A made-in-Canada sales agency, led by a team with a blue-chip track record, has stepped forward with a vow to restore competition and choice to natural gas marketing by going back to basics of directly connecting producers and buyers.

Brian Soutiere, president of Energy Trust Marketing Ltd. (ETML), vowed “we’re strictly a physical player.” It was a declaration of intentions that the new firm will deal in real, rather than paper, energy and not re-invent commodity futures-based, derivative financial products that were the undoing of former household-name merchants such as Enron, Dynegy, PG&E, Williams, Aquila, El Paso, Reliant, Engage and Mirant. The firm announced it would begin marketing Aug. 1, initially targeting U.S. Midwest and Northeast markets, as well as Eastern Canada, drawing on some of the partnership’s combined 750 MMcf/d of production (see Daily GPI, July 16).

The firm arrives on the scene with a pedigree dating back to the 1980s onset of energy deregulation and free trade when it opened its doors in Calgary and Toronto this month. The credits of the management group, led by chairman and chief executive John Lagadin, include founding roles in Direct Energy Marketing, the QuickTrade electronic trading platform and Alliance Pipeline.

Direct grew up into half of the North American marketing operation of Centrica, the former British Gas. The Canadian firm and its affiliate in the United States, Energy America, survived the merchant meltdown, keeping 1.6 million customers for gas and 600,000 for electricity.

The rout of most of the large energy merchants, sparked by chain-reaction curtailments of paper transactions and credit set off by the late-2001 collapse of Enron, left a gap in the marketing of real energy, Soutiere said in explaining the birth of ETML.

In Canada especially, small- to mid-sized producers and consumers lost “liquidity” and access to markets because they lacked resources to create trading arms of their own. The entire Canadian market feels the loss and stands receptive to initiatives like ETML. Trading became more, rather than less, risky as the merchants withdrew, said Mike Roach, chairman of the Canadian chapter in the International Energy Credit Association. The shrinkage in the number of market participants means it has become harder to spread risks, Roach said.

The structure of ETML illustrates the need. Five gas producers – ARC Energy Trust, Enerplus Resource Fund, PrimeWest Energy Trust, Provident Energy and Shiningbank Energy – own the new firm along with its management. Income trusts have largely replaced conventional exploration and development companies as the Canadian industry’s medium-sized, independent energy producers.

The firms behind ETML are among the leaders in the 22-company Canadian trust class. The five participants in the new sales agency put out more than 750 MMcf/d — enough to place them collectively in the top eight Canadian producers – and the combined value of their shares exceeds C$7 billion (US$5 billion). Promoters of energy trusts predict they could eventually double their share of Canadian production to 20% and increase their combined value to C$20-$25 billion (US$15-$19 billion).

While a large factor as a group, each of the trusts on their own remain well outside the inner circle of industry powerhouses. The trust biggest in gas, Enerplus, stands 17th among Canadian producers and its 2002 average of 210 MMcf/d was only about 20% of third-place Burlington Resources’ 1.1 Bcf/d and 10% of top-ranked EnCana Corp.’s 2.3 Bcf/d.

The top producers are emerging as leading traders, taking over from the shrinking merchants. Import records kept by the United States Energy Department, the destination for 56% of Canadian production, register the trend. A new report by the department’s fossil energy branch shows that in 2002, the 10 biggest dealers in Canadian gas in the U.S. included BP Canada, EnCana, Nexen, Husky, Petro-Canada and Shell’s Coral Energy.

ETML’s mandate calls for it to give smaller companies advantages that big ones gain from participating in the market. Rather than trade in gas itself as a middleman broker, the new firm will be a match-maker agency without a vested interest in buying low and selling high. Suppliers and buyers will make contracts directly with one another, with both sides in the transactions having full knowledge of prices and costs.

ETML will make its living by charging service fees for lining up the deals and associated pipeline capacity. Soutiere said the fees will be negotiable, with amounts depending on factors such as the volume and duration of sales.

Soutiere also said the new agency will concentrate on “term” or long and reliable sales, resorting to brief transactions on volatile spot markets as required for placing temporary supply surpluses.

On the financial side, ETML will stick to services tailored for the caution that has prevailed across energy and money markets since the collapse of Enron. The new Canadian firm will provide credit management, checking on the ability of suppliers and buyers alike to fulfill contract commitments. As an added precaution to improve payment security, trade credit insurance will be procured.

The new firm has set out to market gas across North America, with a Toronto office to handle the eastern side of the continent initially and plans to set up a U.S. branch within a year, likely in Chicago. Much of ETML’s supply portfolio will be drawn from its owners and other trusts at first. Soutiere said he hopes the new firm will repeat Direct’s performance in its early days as a producer-owned dealership by attracting as much as 90% of its gas from beyond the inner circle of shareholders.

©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.