article on gas marketers : top gas gorillas note the discussion on market share halfway through the article .
top gas gorillas show strong volume growth
the year 2000 was a banner year for the top players in gas marketing , with
huge increases in gas prices , enormous volatility , continuing growth in sales
volumes and major potential for profits . physical gas sales volumes for the
top 20 marketers in ngi ' s ranking grew 17 % to nearly 150 bcf / d , and profits
among the larger players came in very strong with companies such as williams
reporting 2 , 000 % profit increases in their energy merchant segments .
however , for many of the smaller players it was a tough year . " the big news
here is probably the price pressure the marketers have had to withstand , "
said ben schlesinger , president of maryland - based consulting firm schlesinger
and associates , which tracks energy marketing . " these people have price
exposure on both sides of their business : the buy side and sell side . they ' ve
actively sought to hedge these risks , but there ' s no question that there have
been some real stresses in their businesses as a result of quadrupling gas
prices in 2000 . "
significant shuffling has begun to take place and will continue , not just
among the leadership but among the whole roster of 500 marketing companies ,
predicted schlesinger . " for the first time i ' m not sure all 500 will make it
because of the price volatility , and the stresses that it creates on their
balance sheets and their ability to meet the different needs of their
customers . " if you are on the wrong side of a transaction these days in
california , you are going to suffer significantly . it ' s not much different at
the henry hub either , he noted . the harsh reality is that only the strong
will survive .
ronald j . barone of ubs warburg believes the california energy crisis and
fears of lack of gas supply and capacity are driving customers to the
strongest marketers . " i think that over the long term it will be a positive
for the bigger players , such as enron . customers want to go with somebody who
is big , has facilities , somebody who is going to guarantee it , somebody who
can do risk management for them . enron is the 800 - pound gorilla here . "
enron has been the 800 - pound gorilla in gas marketing for years but there
were always plenty of 750 - pound gorillas around . last year , however , enron
found a way to trade natural gas over the internet and at last glance was
well over 1 , 600 pounds , more than double the size of its next closest rival
gorilla , duke energy . enron sold 23 . 8 bcf / d of gas last year compared to only
13 . 3 bcf / d the year prior and compared to the 11 . 9 bcf / d sold by duke energy ,
which came in second place in ngi ' s ranking of gas marketers by physical
sales volume .
enron catapulted itself to the next level with the help of its handy new
tool , enrononline , its web - based proprietary energy and commodity trading
system that now handles about 3 , 000 mainly natural gas transactions each day .
in 2000 , enron completed its first full year of deploying enrononline , which
quickly became the world ' s largest web - based e - commerce site . during the
year , enron executed 548 , 000 transactions online with 3 , 000 customers ,
totaling $ 336 billion of gross value .
the tremendous success of enrononline led many observers to wonder whether
market concentration was beginning to take place in the industry . when you
look at enron ' s massive increase in wholesale transactions you have to wonder
about that concentration . enron ' s 23 . 8 bcf / d is pretty large ( 35 % ) when
compared with the 69 bcf / d that is actually consumed in north america . but
you have to factor in multiple trades - - - one marketer trades a given
molecule of gas to another marketer and so on . according to schlesinger , the
so - called " churning factor " is close to three .
" in the past several years when we ' ve been polling marketers , we got numbers
( in 1999 ) that came to about 60 tcf . we added up all the physical sales by
all the marketing companies . we did not have 100 % response in our survey - - -
some of the mid - sized and smaller companies didn ' t respond . we reasonably
extrapolated that about 65 tcf , maybe even 70 tcf of gas was traded each year
in north america . physical consumption in north america is about 25 tcf so 70
divided by 25 is about 2 . 8 . "
using that calculation , enron with 23 . 8 bcf / d of physical gas sales in 2000
ends up with a not unreasonable 12 % market share . when the federal trade
commission looks at markets and market share , it uses several tools , one of
which is the herschman - herfindahl index , a measure of market concentration .
it ' s the sum of the squares of the market share of each participant . if one
company owns the entire 100 % of the market , that ' s an hhi of 10 , 000 .
the department of justice has been using 1 , 800 as a red flag when it
considers approval of mergers and acquisitions . according to schlesinger , the
total gas industry has an hhi of only about 200 , way below any suggestion of
market concentration .
" it ' s so low that it ' s unbelievable . it ' s a highly competitive business . even
if one competitor has 12 % of the market ( hhi of 144 ) and the next competitor
has 6 % and on down , it certainly doesn ' t send up any red flags , " he said . " it
could be that market concentration in the gas industry has risen a bit in
2000 , but this information alone would not diminish the fact that the
industry is one of the most competitive businesses in the united states .
however , there may be some regional issues we have to think about , " he added .
