As mega-marketers crumble, producers and end users in search of a new middleman are increasingly going to regional utilities and small regional marketers, looking for service and people with whom they can build a lasting business relationship. One relatively new start-up filling the bill is National Gas Distributors (NGD), a 16-month-old marketing company operating in the Carolinas, Virginia and Tennessee.

“End users want service, and large producers are trying to find a home for their gas,” according to NGD President Paul Lawing, who moved from a local distribution company to start his own business. That business has grown rapidly since its inception in March 2001. “There’s no way a producer can sell his product all over the country. You have to have a middleman.” He told NGI that although he has his own credit, producers have offered to provide credit for him to expand and sell their gas.

It’s a trend back to the old-fashioned business of buying and selling gas with an acceptable margin and without adding the speculative frenzy of day trading. Tom Saal of Pioneer Futures, commenting on the crash of the mega-marketers, said their strategy of cornering volume by offering untenably low fixed prices to customers, and then day trading to make their margin, similar to speculators in the futures market, was bound to fail eventually. “You can speculate in the futures market — and those speculators come and go — but they were trying to do it with the daily cash market, and you can’t really do that over a sustained period of time.” There are bound to be losses, and “they were hiding their losses.” Those traders now are “extinct dinosaurs. They traded themselves out of existence.”

Now, “it’s up to regional marketing companies to pick up the slack.” Saal predicted that the market would see regional utilities or all-new companies, possibly backed by the utilities, moving into the middleman role. Customers now “want to see people they know.”

One large utility, Constellation Energy Group, parent of Baltimore Gas & Electric, is filling that role. “It’s not about high-volume trading and big market positions; it’s about disciplined analysis and customer relationship management,” Constellation CEO Mayo Shattuck told an analysts group recently. “We’re not trying to be a leading market maker in the volume-oriented trading business. We’re not pursuing any electronic trading platforms. We are not pursuing activities outside of North America. What we have done is to focus on long-term, high-valued sales of energy, capacity and related products for distribution companies.”(see Daily GPI, June 13 ).

Fifteen-year-old Kimball Resources, which represents end users, has seen its business growing. The Houston-based firm recently went to an online auction to garner bids for the likes of DaimlerChrysler Corp., General Electric Aircraft Engines, Detroit Diesel and Ford Motor Co. (see Daily GPI , June 6 ). “Part of the reason the energy business is in trouble is it’s lost its focus on what the business is. It’s been consumed by paper trading,” Kimball President Brandon S. Hayes said recently. He is hoping the current troubles in the energy business will drive it back to basics.

And National Gas Distributors, with offices in Fayetteville and Raleigh, NC and Chattanooga, TN, appears to be one of a new breed of companies joining in picking up the pieces. Lawing agreed that the large marketers had “sold at a fixed price and then speculated on supply. We don’t do that. Ninety percent of the time we back up our deals immediately, unless we have a good idea that markets are going to come down. We’re not looking to make large margins. We basically decided we would rather have a long term relationship than short term profit. ”

The key to success, Lawing said, is customer service, which includes a knowledge of how to get gas through local distribution company lines efficiently and without incurring penalties. “You have to deal with LDCs, and there are so many rules you have to be aware of. You have to know your market area. We won’t go into a market without an understanding of what’s behind systems we are going be serving.”

National multi-site industrials are coming to the conclusion, they need to split up their business to get regional service for their plants, Lawing said. Service includes “being ready to hop on a plane and go to a plant site in a matter of hours” if there’s a problem. With this kind of hands on connection, “we’ve only gained customers. We haven’t lost any.”

Most of NGD’s marketing staff, including Lawing, came from positions with LDCs in the area, including North Carolina Natural Gas and Atlanta Gas Light. After starting out in Fayetteville, NGD recently opened offices in Raleigh and Chattanooga, but not before the company hired more employees with experience in the business. The employees are key to providing service, Lawing said. “We took on three new employees from North Carolina Natural Gas, so we’d be able to pick up another chunk of the market.”

There is potential for expansion into other markets. “We’ve been asked to respond to RFPs in Iowa and other parts of the Midwest and in Texas.”

NGD provides “whatever the customer wants,” risk management tools, firm physical service, market information as to where prices are. “Essentially, we can do anything the larger marketers could do.” While most of the company’s business is month to month, “there’s a good opportunity to lock in the winter right now. There’s one big caveat here right now — how much load is power generation going to need? And also, is there going to be enough gas in storage? If we have another winter like last winter, prices are going to come down.”

For more information on National Gas Distributors, go to www.gaspartners.com.

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