander said. "That says a lot about the company that's doing it. It says a lot about the market. What it says about the company that's doing it is, one, obviously there is management focus in the area; and two, a systems focus. They have to have systems that can manage that."

Lander pointed to "huge increases" in the number of deals done on Texas Eastern and Tennessee Gas and the entrance of East Tennessee to the list of pipelines on which numerous big players are trading capacity and said it "means to me that the unbundling [of LDCs] has really moved and it has an impact on the wholesale market."

The number of parties trading capacity on East Tennessee picked up substantially between 1998 and 1999. "And the only real thing that I can tell that changed on East Tennessee in those two years was Atlanta [Gas Light] is going through its unbundling. East Tennessee serves Atlanta from the very end of the system with a spur that comes off of East Tennessee and goes down into Georgia, serving some of Atlanta's territory, and therefore, that to me is the only thing that's changed in Tennessee. What you're seeing here is the impact of one jurisdiction's unbundling really affecting the wholesale market."

Lander said FERC and the industry have created a capacity release market "where it's pretty easy to get into, pretty easy to operate in, and I bet that that has helped keep the entire gas market competitive because if the capacity is easy to access, easy to use, easy to get a hold of, that makes the whole market competitive.

Joe Fisher, Houston

©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.

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