Anybody can trade natural gas at Henry Hub, according to Tenaska Marketing Ventures (TMV) President Fred Hunzeker. The challenge, he said, is to solve the “hard-to-meet needs” of the wholesale gas customers.

“Can you trade at some remote location?” asked Hunzeker. “Can you do a short notice kind of thing?”

TMV’s success, he said, is its ability to answer in the affirmative to both queries.

The marketing affiliate of Omaha-based Tenaska opened its doors in 1991 to complement the power developer’s power and natural gas facilities. But in the past 15 years, it found a niche, and today is one of the Top 10 gas marketers in North America. Wholesale gas sales last year topped 4.3 Bcf/d. In the last three months of the year, TMV averaged 5 Bcf/d in sales, a 22% hike from the same period of 2005.

Tenaska ranked eighth in NGI‘s 4Q2006 gas marketer rankings, with the top three places for large volume sales going to the producer triumvirate of BP, ConocoPhillips and Shell’s affiliate Coral Energy (see NGI‘s full 4Q2006 rankings). But TMV comes out on top with the customers. It is a perennial leader in Mastiogale’s customer satisfaction surveys.

“How we’ve done this is pretty simple,” Hunzeker told NGI. “We listen to customers and have them tell us what they need, and then we do that. It’s not that difficult, really, versus the other approach, which would be to go to the customer and convince them to buy what you’re selling. We like to go in and find out what the customer needs and figure out how we’re going to help them get that.”

TMV is able to “rank highly with these customers because we do the hard stuff for them,” he said. “We’re there for them on the physical side, which is when somebody needs a short amount of gas, or odd lots or weird locations, things like that. That’s the hard thing to do. That’s why it takes a long time to build that physical platform that allows you to do that.”

In 2002, as many of its competitors were downsizing or closing their doors, TMV was moving in the opposite direction, branching out and opening two offices.

“You can talk about the marketing side, or you can talk about the power development side, but what happened [during the period leading up to Enron Corp.’s collapse] was inappropriate, unbridled risk taking,” said Hunzeker. “There’s been books written about what all caused that, but at the end of the day, power development portfolios or energy marketing were taking large risks and all of the mark-to-market accounting was allowing them to not recognize the risks, and Wall Street was encouraging them to do that…

“What kept Tenaska out of it, really just a big part of it, was our private ownership,” he said, “which leads us to be very conservative. We have a logical and structured approach to taking risks and evaluating those risks. We never built a power plant that did not have a long-term off take contract. We run our marketing business in a similar fashion. We never have positions out there that are either directional price risk positions or even basis location price risk positions.”

TMV is “not in the business to bet on the direction of markets win or lose…and we built our entire business around finding the needs of the customer, whether that be a long-term power off-take contract or a management fuel supply deal on the gas side. Where we build the risk is to look at it as identifiable and quantifiable. We put a box around that, and we make that deal so that risk completely presents itself.”

The marketing affiliate “has never viewed risk as a profit center,” which sustained it through some particularly tough years for its competitors, Hunzeker noted. The company’s strategy “actually became quite an advantage for us because we were able to expand and hire people and increase the market share with our customers during the time when many of our competitors were getting out of the business.”

Now, TMV is “actively moving gas” on 105 pipelines spread across North America. Its 100 energy traders operate from offices in Omaha, Dallas, Denver and Calgary, taking care of the physical gas needs for customers across the United States, into Canada and buying and selling gas at the Mexican border.

“Our goal is more bottom-line focused,” he said. “We care about our customers, and we’re pleased with the value we can help them capture. As long as we can keep doing that, we’re growing our bottom line, and we see where the volumes grow. There are no ‘side’ goals. We continue to see the next deal, solve the next problem.”

From the looks of things, TMV may just be getting started. In early April, insurance giant AIG Financial Products (AIG-FP) completed its bid to became a 50% joint partner in TMV for an undisclosed amount (see NGI, March 19). The joint venture combines TMV’s physical gas marketing expertise with AIG’s financial capabilities. But it’s strictly a financial play for AIG. Tenaska will continue to manage the affiliate, and TMV’s management team — and its management philosophy — will remain in place.

“The temptation would be to go in and grow very fast, but we’ve seen that happen in many industries in the past, and many times that’s a recipe for failure because the business will tend to grow faster than the infrastructure of the business that supports it,” Hunzeker said. Because Tenaska is privately held, “you’re spending your own money,” so the tendency is to manage risks more conservatively. “We’re thrilled to have AIG on board [but] there’s no intent by either of the partners to change how we’re doing business, or how we’re interacting with customers.”