" we haven ' t looked at that , so i can ' t comment on whether anyone has undue
market power in a particular region or state , for example . "
there is a snowball effect going on among the top marketers . the leaders keep
getting larger . volume growth averages at least 10 % per year or more . several
factors should fuel future growth . price increases , volatility and
uncertainty of supplies are driving buyers to the larger marketers , according
to both schlesinger and barone . online trading has become a new springboard
for additional growth by allowing greater efficiency and many more trades to
take place .
schlesinger said he believes electronic trading was responsible for a good
part the 17 % increase in volumes . enron attributed much of its growth to the
online business .
according to some observers , online trading still has plenty of room to grow .
altra energy ceo paul bourke believes about 30 % of all gas trading now takes
place over the internet . bourke said altra had 8 , 000 natural gas trades on
its system in december .
however barone predicts there eventually will be a slowdown in gas marketing
growth in the united states as international energy markets grab the
attention of many marketers . " international should pick up the slack and
contribute increasingly to the bottom line , " he said . barone also expects the
current market situation and the continued interest in service , supply and
commodity versatility to continue driving marketing companies together . " i
think size , scope and scale are incredibly significant . "
only one of the top 20 major marketers last year resulted from the
combination of two separate predecessors : axia , which grew out of the
combination of koch energy and entergy . the rest of the group achieved its
growth without major acquisitions or mergers .
thirteen out of the 20 top marketers showed double - or triple - digit volume
growth with only two companies in the minus column . pg & e had the largest
volume deterioration of any of the large marketers with a 40 . 1 % decline in
annual volumes and a 42 % decline in quarterly volumes . pg & e went through a
significant reorganization last year . the move of its national energy group
( neg ) to bethesda , md , from houston , had the greatest impact on its trading
activity . but the company also sold its energy services business and its
texas gas transmission assets among other changes . " it really slowed down our
trading [ and ] a large number of people stayed behind in houston , " said
company spokesman patrick hurston . at the time of the move , the company
estimated about half , or 100 , would make the move . hurston wouldn ' t say how
many actually made the trip , but the company is still actively hiring .
transcanada , which also underwent a massive reorganization last year , was the
other company in the minus column with a 3 % decline in sales volume .
the remainder of the group experienced large increases in volumes : enron at
94 % , duke with 15 % growth , sempra with 51 % and bp amoco with 100 % growth .
article on gas marketers : top gas gorillas
note the discussion on market share halfway through the article .
top gas gorillas show strong volume growth
the year 2000 was a banner year for the top players in gas marketing , with
huge increases in gas prices , enormous volatility , continuing growth in sales
volumes and major potential for profits . physical gas sales volumes for the
top 20 marketers in ngi ' s ranking grew 17 % to nearly 150 bcf / d , and profits
among the larger players came in very strong with companies such as williams
reporting 2 , 000 % profit increases in their energy merchant segments .
however , for many of the smaller players it was a tough year . " the big news
here is probably the price pressure the marketers have had to withstand , "
said ben schlesinger , president of maryland - based consulting firm schlesinger
and associates , which tracks energy marketing . " these people have price
exposure on both sides of their business : the buy side and sell side . they ' ve
actively sought to hedge these risks , but there ' s no question that there have
been some real stresses in their businesses as a result of quadrupling gas
prices in 2000 . "
significant shuffling has begun to take place and will continue , not just
among the leadership but among the whole roster of 500 marketing companies ,
predicted schlesinger . " for the first time i ' m not sure all 500 will make it
because of the price volatility , and the stresses that it creates on their
balance sheets and their ability to meet the different needs of their
customers . " if you are on the wrong side of a transaction these days in
california , you are going to suffer significantly . it ' s not much different at
the henry hub either , he noted . the harsh reality is that only the strong
will survive .
ronald j . barone of ubs warburg believes the california energy crisis and
fears of lack of gas supply and capacity are driving customers to the
strongest marketers . " i think that over the long term it will be a positive
for the bigger players , such as enron . customers want to go with somebody who
is big , has facilities , somebody who is going to guarantee it , somebody who
can do risk management for them . enron is the 800 - pound gorilla here . "
enron has been the 800 - pound gorilla in gas marketing for years but there
were always plenty of 750 - pound gorillas around . last year , however , enron
found a way to trade natural gas over the internet and at last glance was
well over 1 , 600 pounds , more than double the size of its next closest rival
gorilla , duke energy . enron sold 23 . 8 bcf / d of gas last year compared to only
13 . 3 bcf / d the year prior and compared to the 11 . 9 bcf / d sold by duke energy ,
which came in second place in ngi ' s ranking of gas marketers by physical
sales volume .
