The energy history books will record 2003 as the year that some big energy companies — Williams Cos., El Paso Corp. and Dynegy Inc. — avoided the clutches of bankruptcy, said a leading energy analyst.

These companies spent much of the year “whittling their way out of financial harm’s way,” said Donato Eassey, who heads up Houston-based Royalist Independent Equity Research, an energy research firm that focuses on natural gas.

“It was a year of re-defining companies. Each has come a long way. The good news is that the danger zone has been put behind them. They have put out the fires,” he told NGI.

El Paso, whose stock fell to as low as $3.33 at one point, had a particularly difficult year. But “they’re out of the intensive care unit,” Eassey said. The company “has a credible plan [going forward] with the ability to execute the plan. The critical stage is behind them.”

He seriously doubts El Paso will sell off any of its big gas pipeline assets to improve its balance sheet. It would do that “only if it [a sale] could bring in enough capital to clean the slate,” which Eassey said was unlikely. El Paso doesn’t have a “magic bullet” to accomplish this. The Houston-based energy company’s stock now is trading at around $8.20.

Eassey anticipates that 2004 will be a “more stable year” for interstate gas pipeline companies and the energy industry in general. Pipeline companies will return to a “back to the basics kind of strategy,” focusing their attention on compliance with the new pipe safety and integrity rule issued by the Department of Transportation’s Office of Pipeline Safety (OPS) in early December.

He believes that 2003 will be remembered as the year when new, strong companies entered the gas pipeline market. Eassey singled out Southern Union Co., a Wilkes-Barre, PA-based local distribution company (LDC) that bought Panhandle Eastern Pipe Line, Trunkline Gas and Sea Robin Pipeline from CMS Energy.

“They [Southern Union] have the makings of a very interesting company going forward,” Eassey said. He considers the company a major player in the energy industry now, with its market capital inching up to $1.3 billion and its stock priced below its true value. Southern Union’s stock is trading at approximately $18.50 a share.

Another utility, Berkshire-Hathaway’s MidAmerican Energy in Iowa, also has emerged as a formidable contender in the interstate pipeline arena, picking up the Kern River and Northern Natural Gas pipeline assets.

MidAmerican Energy’s plans to acquire more energy assets in the near term were “likely muted” when the omnibus energy bill (HR 6) stalled in the Senate in November, Eassey said. Without repeal of the Public Utility Holding Company Act (PUHCA), which the bill proposes, utility assets can be a liability for otherwise unregulated companies, he noted.

While new pipeline players have come on the scene, Eassey said El Paso, Duke Energy and Williams still are the owners of the “meaty [pipeline] assets,” including Texas Eastern Transmission, Algonquin and Maritimes & Northeast (Duke properties); El Paso Natural Gas and Tennessee Gas Pipeline (El Paso); and Transcontinental Gas Pipe Line (Williams).

For those keeping score, the relatively new kids on the block in terms of pipeline ownership, besides Southern Union and MidAmerican, are Loews Corp., a huge conglomerate with operations ranging from hotels and the Bulova watch company to a 53.78 % stake in Diamond Offshore Drilling, which bought Texas Gas Transmission in May 2003, and Indiana-headquartered NiSource Inc., which picked up the Columbia pipelines in November 2000.

Bankrupt Enron Corp. retains Transwestern Pipeline, a 50% interest in Florida Gas Transmission, and Northern Plains Natural Gas, which holds a 1.65% out of 2% general partner interest in Northern Border Partners LP, which owns Midwestern Gas Transmission and Viking Gas Transmission, and holds a 70% general partner interest in Northern Border Pipeline, and a one-third interest in Guardian Pipeline LLC.

And Eassey doesn’t believe the flood of energy asset sales is quite over yet. But, he noted, “There’s no big assets left [to sell]. There’s just a bunch of smaller assets” to put on the auction block.

Donald Santa, president of the Interstate Natural Gas Association of America (INGAA), agreed that pipeline sales are pretty much over. Most of the “major activity…has already occurred.”

From INGAA’s perspective, the biggest event for pipelines in 2003 was DOT’s safety and integrity rule, which will have a “significant operational impact” on pipelines in the years ahead, Santa said.

On Capitol Hill, the deadlocked energy bill had some key features that were favorable to gas pipelines, he said, but that’s “still very much in limbo” for 2004. Senate Republican leaders have vowed to pick up where they left off on the energy measure when they return in late January.

The key regulatory initiative of the year was a FERC rule that broadened the scope of energy affiliates that are subject to the agency’s standards of conduct governing the activities between regulated gas pipeline/electric transmission providers and their affiliates, according to Santa. The rule, he noted, was a long time in coming.

Turning to electricity, Royalist Independent’s Eassey said 2003 also will be remembered for the power blackout that struck the Midwest, Northeast and parts of Canada. That was “inexcusable,” he told NGI. The U.S. power infrastructure, which is supported by the natural gas network, is “woefully inadequate.”

On the gas production front, “we’re having to pedal hard just to stay even,” Eassey said. At the same time, he sees the demand for natural gas continuing to rise in the years ahead.

Eassey said the challenges in 2004 will be three fold: producers must bolster gas supplies, pipelines need to improve the integrity of their systems, and end-users must be assured that when they flick on a switch or turn on a furnace, the electricity and natural gas will be there.

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