In the wake of the Enron debacle, the mass exodus from the energy merchant segment that immediately followed has forced natural gas producers to once again throw their respective hats into the marketing arena to sell their own supplies.

Speaking at the LDC Forum in Chicago, executives from BP, ChevronTexaco, Apache, Nexen and Devon all said that they are integrating themselves back into the role of marketer, noting that reconnecting with end-users and utilities tops the list of things to do.

We are “no longer in the decline of the energy merchant sector,” said Brian E. Frank, president of BP Canada Energy Co.’s Gas & Power Canada. “It is now the re-emergence of the energy merchant sector. It will take time to fill [the] energy merchant gap,” He added that producers have begun to fill the void, but have a “capability gap,” while banks are also moving in to help, but have an “infrastructure gap.” The merchant role goes beyond simply selling gas and includes managing storage and transportation in order to offer delivered services to industrials and utilities, as well as providing some risk management.

To get the sector back on its feet, Frank said the priorities include:

At ChevronTexaco, one of the many producers that have recently re-entered the gas marketing business, Steve Wilson, vice president of U.S. Natural Gas Marketing for ChevronTexaco Natural Gas, said that as producers take up the merchant slack, their objectives are that gas continues to flow, that they have access to creditworthy markets/counterparties and are paid for gas and related services.

He noted that the days of minimal concerns relating to credit, margining, liquidity and Force Majeure, “are over.” The post “Mega-Marketing” era has increased exposure on all levels, reducing the number of counterparties and the liquidity of financial products.

Agreeing with the major challenges facing producers and end users. Michele Markey, director of Natural Gas Marketing for Apache, said her company is “building the department to last,” noting that Apache will not go the outsourcing route again. This past summer Apache, which once was a part owner of the Natural Gas Clearinghouse which later became Dynegy, began marketing its own gas.

To make things work in the long term, Markey said “producers must become proactive in all aspects of marketing their gas. Information and transparency is a fundamental prerequisite to an orderly and reliable market,” she said.

Chiming in on the liquidity problem, Greg Dodd, manager of Natural Gas Marketing for Devon Energy, said parties need to just “keep it simple.” He added that companies should negotiate long-term contracts with desired partners while managing their own requirements. To fill the void left by exiting marketers, Dodd too agreed that “it appears producers are going to have to be the ones to step up.”

David Slater, director of Nexen Marketing, said with marketers today less willing to absorb risk, producers need to take on a “back to basics” approach, with a “focus on [the] physical movement of gas.” He added that accounting and reporting standards need to be tightened and scrutinized, but noted that the current price index system is an “acceptable measure for pricing the market.”

On the price reporting topic, the speakers — except for Markey — gave a vote of confidence to the current voluntary system of price surveys by publications, which they noted has improved with recent changes that include tiers denoting volumes included in index calculations at specific price points. They were fearful of what the result would be if the Federal Energy Regulatory Commission took over the process, with Frank noting that he feels “the industry can regulate itself.”

Apache, which has been a leader in the campaign for regulated price reporting, continues to urge FERC to implement mandatory price reporting in the industry.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.