Low Volatility Plagues Natural Gas Marketers, NGI Reports

natural flame

DULLES, VA--June 13, 2013: Oneok Inc.'s energy services segment, which markets natural gas, along with storage and transportation, has "contributed greatly" to the company's past, but it's no longer a good fit with today's marketplace, CEO John Gibson said in a conference call last Tuesday.

“There aren't any long-term opportunities, or they have become increasingly smaller on a relative basis, based on the energy conditions [the segment] faces, and the growth of our other businesses”

Gibson was explaining why the Oklahoma-based pipeline, midstream and distribution company was disbanding its energy services business, and to that end already has begun winding down capacity contracts now in place. Historically the unit has provided baseload, swing and peaking natural gas commodity requirements on a year-round basis, leasing an average of 72.4 Bcf of storage capacity and 1.0 Bcf/d of transportation capacity in production and market areas of the United States and Canada.

Oneok's action illustrated how abundant supply and lower price volatility is hitting revenues of middleman marketers, which in today's market don't always cover the costs of the reserved storage and transportation capacity tools of the marketer's trade. Analysts see a reduction in the marketing function as part of a trend, according to Natural Gas Intelligence (NGI).

The lack of price volatility "is a big reason that Oneok is getting out of the energy services business," said Pat Rau, NGI Director of Strategy and Research. In the natural gas market, long a traders' favorite for its rapid price swings, that volatility "has fallen off a cliff over the last year."

Less volatility means less trading which is borne out in the 5% (7.53 Bcf/d) overall decline in physical gas sales transactions in 1Q2013 compared with 1Q2012, according to NGI's 1Q2013 Top North American Gas Marketers Ranking, a time period when the difference in production was just a fraction of a percent.

In the first quarter rankings, 17 of the 26 ranked companies, including ConocoPhillips, Shell Energy NA and Macquarie among the top 10, reported lower sales volumes than in 1Q2012. Oneok, ranked No. 17 on the list of marketers, had gas sales totaling 2.24 Bcf/d in 1Q2012, down 7% from 2.40 Bcf/d in 1Q212.

The fallout is that the company now has little need for capacity leasing, Oneok's CEO said. "There aren't any long-term opportunities, or they have become increasingly smaller on a relative basis, based on the energy conditions [the segment] faces, and the growth of our other businesses," Gibson said.

"I think it makes perfect sense for them in particular to divest all of the storage and transportation assets," Genscape Inc. senior natural gas analyst Andy Krebs told NGI. "From a volatility perspective, it has been pretty dead in relation to location spreads and timing spreads..." Storage decontracting hasn't impacted the marketplace yet, said Krebs.

"We are still in an environment when we have to have a cushion for winter demand. In particular, if you go through the list of who owns what storage, the bulk are LDCs [local distribution companies] and other groups that have a mechanism to pass along the losses, if you will, to the rate base or feed as a cost of doing business in producing gas, or something to that effect."

The merchant players "really are the guys on the fence, and they could fall off and really go into a decontracting mode. Oneok is first, but we expect it to be more public...and for some to say, 'it doesn't make sense for us anymore.'' It may not come in splashy announcements like Oneok's, said Krebs. "They will come quieter...in the form of companies slowly shedding their books."

To read a more in-depth report of pressures building in the natural gas marketers' business and to see the most recent and historical marketers' rankings, visit Intelligence Press and sign up for a free trial.

Home | Buyers Guides For Every Auto Make | New Car Buyers Guide | Used Car Super Search | Total New Car Costs | 2016-1993 Car Reviews Truck Reviews
1996-2016 Automotive News | TACH-TV | Media Library | Discount Auto Parts

Copyright © 1996-2016 The Auto Channel. Contact Information, Credits, and Terms of Use. These following titles and media identification are Trademarks owned by The Auto Channel, LLC and have been in continuous use since 1987 : The Auto Channel, Auto Channel and TACH all have been in continuous use world wide since 1987, in Print, TV, Radio, Home Video, Newsletters, On-line, and other interactive media; all rights are reserved and infringement will be acted upon with force.

Privacy Statement | Size Does Matter | Media Kit | XML SITE MAP | Affiliates

Send your questions, comments, and suggestions to Editor-in-Chief@theautochannel.com.

Submit Company releases or Product News stories to submit@theautochannel.com.
Place copy in body of email, NO attachments please.

To report errors and other problems with this page, please use this form.

Link to this page: http://www.theautochannel.com/