Energy Trading & Marketing Industry Trends

Consolidation

Gas Producer Consolidation

The largest investor-owned utilities (IOUs) have gained significant market share over the past 15 years, mainly due to consolidation. The 10 largest IOUs own more than 50 percent of total IOU generation capacity. The application of "best practices" encourages consolidation, as does the need for large financial resources to fund more efficient generating capacity.

In response to the large investments required to find and produce oil and natural gas, the big, vertically-integrated producers have become larger, mainly through acquisitions and mergers. Within the transmission segment of the industry, 14 corporations control 85 percent of the pipeline market. Local gas distribution companies are also combining under the umbrella of Public Utility Holding Companies (PUHC), which often includes the operation of electric-generating facilities using natural gas.

Re-Regulation

LNG

The deregulation catastrophe in California has caused other states to rethink their plans. The California electricity crisis of 2000 and subsequent revelations about market manipulation by large energy trading companies prompted calls for re-regulation of the industry.

The processes of liquefying, transporting, storing, and re-vaporizing LNG has always made it a more expensive alternative to standard natural gas transported via pipelines. LNG is thought to supply less than 2 to 3 percent of total natural gas consumption in the US, and most observers say doubling that would be impressive. Few predict that overall domestic demand could rise to as high as 8 or 10 percent.

Low Investment in Transmission Lines

Alaskan Natural Gas

Utility investments in high-voltage power lines have been falling since the late 1970s, and the industry plans to add only 6,000 miles of lines, a 3 percent increase, during the next few years. Capital costs are up to $2 million per mile on above-ground lines and more than twice that for underground.

Alaska is one of the largest gas-producing states (from oil wells), but because of a lack of economical transportation to the lower 48, most of the gas is re-injected into oil fields. Various transportation options include a trans-Canada pipeline and liquefaction for ship transport, and a natural gas pipeline that would run parallel to the Alaska highway. Canadian authorities, who could veto the projects, are unhappy about large proposed federal subsidies that would effectively hurt Canadian gas producers, and environmentalists oppose further development of Alaskan wilderness for natural gas production.