Reliability means key to success for gas marketers.

It's an old and over-used proverb, but in the case of natural gas marketing, the more things change, the more they stay the same.

That's what the results indicate from the latest MASTIOGALE Natural Gas Marketer Customer Value Study. In its ninth edition, customer needs stayed the same

Kevin R. Huntsman, who directed the study for MASTIOGALE, said the chief concerns of gas customers continue to be 1) reliability of supply; 2) honesty and trustworthiness of supplier; and 3) historically dependable in meeting commitments.

So even in a time of nerve-wracking price volatility when price swings of several dollars can make or break a company, the customer wants to be sure that their gas will arrive as scheduled an issue that increased enormously in the wake of last year's damaging hurricanes. That doesn't mean the customer won't appreciate the help from a marketer's well-designed hedging or derivative package. Gas buyers understand better than ever the value of a relationship, especially after the industry shakeout caused by previous trading scandals. "The industrials and the local distribution companies buying gas seem to feel like the industry has settled down and don't foresee another mass exodus of marketers," Huntsman said. "The marketers are also doing pretty well because everyone knows who is going to be sticking around and playing the game. Credit has become a concern of both sides to some degree. Both sides want to make sure that the other has a good balance sheet before they sign a long-term deal."

In the Major Marketers category, the winner again was ConocoPhillips followed by BP, Nexen, ONEOK Energy Services and Sempra Energy. In the Regional Marketers category, Noble Energy was first followed by Atmos Energy Marketing and CenterPoint Energy.

Huntsman said there should be little surprise that big players such as ConocoPhillips and BP again lead the industry. They are major producers of natural gas with healthy balance sheets to ensure that they have the wherewithal and experience to deal in this market with all of its inherent risks.

The regional marketers are essentially niche players that have expertise in supplying necessary services to their customers such as transportation, storage, advice, and risk-management products. While this is a healthy sector that will always be important, Huntsman noted that not many new players joined the fold last year. It goes to prove that you need to know what you're doing before you engage in this business, he said. Nor is it easy to pry away a customer from a trusted supplier, especially when that hard-pressed buyer has a myriad of other responsibilities at his company.

"Customers seem reluctant to change marketers because often you reach a comfort level with them in terms of delivering your gas and being easy to deal with. Years ago a lot of companies used to have energy managers on staff but because of cutbacks particularly with industrials--the person who's buying gas is also buying a lot of other raw materials, so the less time that he or she has to spend with gas, the more time he or she can devote to the other things they have to deal with," Huntsman said.

In the future, Huntsman said customers will be looking toward their marketers for more help to mitigate previously unheard-of price volatility. While they will need to offer appropriate risk-management products, "they can't make them too exotic or they won't know what you're trying to sell them."

One of the most successful niche marketers in recent years is Atmos Energy Marketing, which was formerly known as Woodward Marketing. Woodward Marketing was formed in 1986 by JD Woodward. Dallas-based Atmos Energy Corp. acquired a 45% interest in Woodward Marketing in 1997 and acquired the remaining interest in April 2001. In October 2003, Woodward Marketing was renamed Atmos Energy Marketing. Mark Johnson joined Woodward Marketing in 1992 and was named president of Atmos Energy Marketing in 2005. He was promoted to senior vice president, non-utility operations for Atmos Energy, effective April 1, following the retirement of JD Woodward. He was also named president of Atmos Energy Holdings, parent of Atmos Energy's non-utility operations, and will continue as president of Atmos Energy Marketing.

There are many parts to the customer-satisfaction equation and continuity, Johnson said, is a crucial aspect in building a strong customer base.

"We've been a very stable and reliable company with low turnover," he told P&GJ. "Our customers have developed relationships and rapport with individuals who have been here for a long time. We've been reliable, able to deliver on our promises and maintain open communication with our customers," he said. "One way is by holding meetings through a variety of outlets to keep the communications channels open and ensuring that Atmos is in touch with the customer's current needs."

Atmos Energy Marketing is headquartered in Houston but has operations in 22 states. The majority of its customers are industrial though it also sells to a significant number of municipal utilities. That might not sound like a regional player, but Atmos Energy Marketing would not be doing business there unless it had a reason and the expertise to be there, Johnson said.

"Our strategy is to always be in an area where we can add value to our customers; we're not going to be in an area where we don't have reason to operate or there's nothing that sets us apart. The common factor of being in 22 states is that we have storage, capacity, and expertise. They feed off each other, which is really an asset for us because we can use either the supply or transportation portfolio from one region to help another when the weather or something occurs. Generally speaking, the whole country is not going through the exact same thing at the same time," Johnson said.

