The North American natural gas marketers that consistently have led NGI‘s quarterly sales surveys appear to have one belief in common: be reliable.

It’s unlikely any of the top marketers actually tell their traders to repeat the mantra of “be reliable, be reliable,” but it’s evident that they’re doing some of the same things to hold and build their customer base. As has been the case for several of the past few years’ quarters, BP plc led the 2Q2007 survey with 21.7 Bcf/d, which is down from 24.93 Bcf/d in 2Q2006 (BP’s placement, however, is open to interpretation; it no longer reports its physical gas sales. The figure is based on BP’s U.S. gas production for the quarter).

ConocoPhillips, which ranked in second place, reported 13.5 Bcf/d, down 5% from 14.2 Bcf/d reported a year ago. Coral Energy, which will be officially renamed Shell Energy North America beginning in October, claimed third place with 8% growth. Coral sold 12.6 Bcf/d, up from 11.7 Bcf/d in 2Q2006. Sempra Energy, which announced an energy trading joint venture with Royal Bank of Scotland in July (see Daily GPI, July 11) held in fourth place with 11.9 Bcf/d, up 3% from 11.6 Bcf/d in 2Q2006. Chevron Corp. rounded out the top five, selling 8.8 Bcf/d, up 21% from 7.3 Bcf/d a year ago.

Source: Quarterly financial reports with the Securities and Exchange Commission, or if necessary, statements signed by company officials and provided to NGI.

*Companies providing data directly to NGI include ConocoPhillips, Constellation Energy Commodities Group, Louis Dreyfus Highbridge Energy, Merrill Lynch Commodities, Shell Energy North America, Tenaska Marketing Ventures and UBS Energy. BP’s figure is for U.S. natural gas production, not natural gas sales. BP does not issue quarterly data for its North American gas sales. Fortis, which bought the Duke/Cinergy marketing arm, did not provide physical gas sales figures. Cinergy reported 5.05 Bcf/d in gas sales in 2Q2006.

Building a place as one of the top marketers doesn’t take a complex business model, said Mark Hanafin, CEO of Shell Energy North America. Hanafin spoke with NGI about the marketplace and of Shell’s decision to rename its North American energy trading unit.

“If you are a customer looking for reliability and a relationship, for me, it’s not just a case of an attractive market, but of performing well in that market,” he said.

“For Shell, I’m the natural end of a very important value chain,” Hanafin said. For example, if “it involves liquefaction of LNG [liquefied natural gas], shipping of LNG, regasification and marketing and trading of it, you can be pretty confident that I’m going to be around tomorrow.”

Hanafin came aboard as CEO of Shell Trading Gas & Power Co. and of Coral Energy in 2003 following the massive upheaval in the energy marketplace (see Daily GPI, April 10, 2003). He can attest to the positive changes since then.

“The energy merchant business as it was then known has disappeared…basically because the participants in that business, the Dynegy’s and the Duke’s, etc., they all retreated from energy marketing to focus on their energy assets and other businesses,” Hanafin noted. “At that time, the issue was, ‘what is the market, what is the business model?’ We set out to move to the downstream effectively so that we didn’t have those big counterparties to trade with [and went instead] to our end-use customers so that we had that flow of business. And that became the heart of our business model through marketing and trading.”

The key to Shell’s North American success is based “on the fact that we were able to offer a full range of solutions for customers…Everything from vanilla gas and power supply to full requirements, load following, shared products, risk management services, asset management deals…They were able to come to Coral Energy and have all of those in kind of a one-stop shop.”

Shell also had a solid bottom line, something that became paramount to succeed in the energy trading business post-Enron.

“As the rating agencies applied contingent cap requirements on participants in market, effectively we had a lot [of companies] exiting the market,” Hanafin said. “The space filled by large marketers, banks…Banks are fine competitors and probably do a fine job in the niches they operate in, but their role in the market…is a little different. Their role is where can we make money, [in] gold…energy…”

Because the banks are focused on the finances, they “will look at those markets [and] if they can make money, then they are very aggressive, they will participate. If they don’t feel they can be aggressive, they will exit it.”

But for Shell, it’s a long-term game, Hanafin said. As part of its long-term commitment to clarity for its customers, Coral Energy will officially change its name beginning in October. Coral Energy Holding LP will become Shell Energy North America (US) LP, and Coral Energy Canada Inc. will become Shell Energy North America (Canada) Inc.

“Approximately two years ago, Shell became the sole owner of Coral Energy,” said Hanafin. “Changing our name was a natural progression from the buyout to more clearly illustrate our relationship to Shell and the Shell brand.” He noted that Shell’s companies “have always operated according to Shell’s recognized business principles and operational excellence…However, we wanted to make sure it was clear to everyone that there was a direct connection.”

Hanafin said, “to be fair, we were creating confusion with our customers. We were Shell, but we were called Coral. We also had Shell trading, and there was confusion about the name. I don’t think clarity, what we stand for, the value proposition for customers, will change. The name will change, but we also are being a lot clearer to customers regarding [them] and our commitment.” The name change also follows Shell’s purchase of Avista Energy Inc., the energy merchant arm of Avista Corp., earlier this year (see Daily GPI, July 3).

Shell’s trading success is “really the outcome of all the things we are working on. It really starts with the customer, with the market, figuring out if it’s a segment of the market…If it’s commercial, if it’s generators…what are their needs, and then going about it in a rigorous way…We try to bring a very professional, rigorous approach to the market…which leads to a growth of customers. Through that, we get an increase in supply and a need for pipe capacity.”

Hanafin admits he gets some satisfaction from Shell’s consistent ability to be one of the largest gas marketers in North America.

“I do look at those tables and I get a sense of satisfaction, but we don’t have volume strategy,” Hanafin said. “I think [the ranking placement] is more of an outcome of the actions we’re taking than the end in itself. We don’t have a volume target.”

Hanafin’s comments were mirrored by other industry executives at the recent LDC Forum Mid-Continent in Chicago. A panel of buyers representing a variety of energy companies — Bob Ankersheil, manager of gas supply for CPS Energy, Ron Johnson, purchasing and contracts analyst for Marathon Petroleum, Terrance O’Malley, CEO of Hartford Bio Energy LLC and Ronald Mosnik, director of Integrys Energy Group Inc., said reliability of supply and not price takes priority for them (see Daily GPI, Sept. 14).

“The big factors that we really look at when purchasing are reliability — I think that’s probably the biggest thing — cost and diversity of supply.” Mosnik said Integrys focuses first on finding historically reliable suppliers, rather than a price sheet. They protect themselves further by spreading purchases out among several suppliers. Still, the bottom line is the bottom line, and having uninterrupted service is a cost savings, he said.

“At the end of the day, reliability turns into price,” Mosnik said.

A stumbling block to both reliability and price is wellhead freeze-offs, which can be cited as a reason for delivery failure under force majeure, Mosnik said. “We’ll look at gas that has freeze-off protection and gas that does not.” While it prefers deliveries that cannot be interrupted even in the case of freeze-offs, Integrys will buy gas without the built-in protection and cover with a storage purchasing agreement to cover outages.

Johnson said reliability works both ways: customer demands often fluctuate in the same ways supply can.

“Refineries tend to be pretty consistent when it comes to their output,” Johnson said. “When it comes to input of natural gas, they’re all over the place.”

Ankersheil, Johnson and Mosnik all said they do not report details of their purchases to published indexes, but put more faith in the numbers reported by indexes now than they did just a few years ago.

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