THE NATURAL GAS INDUSTRY AND PURCHASING NATURAL GAS
TABLE OF CONTENTS
- NATURAL GAS INDUSTRY OVERVIEW
- INDUSTRY PARTICIPANTS
- REGULATORY AND HISTORICAL BACKGROUND
- UNBUNDLED SERVICES AND CHOICES FOR END USERS
- SELECTING SUPPLIERS
- COMPARING COMPETING BIDS
- DISTRIBUTION ANCILLIARY SERVICES - STORAGE AND BANK BALANCING SERVICES
- ADDITIONAL SUPPLIER PROVIDED SERVICES
- HEDGING - RISK MANAGEMENT INSTRUMENTS
- GLOSSARY OF TERMS
This writing is intended to provide general introductory information concerning the natural gas industry and introductory information particular to natural gas purchasing, sourcing, delivery, and risk management decisions. Moreover, individual and company circumstances are unique and must be considered while evaluating natural gas supply options. In addition to this introductory material, we also recommend that readers review additional information sources concerning this subject matter, such as education and instructional seminars provided by various organizations and trade publications.
The natural gas industry has experienced a vast transformation over the past thirty years. This transformation has its roots, in large measure, to the energy shortages in the 1970's. Since the 1970s and continuously evolving since then, the various sectors and functions within the natural gas industry have been transitioned from traditional economic regulation to market competition. Beginning in the 1970's with the phasing out of federal control on the wellhead price of natural gas, creating robust competition within the natural gas production sector, the industry has also evolved to increased competition within the delivery functions of natural gas interstate transmission and local distribution. Most recently, the efforts to move the electric industry to competition have spurred further changes in the natural gas industry.
The trend towards increased competition within both the natural gas and electric industries has generated increased mergers and acquisition activity within both industries. This increased consolidation is resulting in fewer and much larger diversified energy companies competing to sell gas, electricity, and energy products and services to wholesale and retail customers. For example, on January 28, 2000, Dominion Resources Inc., the parent company of Virginia Power, completed its acquisition of Consolidated Natural Gas Co., the parent company of the East Ohio Gas Co., resulting in the fourth-largest electric and natural gas utility in the United States with approximately $8.8 billion in annual revenues. There have been numerous other mergers and acquisitions, and several more are pending. Some industry analysts believe that in a competitive environment a company's ability to become a total energy provider offering gas, electricity, and related products may provide a significant competitive edge. Some Local Distribution Companies(LDCs) have chosen to form alliances with gas marketing companies. Their business model is that the LDC will provide access to the customer while the gas-marketing firm will provide the wellhead-to-burner-tip trading and logistics expertise, risk management experience, and access to venture capital.