The AIG deal will give TMV the ability to expand and “slowly add to and drill deeper down into some geographic areas, expand our volumes there, expand the kinds of things we can do.” With its financial capabilities, “We’ll be able to broaden our suite of products that we can offer to our existing and new customers…”

There are “areas where we want to go deeper and expand our footprint rapidly, [but] there are other areas where we are pretty mature,” Hunzeker said. “It took a while to build the business. You see how long and how complicated a process it is to build a physical platform. There’s a lot of moving parts, a lot of things you have to make sure fit together.”

Hiring employees continues to be a challenge, he said.

“The really good people have always had jobs,” he noted. “It’s always been a challenge to attract the really good people to your organization, your foundation employees. That’s been hard the last five years and it will continue to be hard. We’ve been on a growth curve since 2000-2001, and our plans are to continue to do that with slow, steady, disciplined expansion.”

In any case, Hunzeker expects to see a lot of growth in the coming years.

“There’s so much growth in the business right now,” he said. “We wondered a couple of years ago if higher [gas] prices were going to typically reduce the business. I don’t really think we’ve seen that. We continue to see residential, industrial, commercial gas continue to grow, electric generation continue to grow, lots of pipeline projects getting built…

“Everyone is changing and all are really growing, even in this environment of high prices,” he said. “There is a whole lot of need out there for physical products and services that we provide. And now, with AIG, we also can show up on the doorsteps with an advanced suite of financial tools…to help our customers start solving other needs within their organization, other than just gas.”

Source: Quarterly financial reports with the Securities and Exchange Commission, or if necessary, statements signed by company officials and provided to NGI.

*Companies providing data directly to NGI include ConocoPhillips, Constellation Energy Commodities Group, Coral Energy Holding (Shell Trading), Louis Dreyfus Highbridge Energy, Merrill Lynch Commodities, Tenaska Marketing Ventures and UBS Energy. BP’s figure is for U.S. natural gas production, not natural gas sales. BP does not issue quarterly data for its North American gas sales. Fortis, which bought the Duke/Cinergy marketing arm, did not have figures available for the quarter. Cinergy reported 4.24 Bcf/d in gas sales in 4Q2005.

4Q2006 Gas Marketers

The final three months of 2006 proved the marketing prowess of the oil and gas majors once again, with more than half of NGI‘s top North American marketers classified as producers. The quarterly survey provides a snapshot of what’s happening in the North American energy merchant sector, but it is far from conclusive. Many of the largest players do not participate in the survey, including some of the international bankers.

However, the survey provides a glimpse into the health of the market. Despite the warm winter weather and volatile gas prices, the North American gas marketers surveyed showed a 9% year-to-year gain in wholesale gas volumes in 4Q2006, to 120.8 Bcf/d from 110.99 Bcf/d in 4Q2005.

BP plc no longer submits quarterly wholesale sales data, but if its U.S. gas production is any indication, sales continue to be solid. According to its financial filings, the London-based major’s U.S. production totaled 21.96 Bcf/d in 4Q2006, down 7% from the 23.59 Bcf/d in 4Q2005. And the oil major’s U.S. marketing presence, especially in the West, is only expected to strengthen following the purchase of Salt Lake City-based gas marketer Wasatch Energy LLC (see NGI, Dec. 25, 2006).

ConocoPhillips, on a growth spurt for the past several quarters, jumped its wholesale gas volumes 14% to 13.40 Bcf/d from 11.80 Bcf/d to safely hold second place. Coral Energy/Shell Trading Gas and Power secured third place with a 9% rise in sales to 12.2 Bcf/d from 11.2 Bcf/d. Coral last month said it was moving 18 traders from its Syracuse, NY, office to Houston by June 1.

In fourth place was Sempra Energy, which reported a slight decline in its wholesale volumes for the period, to 9.4 Bcf/d from 9.6 Bcf/d. Rounding out the top five was Constellation Energy, which reported a 43% jump in volumes, more than any other company surveyed, to 8 Bcf/d from 5.59 Bcf/d in 4Q2005.

Chevron Corp.’s gas sales ranked sixth in the survey, gaining 33% for the period to 7.7 Bcf/d from 5.8 Bcf/d in 4Q2005. Tied for seventh place were Calgary-based Nexen and Louis Dreyfus Highbridge Energy Group (LDH), the newly formed partnership of Louis Dreyfus and hedge fund Highbridge Capital Management (see NGI, Jan. 15). Nexen’s wholesale volumes were up 8% to 5.5 Bcf/d from 5.1 Bcf/d, while LDH reported a 25% gain in wholesale gas volumes, to 5.5 Bcf/d from 4.4 Bcf/d.

In eighth place was TMV, which reported a 22% gain in gas sales to 5 Bcf/d from 4.1 Bcf/d a year earlier. Rounding out the top spots were UBS, which reported a 21% gain in sales to 4.34 Bcf/d from 3.59 Bcf/d, and EnCana Corp., which reported a 2% gain in sales volumes to 3.4 Bcf/d from 3.33 Bcf/d.

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