My business, the natural gas industry, stands at a crossroads. Unbundling and deregulation permeate the market. The next three years will see the end of many fixed, long-term supply and transportation service contracts (em the closing of an era.
In fact, natural gas marks perhaps the last commodity traded on a major exchange that remains captive to such long-term contracts. The demise of such contracts will add flexibility to gas pricing and supply management.
This evolution will accelerate with a host of changes in the way gas moves in wholesale markets. Open access has focused our attention on new fronts: secondary markets; front-, middle- and back-end storage on interstate pipelines; transportation switch points; imbalance workouts; short-term parking; and hubs and market centers at pipelines and local distributions companies. Improvements in information processing promise greater efficiency in matching supply and capacity with buyer and seller. All these changes will vie for attention (em remaking the local distribution company, or "LDC."
Nevertheless, even the most forward-looking LDC will face a difficult balancing act, as it attempts to keep one foot ahead of the market, with the other taking care of monopoly services that remain subject to regulation. This awkward transition creates a new type of "virtual" company (em one that owns some traditional regulatory assets, but one that deals head-on with competition by outsourcing competitive enterprises, through unregulated affiliates or unrelated third parties.
Shaking Out