enron catapulted itself to the next level with the help of its handy new
tool , enrononline , its web - based proprietary energy and commodity trading
system that now handles about 3 , 000 mainly natural gas transactions each day .
in 2000 , enron completed its first full year of deploying enrononline , which
quickly became the world ' s largest web - based e - commerce site . during the
year , enron executed 548 , 000 transactions online with 3 , 000 customers ,
totaling $ 336 billion of gross value .
the tremendous success of enrononline led many observers to wonder whether
market concentration was beginning to take place in the industry . when you
look at enron ' s massive increase in wholesale transactions you have to wonder
about that concentration . enron ' s 23 . 8 bcf / d is pretty large ( 35 % ) when
compared with the 69 bcf / d that is actually consumed in north america . but
you have to factor in multiple trades - - - one marketer trades a given
molecule of gas to another marketer and so on . according to schlesinger , the
so - called " churning factor " is close to three .
" in the past several years when we ' ve been polling marketers , we got numbers
( in 1999 ) that came to about 60 tcf . we added up all the physical sales by
all the marketing companies . we did not have 100 % response in our survey - - -
some of the mid - sized and smaller companies didn ' t respond . we reasonably
extrapolated that about 65 tcf , maybe even 70 tcf of gas was traded each year
in north america . physical consumption in north america is about 25 tcf so 70
divided by 25 is about 2 . 8 . "
using that calculation , enron with 23 . 8 bcf / d of physical gas sales in 2000
ends up with a not unreasonable 12 % market share . when the federal trade
commission looks at markets and market share , it uses several tools , one of
which is the herschman - herfindahl index , a measure of market concentration .
it ' s the sum of the squares of the market share of each participant . if one
company owns the entire 100 % of the market , that ' s an hhi of 10 , 000 .
the department of justice has been using 1 , 800 as a red flag when it
considers approval of mergers and acquisitions . according to schlesinger , the
total gas industry has an hhi of only about 200 , way below any suggestion of
market concentration .
" it ' s so low that it ' s unbelievable . it ' s a highly competitive business . even
if one competitor has 12 % of the market ( hhi of 144 ) and the next competitor
has 6 % and on down , it certainly doesn ' t send up any red flags , " he said . " it
could be that market concentration in the gas industry has risen a bit in
2000 , but this information alone would not diminish the fact that the
industry is one of the most competitive businesses in the united states .
however , there may be some regional issues we have to think about , " he added .
" we haven ' t looked at that , so i can ' t comment on whether anyone has undue
market power in a particular region or state , for example . "
there is a snowball effect going on among the top marketers . the leaders keep
getting larger . volume growth averages at least 10 % per year or more . several
factors should fuel future growth . price increases , volatility and
uncertainty of supplies are driving buyers to the larger marketers , according
to both schlesinger and barone . online trading has become a new springboard
for additional growth by allowing greater efficiency and many more trades to
take place .
schlesinger said he believes electronic trading was responsible for a good
part the 17 % increase in volumes . enron attributed much of its growth to the
online business .
according to some observers , online trading still has plenty of room to grow .
altra energy ceo paul bourke believes about 30 % of all gas trading now takes
place over the internet . bourke said altra had 8 , 000 natural gas trades on
its system in december .
however barone predicts there eventually will be a slowdown in gas marketing
growth in the united states as international energy markets grab the
attention of many marketers . " international should pick up the slack and
contribute increasingly to the bottom line , " he said . barone also expects the
current market situation and the continued interest in service , supply and
commodity versatility to continue driving marketing companies together . " i
think size , scope and scale are incredibly significant . "
only one of the top 20 major marketers last year resulted from the
combination of two separate predecessors : axia , which grew out of the
combination of koch energy and entergy . the rest of the group achieved its
growth without major acquisitions or mergers .
thirteen out of the 20 top marketers showed double - or triple - digit volume
growth with only two companies in the minus column . pg & e had the largest
volume deterioration of any of the large marketers with a 40 . 1 % decline in
annual volumes and a 42 % decline in quarterly volumes . pg & e went through a
significant reorganization last year . the move of its national energy group
( neg ) to bethesda , md , from houston , had the greatest impact on its trading
activity . but the company also sold its energy services business and its
texas gas transmission assets among other changes . " it really slowed down our
trading [ and ] a large number of people stayed behind in houston , " said
company spokesman patrick hurston . at the time of the move , the company
estimated about half , or 100 , would make the move . hurston wouldn ' t say how
many actually made the trip , but the company is still actively hiring .
transcanada , which also underwent a massive reorganization last year , was the
other company in the minus column with a 3 % decline in sales volume .
the remainder of the group experienced large increases in volumes : enron at
94 % , duke with 15 % growth , sempra with 51 % and bp amoco with 100 % growth .