Natural Gas Distribution & Marketing
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Industry Overview
The US natural gas distribution industry includes about 450 companies with combined annual revenue of about $130 billion. Major companies include CenterPoint Energy, NiSource, and Sempra Energy, as well as natural gas distribution subsidiaries of companies such as Dominion Resources and ONEOK. The industry is highly concentrated: the 50 largest companies account for about 90 percent of revenue.
Global exports of natural gas total about 876 billion cubic feet compared to US exports of 30 billion cubic feet, according to BP's 2010 Statistical Review of World Energy. Russia, Norway, Canada, and Qatar are among the world's largest natural gas exporters. Major natural gas distributor companies are Gazprom (headquartered in Russia); Gassco (Norway); GasTerra (Netherlands); GDF SUEZ (France); and Sonatrach (Algeria).
The industry includes utilities and other companies that distribute and market natural gas, but not companies primarily engaged in pipeline transportation of natural gas to distribution systems. Natural gas producers are covered in the Oil and Gas Exploration and Production industry profile.
Competitive Landscape
Demand for natural gas is driven by overall US economic activity. The profitability of natural gas distributors depends largely on the efficiency of their operations. Companies that operate multiple distribution networks may enjoy economies of scale in purchasing. Imports of gas by pipeline from Canada supply about 15 percent of US consumption. Imports of liquefied natural gas (LNG) by boat are fairly small; LNG only makes up about 2 percent of natural gas consumption in the US. Trinidad and Tobago supply 75 percent of LNG imports. Gas prices have usually been too low to justify the expense of liquefaction and specialized transport and storage. The industry is capital-intensive: average annual revenue per employee is more than $1 million.
Products, Operations & Technology
Distribution of natural gas directly to consumers accounts for about 60 percent of industry revenue; wholesale distribution and marketing accounts for about 40 percent.
Natural gas distributors buy gas from producers or gas marketers and distribute it to local customers via networks of pipelines. The "penetration" of a local distributor is the percentage of homes in its territory that use natural gas. Large industrial users and electricity generators often bypass the local distributor and deal directly with pipeline companies and marketers. Gas is supplied to residential and small commercial users on a "firm" basis, and to large commercial and industrial users on a "firm" or "interruptible" basis, with different price structures. Distributors measure delivery capacity in terms of "peak-day capability" (usually expressed as thousand cubic feet per day - Mcf/d/d), which is a combination of contracted pipeline capacity, underground storage release capacity, and peaking supplies (generally liquefied natural gas in storage containers).
Raw natural gas is a mixture of methane, ethane, propane, butane, and other hydrocarbons, along with various contaminants such as nitrogen compounds, sulfur compounds, and water. Processed natural gas is mainly methane, with a small amount of ethane and other components. Because it is mainly methane, processed natural gas burns very cleanly and efficiently. Natural gas is found in various geological formations, often along with crude oil. Natural gas is used by consumers and businesses to provide heat and hot water, by utilities to power turbines that produce electricity, and by industrial users to power furnaces and as a feedstock for chemicals.
