Low Volatility Plagues Natural Gas Marketers, NGI Reports
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.
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
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,"
"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
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’
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