BP plc remained atop the leader board for physical natural gas sales in North America in the first quarter, with 24.5 Bcf/d in gas sales, a 22% hike year-over-year. Sempra Energy retained second place, gaining 1% in gas sales over 1Q2003.

In fact, the top North American natural gas marketers have barely budged from their positions over the past few quarters, with producers retaining half of the top 20 spots.

BP’s Neil Chapman said his company’s success has been tied to reliability.

“BP continues to focus heavily on meeting the natural gas supply needs of customers,” Chapman said. “Our customers are seeking reliability of supply, and as an important producer of natural gas, we are able to provide this to them.” Chapman said BP also is able to offer “a range of products and services to help them better manage through price uncertainty.”

However, there are signals that producers will face more challenges as energy merchants become more financially able to market gas. For instance, TXU Corp. announced in May that it would jump back into gas marketing and trading (see NGI, May 24). But it isn’t going it alone. TXU plans a 50-50 joint venture with Credit Suisse First Boston (CSFB), with TXU providing the physical assets and CSFB providing the financial backing.

TXU’s Carol Peters told NGI that the joint venture will start out small in September, trading power and natural gas in Texas and then spreading out across North America.

“TXU has risks it needs to manage,” said Peters, “and CSFB is an organization that has strong credit. This is a partnership for TXU to manage risk in combination with CSFB’s credit strength.” She said TXU would provide the “people and the systems and our physical abilities and CSFB will provide the credit.”

Several companies have begun energy marketing and trading ventures since the demise of Enron Corp.’s empire in 2001, but most have been niche companies. The TXU-CSFB venture would be an exclusive trading vehicle for both parties in North America, effectively creating an “Aa3/A+” rated entity through a guarantee from a CSFB company. The energy marketing entity will market and trade power, natural gas and other energy-related commodities in North America.

TXU may be one of the first to announce a significant entry into the marketplace, but energy professionals expect to see some major changes in the next year. At its recent annual meeting, Dynegy Inc. CEO Bruce Williamson said he expects the field of 12 or more of the major energy merchants to be cut in half in three years through a consolidation period that will begin by the end of this year (see NGI, May 24).

Craig Pirrong, energy markets director for the University of Houston’s Global Energy Management Institute (UH-GEMI), agrees. He said he believes the energy merchant sector is beginning to come out of its post-Enron funk.

“Producers were in the lead last year [in physical sales] because no one had the credit to support a merchant sector,” Pirrong said. “It is now turning around in some respects.” Most of the top 10 energy merchants were oil and gas producers in 1Q2003; this year, there was a split between producers and energy merchants, and “this is a bellwether on the return of merchants, but it’s not quite where it was and it may not ever be.”

Like Dynegy’s Williamson, Pirrong said he expects to see more acquisitions and joint ventures within the energy merchant industry similar to the partnership between TXU and CSFB.

“We’re going to see more of those things,” said Pirrong, “because there is a need for the marriage of sorts between the skills and capabilities of the two. The financial institutions have the financial wherewithal, but they do not have the desire or the skills to operate in the physical markets. This is a marriage I expect to see more of, and it’s something I have been anticipating more of in the past year.”

Though he did not want to name any names, Pirrong said there likely will be a few standout gas merchants. “I expect to see a couple, maybe one or two players clearly come to the fore and be the leaders. But nobody will assume the profile that Enron did. We’re not willing to let that happen again.”

Pirrong also expects the small niche marketers to play a bigger role in gas sales. “These are the acquisition candidates going forward, and it may be the case that one of them becomes like Dynegy did,” he said. Dynegy began as the Natural Gas Clearinghouse in 1985, and was the first energy merchant in the United States.

“I think that the smaller players are niche players right now, and they are taking advantage of the exit of some of the big merchants,” Pirrong said. “Again, these niche players will play a role in the need to marry skills with capital, and they will be attractive to companies that don’t want to get into the physical side.” Most likely, he said, the acquisition candidates will be those companies with “pretty decent credit, pretty decent balance sheets.”

Pirrong also thinks that at some point, the producers may again turn over their gas sales to third parties.

“The producers got into this business because it was borne out of necessity, not desire,” he said. “If you look at a company like ChevronTexaco in the ’90s, this was not something they considered to be their comparative advantage, but in the aftermath of Enron, they did what they needed to do to sell to get their product to market. I think they would be happy to return to their traditional core roles when it is viable.”

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