Narrowing Margins and Industry Consolidation Have Wholesale Energy Marketers Scrambling for Market Share
North America's wholesale energy marketing industry holds many opportunities as well as risks for companies that are able to withstand the competition. The almost complete deregulation of the market has brought forth a new type of wholesale energy marketing organization that includes an improved portfolio and risk management skills that relies on established contacts within the industry to provide their business.
According to strategic research conducted by Frost & Sullivan, North American Wholesale Energy Marketers, high revenues and low margins are the norm in this evolving industry. The size of the market is often artificially inflated due to the repeated sales of volumes of power and gas, for instance, in 1997 the total market reached $122 billion.
"Although maturing, the natural gas market grew 22.4 percent in 1997, mainly because marketers sell the same volume of gas two or three times among themselves," says Frost & Sullivan Energy Analyst Susan Hutchinson. Natural gas marketing companies also dominate the power marketing industry, since their expertise in the marketing field carries over.
Complementary to this trend is the convergence of the natural gas and electricity industries. To increase their presence in power marketing, most top companies were involved in a merger or acquisition this year. This " one-stop-shopping" approach has become popular among companies vying for market share, where one company offers its customers natural gas, power, natural gas liquids, coal and petroleum marketing.
As competition leads to a decreasing number of competitors in the market, narrowing margins have also become a serious threat, Hutchison contends. In an effort to quickly gain market share, companies are trading large volumes at a loss. This will cause many companies to drop out of the market within the next few years, and market winners will likely be those who can sustain such losses the longest.
The market leaders are using three primary strategies to accumulate market share. First, because the industry is so price-sensitive, those who can offer the lowest prices will win the sale. Product differentiation is another important strategy, which includes everything from multi-commodity capabilities to innovative risk management. In addition to gas and power, many marketers are trading natural gas liquids, petroleum and coal. Finally, it is common to have the backing of a large parent company in this industry, as reputation goes a long way in to ensure that the company has the assets to deliver.
This new study by Frost & Sullivan, North American Wholesale Energy Marketers, concentrates on two segments: natural gas and electricity marketing. This report identifies the main industry players and their strategies through an analysis of the top 20 companies in natural gas and power marketing in 1997. In addition, revenue forecasts, market shares, technology trends, market drivers and restraints, and competitive issues are provided.
The companies participating in this market include: Amoco Corporation, Amoco Energy Trading Corporation, Aquila Energy Corporation, Aquila Energy Corporation, Chevron Corporation, Citizens Power LLC, CNG Energy Services Corporation, The Coastal Corporation, Columbia Energy, ConAgra Energy Services, Conoco Inc., Consolidated Natural Gas Company, Coral Energy Resources LP, Duke Energy Corporation, Duke Energy Trading & Marketing, LLC, Du Pont, DuPont Power Marketing Inc., Electric Clearinghouse, Inc., El Paso Energy Corporation, El Paso Energy Marketing, Engage Energy, Enron Capital and Trade Resources, Enron Corporation, Entergy Power Marketing Corporation, Exxon Corporation, Houston Industries Inc., Illinova Power Marketing, Koch Industries Inc., Koch Energy Trading Inc., LG&E Energy Corporation, LG&E Energy Marketing, Natural Gas Clearinghouse, NGC Corporation, NorAm Energy Services Inc., NOVA Corporation, PacifiCorp Power Marketing Inc., PG&E Corporation, PG&E Energy Trading, The Power Company of America L.P., Sempra Energy, Sempra Energy Trading, Shell Oil Company, Sonat Energy Services, Sonat Inc., Sonat Power Marketing, Southern Company, Southern Company Energy Marketing LP, Southern Energy Inc., Texaco Inc., Texaco Natural Gas Inc., TransAlta Corporation, TransCanada Energy Ltd, TransCanada PipeLines Ltd, UtiliCorp United, Vastar Resources Inc., Vitol Gas & Electric, Westcoast Energy Inc., Western Resources Inc., Williams Energy Group, Related Companies: Objective Resources Group Inc. (ORG), OpenLink Financial Inc., Per Se Technologies, Sapient Corporation, TransEnergy Management Inc., Zai*Net Software Inc., Industry Organizations: American Gas Association, Interstate Natural Gas Association of America (INGAA), The Power Marketing Association, National Energy Marketers Association, Energy Marketers Coalition, Southern Gas Association, Governmental Organizations, Department of Energy (DOE), Energy Information Association (EIA), Federal Energy Regulatory Commission (FERC).
This article is courtesy of Frost and Sullivan, an international marketing consulting company that monitors the energy industry for market trends, market measurements and strategies. For more information contact T: Kathleen Cooney of Frost & Sullivan at 650-237-4385, or fax 650-903-0915.