Enron’s devastation has spread through the industry like the plague with many of the top gas marketers teetering on the edge of extinction in the third quarter. Some chose not to provide volume information to NGI out of what one analyst called “justifiable paranoia” over releasing any data in this time of extreme scrutiny by regulators and credit rating agencies. Meanwhile, others began to show steep declines in volumes that will surely grow exponentially next year.

From the second quarter to the third, Dynegy showed an unprecedented drop in volumes of 38% to 8.10 Bcf/d and the declines will continue going forward as the company terminates its marketing agreement with ChevronTexaco and shuts down trading.

Meanwhile, Aquila, which also is getting out of the business, showed a 36% drop in volumes but still was at No. 6 in the ranking with 11.9 Bcf/d. El Paso, another on the way out of trading, moved up to the No. 5 spot with 12.43 Bcf/d from No. 6 in the second quarter, but its announced exit came very late in the quarter.

Others who have announced that they are scaling back their merchant energy trading operations, such as AEP and Williams, also moved up in the ranking or showed little change in volumes from the second quarter, an indication that it will take several quarters for these companies to exit term contracts while trying to sell off portions of their portfolios.

“We’re servicing fixed long-term obligations. We’ve really never been involved in the speculative types of trading that the other companies have,” said Williams spokesman Brad Church. “Our volumes have remained between 3.6 and 3.8 Bcf/d for more than a year. They’ve been pretty stable. And going forward we expect our volumes to be pretty much the same…until or unless part of that portfolio is sold or joint ventured.” Church said there was no deadline for a sale or joint venture and couldn’t speculate on when one might be announced.

El Paso Spokesman Mel Scott said the company would take 18-24 months to completely exit the trading business. But he noted that the company would continue to market the output from its production, processing and power assets.

PG&E’s National Energy Group moved up two spots to No. 11 with 6.6 Bcf/d despite its extreme financial troubles and potential defaults on short-term loan obligations. And Reliant and Mirant held onto their spots at No. 7 and No. 1 despite non-investment grade credit ratings. But according to Ben Schlesinger, president of Maryland-based consulting firm Schlesinger & Associates, that situation probably won’t last much longer.

“Looking at the top 14 marketers from 1999…only five of them are still active [in opening new long-term accounts] as of now,” said Schlesinger. “These are companies that are accepting new business. It will take some time for the companies who are getting out to unwind their business. There’s a lot to do financially and in terms of physical operations and personnel.”

Schlesinger noted that of the former top marketers, Duke, Coral, Sempra, Koch, and BP appear to be the only ones still completely committed to the marketing and trading business. Enron, Aquila, Dynegy and El Paso are the major casualties. Others, such as TransCanada’s marketing operation and Engage Energy, have been sold off or purchased. And AEP and Williams are trying to scale back or sell off part of their marketing businesses.

In the meantime, many others, particularly PG&E NEG, Mirant, and Reliant, are struggling to continue with non-investment grade credit ratings.

“We’re asked by clients, ‘Who can we write a new long-term large volume contract with,’ and if you look at any of these latter companies, there are going to be some special issues until they pull out of it,” Schlesinger noted.

“I think the list of viable trading companies is going to remain short,” he said. “But I think the producers are going to realize this is a separate business and it is one of considerable value. I get real concerned when I hear people run down an entire industry. I’ve heard comments about the trading and marketing industry being all bad. I’ve heard independent producers say that, and some lenders and ratings agencies have been saying that. This is an industry that produces something of value: it helps create liquid markets and fosters competition. It’s wrong to throw out the whole industry just because a few of the companies are bad. Enron has had a really big effect on possibly ruining the whole barrel here, but it doesn’t have to work that way.

“Gas is produced at so many points by so many producers and it’s used in so many different ways by millions of customers that the wholesale business has to have an active trading sector. I think people will sense there is a need there, and they will be able to fill in this hole that’s being created.”

Top 20 North American Gas Marketers
Ranking by Third Quarter 2002 Sales Volume*
(Bcf/d)

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