What has been the biggest change he has seen in the business during the past several years?

"The volatility in gas pricing has increased threefold or more and the credit requirements have changed the complexity of our business quite a bit," he said. The downfall of a number of large marketing entities affected liquidity in the marketplace. As a result, the need for a robust credit facility is being emphasized. Johnson sees two sides to this story.

"There is a lot more bankruptcy risk among customers because of high price swings. And we have made tremendous strides in increasing our credit facilities so we're able to meet the needs of our customers in a time of high gas price environment in order to grow with them. A lot of companies are going to struggle because they just can't obtain adequate credit. They don't have the history with the banks to get the credit to support their book of business whereas we've been around for 20 years and have a track record," he said.

Owning storage and firm transportation has taken on an especially more important role today in meeting the needs of customers. "That wasn't quite as prevalent back in the late '80s and early '90s when there was a lot more brokering going on where they didn't actually own assets," Johnson recalled. "We are the holder of transportation, therefore we're not relying on another counterparty to make deliveries."

It appears that financial oriented companies such as Morgan Stanley and Bank of America will try to make inroads as gas marketers. Huntsman said they may have the balance sheets and a variety of risk-management products to offer, but once they get into the physical trading side of the business, will industrials and LDCs move over to them?

Johnson believes they'll go after an entirely different segment of the industry.

"They're probably not going to be as service oriented to the individual smaller user. They're going to be much more of a wholesale model because they're looking to trade larger quantities and utilize their financial strength and expertise on the derivatives side. That's one of the reasons why they're there. It's almost impossible to build up the kind of a customer base that we have taken 20 years to develop," he said.

NATURAL GAS MARKETER STUDY 9TH EDITION
Major Marketers

Supplier                 Criterion 1   Criterion 2   Criterion 3
                         Number        CV            Overall
                         of            Weighted      CV
                         Respondents   Benefit       Index
                                       Score         Score

BP                       yes           101.57        100.41
Chevron Natural Gas      yes            99.59         98.18
Cinergy Corp.            no             94.96         97.7
ConocoPhillips           yes           103.42        102.34
Constellation Energy     no            106.83        109.99
EnCana Corp.             no             97.80        101.58
ExxonMobil Gas Mkgt.     no             92.43         90.55
 Co.
Nexen, Inc.              yes           101.06        101.24
Occidental Energy        yes           100.33         98.01
 Mkgt.
ONEOK Energy Svcs. Co.   yes           101.24        100.99
Sempra Energy            yes           100.99        101.35
Shell Trading            yes            98.37         98.99
Tenaska Marketing        yes           101.39         98.67
 Ventures

NATURAL GAS MARKETER STUDY 9TH EDITION
Regional Marketers

Supplier                      Criterion 1   Criterion 2   Criterion 3
                              Number        CV            Overall
                              of            Weighted      CV
                              Respondents   Benefit       Index
                              Score         Score

Amerada Hess Corp.            no            100.33        102.31
Anadarko Petroleum Corp.      no             99.56         94.67
Atmos Energy                  yes           105.43        104.49
Burlington Resources, Inc.    no            100.79        103.96
Cargill                       no             88.75         90.57
CenterPoint Energy            yes           105.12        104.66
Crosstex Energy               no            100.09         99.04
Devon Energy Corp.            no             95.73        100.68
Dominion Energy               no             96.51         98.24
Duke Energy Trading           no             90.41         88.03
Eagle Gas Marketing Co.       no             93.61        102.92
Enbridge, Inc.                yes            99.74         97.95
Enserco Energy, Inc.          no            101.76        103.47
Merrill Lynch Global          no             99.00         91.80
 Commodities
Noble Energy                  yes           104.23        105.92
OGE Energy Resources          yes            99.17         97.85
ProLiance Energy              no             96.00        101.61
SCANA Corp.                   no            107.50        105.24
Sequent Energy Management     yes            99.82         98.39
Texican-Horizon Energy        no            107.39        106.22
Marketing
Total Gas & Power N.A.        no             97.30         92.05
U.S. Energy Services, Inc.    no            103.28        102.89
UGI Corp.                     no            108.82        105.90
Western Gas Resources, Inc.   no             93.06         94.29
WPS Energy Services, Inc.     no            106.61        106.86