Credit Crunch May Limit Natural Gas Industry Growth

Article excerpt

Money problems _ cash flow, working capital, credit, equity _ have plagued the oil and gas industry for nearly a decade.

It's somewhat ironic, however, that as the natural gas industry appears poised to assume a larger portion of the U.S. energy mix, the credit crunch, particularly, seems to be at the apex in the gas industry.

Especially hard hit are the gas marketers, and some of the large pipelines that failed to rein in those hairy take-or-pay contracts. Both may be to the delight of gas producers, many of which detest marketers _ the middlemen in sales transactions _ and pipelines that have held a tight grip on the gas industry from all angles historically.

But there's a domino effect when a marketer goes bankrupt, as in most default cases. When the middleman goes, the buyer doesn't have gas and the seller _ or producer _ then has to find another buyer or arrange a direct deal. In some cases, though, the marketing firm was put in jeopardy by unsteady credit of its buyers.

The sometimes praised, sometimes cursed Federal Energy Regulatory Commission Order 636 would seem to ease the dilemma because it is designed to make direct sales easier by forcing interstate pipelines into a common carrier role. The problem, though, is that marketers often contract with numerous producers in order to get the volumes required by most buyers _ usually big utilities or large industries.

Thus, what are producers to do? Buyers can pick another marketer from the pack that's still in business, in many cases. Producers are allowed to form cooperatives to pool their gas volumes under Order 636, but most believe that's impractical.

Some of the more prominent bankruptcies in the gas industry are: GasMark, Centran, Endevco, TransMarketing, Manufacturers Fuel, Columbia Gas Transmission, Columbia Gas Systems and United Gas Pipeline. That doesn't count the who-knows-how-many producers that have bit the dust since the mid-1980s.

For some, the answer has been to merge with a larger partner. For example, EnTrade Corp. and Tenneco Gas Marketing, which is ranked about eighth among marketers, recently closed a merger deal. It's said the successor firm will handle 5 percent of the nation's gas consumption.

But, Oklahoma City's own Clinton Gas Systems and its affiliate, Clinton Gas Trading, reportedly are among the first in the industry to strengthen internal credit verification as a defense to the existing credit crunch.

Clinton Gas President Dan Ryan will explain his defense strategy at a seminar focusing on the credit crunch later this summer. …