Like others in the natural gas industry, market centers/hubs serving North America have gone through a rough patch in recent years, but most have managed to prosper by quickly adapting to changes in the market, according to a new report by the Energy Information Administration (EIA). The EIA said transportation volumes and overall business activity by market centers in mid-2003 either equaled or surpassed previous levels.

An estimated 37 market centers currently operate in the United States and Canada, two less than what existed in 1996 when the EIA first examined market centers. Twenty-eight of the centers are located in the United States, with more than half (15) in the Southwest region. The most active is the Henry Hub in Louisiana, where more than 180 customers regularly conduct business through 14 interconnecting pipeline systems and a high-deliverability salt cavern gas storage facility.

“While the number of market centers has not expanded significantly during the past…years, the several new ones that have been put in service are located at strategic points on the pipeline grid,” the Department of Energy (DOE) agency said in the report issued last Thursday. It specifically cited the ANR Joliet Hub in northern Illinois, which handles large gas volumes from the Alliance Pipeline system, and the Cheyenne Hub located in northeast Colorado, which supports the transportation of increasing coalbed methane production from the Powder River Basin in Wyoming.

“With few exceptions, the market center segment of the natural gas industry appears to be healthy and viable,” the EIA said, although it conceded the segment has weathered some rough spots in the past couple of years.

“The financial difficulties of many gas marketing companies…and the cessation of activity by most of the major Internet-based energy trading platforms, precipitated by the Enron collapse in 2001, may have had a negative short-term impact on the level of business transactions conducted at gas market centers,” the agency said.

But “many companies that previously used the services of gas marketers and trading platforms subsequently contracted directly with gas market centers to have them take over the management and arrangement of their transportation needs in the center’s operational area,” the EIA noted. As a result, most market centers reported this year that transportation volumes and business activity at their centers “matched or exceeded previous levels.”

To fill the void in the market, “most centers now provide their customers with access to their services (nominating, parking/loaning etc.) via the Internet. Some also provide their customers with some buyer/seller matching services and limited gas trading,” the report said.

Market centers also took a hit when FERC issued its second-generation restructuring rule (Order 637), which required pipelines to offer parking and loaning and some other hub-type services to shippers. But “most centers found other ways to attract and keep customers while keeping volume transacted through the center at cost-effective levels. And, while the energy industry’s financial crisis of the past few years did affect many market centers, indications are that most have recovered well,” the EIA said.

Since 1997, six new market centers have become active in the U.S., including the ANR Joliet Hub and Colorado Interstate Gas Co.’s Cheyenne Hub, while eight market centers in the U.S. were deactivated “primarily because of a lack of trading and overall throughput volumes,” the EIA said. Two of the largest that closed were the former Columbia Gas Center, which served the New York and Pennsylvania areas, and the Texaco Gulf Star Center, which operated in southern Louisiana near the Henry Hub.

Five proposed hubs have been canceled since 1996, according to the EIA. “All of these potential market centers were predicated upon the development of underground natural gas storage facilities that did not garner sufficient market interest or could not receive regulatory approval.” Currently, there are three proposed market centers pending, two in Alabama and one in Mississippi, but none is expected to become active until 2006-07 at the earliest.

“The defining characteristics of a natural gas market center are that it provides customers (shippers and gas marketers primarily) with receipt/delivery access to two or more pipeline systems, provides transportation between these points, and offers administrative services that facilitate that movement and/or transfer of gas ownership,” the report said. It noted that market centers are becoming increasingly attractive and important to producers and pipelines as well.

Market centers evolved in the late 1980s as an outgrowth of gas market restructuring to provide shippers with many of the “physical capabilities and administrative support” that had previously been handled by interstate pipelines.

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