Shell Oil has become a significant player in the midstream gasbusiness, but this wasn’t always so. While the company heldmidstream gas assets, they were operated as an adjunct to its oilbusiness. That was until deregulation and new market entrantssuggested to Shell it ought to get into the midstream.

In the early 1990s, Shell Oil witnessed new entrants to themidstream gas business, players with little more in assets thanpersonal computers running spreadsheet programs. The midstream hadbeen unattractive to Shell because market areas either lackedinfrastructure or were highly regulated, explained Curtis R.Frasier, executive vice president of Tejas Energy, which became aShell affiliate when Shell acquired Tejas Gas Corp. in January (seeDaily GPI Jan. 12, 1998). Shell and Tejas began their businessrelationship in 1995 when they combined their gas marketingbusinesses to form Coral Energy, L.P. Shell Canada subsequentlyobtained an equity ownership in Coral.

In the mid-1980s Shell created Shell Gas Trading, allowing it toget involved as a producer with buyers of gas. “We were able totake our strength as a producer and the continuity and regularityof supply to a different commercial level. But that basically satthere,” Frasier told attendees at the 17th Congress of the WorldEnergy Council last week in Houston. “As we got into the ’90s, wesaw the world changing. There are new players coming into the worldthat didn’t own anything except a PC and a spreadsheet maybe, andthey were getting in between producers and buyers and extracting alot of value from the market. Were we going to get into that partof the world, into that part of the value chain or were we not. AndI think not meant not playing.”

Shell looked over its assets, particularly in the Gulf ofMexico, and said, “‘Look at all that hardware out there. We’ve gotan enormous investment in oil infrastructure and oil producingplatforms and human capital working in that area, and there must bea way to better utilize that.’ At the same time we had taken earlyexploration success in the deep-water Gulf of Mexico, which wasfrankly undevelopable on a commercial basis. [The deep-water Gulf]is quickly becoming commercial under the new breakthroughs intechnology innovation. And so a lot more hydrocarbon was going toget to the beach.”

Frasier said Shell now is the fifth largest combined gas andpower marketer, the fourth largest gas liquids marketer, the thirdlargest gas liquids processor in terms of capacity and one of thelargest intrastate pipelines in the country. That all came to bewithin about the last three years, Frasier emphasized. Coral cameto be in 1995 with about 60 employees. It now has about 360employees, most of them from neither Shell nor Tejas. Shell createdits midstream business unit in 1996. “In 1998, we looked around andsaid that our philosophy was that we had to bring our tradingactivity and the marketplace and the intelligence that came withthat data. we had to bring those much closer together, both withthe Shell midstream assets and the Tejas assets.” That led to theShell-Tejas combination.

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