Deregulated Gas Industry May See Further Integration

By Fears, Ronda | THE JOURNAL RECORD, January 14, 1993 | Go to article overview

Deregulated Gas Industry May See Further Integration


Fears, Ronda, THE JOURNAL RECORD


EDITOR'S NOTE: This is the fifth of a seven-part series on the anticipated impact on the domestic oil and gas industry of new federal rules in the natural gas industry. It is viewed in conjunction with the impact of major oil companies' shift in drilling emphasis to the international arena, away from domestic prospects. By Ronda Fears

Journal Record Staff Reporter

Evolution of a deregulated domestic natural gas industry may offer broad opportunities for further integration in that energy segment, particularly if demand grows as expected.

Common carrier status for gas pipelines will be implemented throughout 1993 pursuant to Federal Energy Regulatory Commission Order 636, which disconnects merchant sales and transportation functions among interstate pipelines.

The transition aims to bring buyers and sellers closer in the marketplace and foster increased competition, a process begun in the mid-1980s when FERC issued a rule to open access to interstate pipelines.

Aggregation of gas supplies replaces marketing as the new industry buzzword and storage takes on a more dominant role. Third-party marketers, which arrange supply and transportation for buyers, surfaced in 1985 when the spot gas market and open access emerged.

"A trend that should take shape is the U.S. gas transmission grid should become much more integrated and much more efficient," said Doug Burton, chairman of The Acarus Group in Oklahoma City, at a local seminar on Order 636.

"There should be an increased focus on long-term contracts. I believe that trend is under way."

A panel of producers and gas experts at the midyear Oklahoma Independent Petroleum Association meeting a few months ago were not optimistic that it will bring back long-term contracts even at a shorter time frame of three years vs. contracts of 10 to 20 years.

In years past, pipelines bought gas from producers and delivered it to their customers _ mostly big gas utilities. With open access, the pipelines' role as supply assembler diminished. With Order 636, it almost evaporates, but pipelines can still own marketing affiliates.

Since the mid-1980s, gas marketers _ many of which are branches of the major producers, large independents or interstate pipelines _ also began selling gas directly to end users like industrial plants, bypassing the local utility.

"The key feature of Order 636 is FERC has taken this prior bundled package of commodity purchases of gas, transportation of gas, storage of gas and, along with management of the system, separated it out into individually available components," John Herbert, vice president of the Houston marketing firm Natural Gas Clearinghouse, said in Oklahoma City recently.

Pipelines are still anticipated to be among the largest aggregators of gas supplies, but major producers have edged in since 1985. Majors were five of the top 10 U.S. gas marketers, which sell about half the gas consumed nationwide.

"The majors are looking at this thing in a broader context," said Barney Groten, vice president of Energy International Inc. in Bellevue, Wash., and former director of Sarkeys Energy Center at the University of Oklahoma in Norman.

"These people (the majors) tend to think long term, and in an integrated business kind of thinking, as opposed to the classic oil and gas field driller."

It is commonly known that the majors dominate the integrated oil industry _ owning vast reserves and production, oil pipelines, storage facilities and most of the U. …

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