Maximizing Value In Gas Marketing

Abstract Discuss the evolution of gas marketing from deregulation in late 1985 to the present, identifying the key changes that have taken place from the perspective of:producersaggregators/marketersgas utilities Identify some of the major challenges that are facing the gas industry in providing value in the marketing of natural gas. Introduction Over the past 10 years a great deal has been accomplished in the marketing of Canadian natural gas in a more competitive manner. During this time frame we have:opened up the pipeline transmissions systemsderegulated gas pricespermitted direct selling between production and end useincreased the sales volume of natural gasincreased the price transparency and discovery mechanisms for natural gas With significant progress to date in the way natural gas in marketed, every sector of the natural gas industry companies are looking at ways of "maximizing value" to their assets and operations including the marketing process. The first question that one may ask is: Why the current interest in "maximizing value" in gas marketing? The answer is a little more complex than the question. In essence, the industry has reached a fairly significant stage in the marketing of natural gas. Over the past 10 years, since the Canadian natural gas industry began the process of decontrol of the markets and prices of natural gas, a great deal of progress has been made, particularly in the area of price discovery. The price of natural gas for the vast majority of regions in North America can be obtained almost instantaneously. Furthermore, the ability of end-users to purchase their gas supply from their party of choice has increased significantly. The introduction of the financial market into the buying and selling of natural gas, and the complete unbundling of pipelines (merchant and transportation areas), first in Canada and more recently in the United States, have created increased complexities to the marketing and movement of natural gas from well head to burner tip. With this increase in marketing complexities, each of the three industry sectors previously listed will be examined as to the key issues that are being considered in maximizing value. Production After the start of the deregulation process in Canada in late 1985, many natural gas producers embraced the changes brought on by the reduction in regulatory and government involvement in the marketing and pricing of natural gas. These producers, who traditionally sold to several large aggregators located in Calgary or Vancouver (in the case of British Columbia gas) began supplementing their existing sales to these aggregators and sold their gas directly to customers throughout North America. As a result of these efforts and leveraging their supplies to aggregators sales grew dramatically particularly to the United States. While generally prices declined there were still markets which commanded premium prices, notably the Northeast United States and California. Today, after 10 years of deregulation and the developments in the financial markets and electronic bulletin boards, the price of natural gas has been very transparent and the so called premium markets have either disappeared, been reduced, or are in the process of being transformed.