Asset Managers - Who's Winning the Market?
Shippers on interstate gas pipelines are almost always required by the pipeline to contract for capacity on a year-round basis. Such shippers are allowed to enter into asset management agreements (AMA), i.e., contractual agreements in which an “asset manager” manages another party’s gas supply and delivery arrangements, as well as spare capacity. This is a big business, which has grown based on the Commission’s view that AMAs maximize the value of capacity and result in savings for end-use customers.
Often these contracts are at no cost to the shipper hiring the asset manager; rather, the asset manager simply takes a share of any revenue generated through the release or use of the extra capacity, with the shipper keeping the rest. The shippers are required to notify the pipeline if they have hired a manager for their capacity and the pipelines are required to identify the asset manager in the quarterly list of contracts held by firm shippers on the pipeline.
Today, we look at the market share of the top 40 asset managers and identify the asset managers that have increased their share and those whose share has decreased year-over-year by comparing the amount of capacity under management at the beginning of 2018 and 2019. We will use this data to determine which asset managers are winning a greater share of the market, which shippers are hiring asset managers and whether they have changed their manager in the last year.
How the Market is Divided
Several years ago, during the apogee of the expansion of domestic natural gas production, supply AMAs became an increasingly important tool for producers and other large sellers to manage marketing functions and pipeline capacity. In response to a request from Rice Marketing LLC, the Commission provided greater flexibility for natural gas producers and large sellers to enter into AMAs by clarifying that an exemption from buy/sell transactions applies to both delivery and supply AMAs. As a result, producers have been able to position themselves to benefit from the services provided by asset managers.
Over the last year, producer and delivery shippers have reported over 440 different entities acting as the manager for their pipeline capacity. However, the top ten percent of those marketers, approximately 40 companies, own approximately 75% of the market, with the other 400 companies sharing the remaining 25%. The top 10% of managers vary greatly in size, with some managing, on average, about 0.5 Bcf/day of pipeline capacity, while the top four managers, Sequent Energy Management, Tenaska Marketing Ventures, BP Energy and Xcel Energy Services, average over 4 Bcf/day of capacity.
Some Substantially Increased Their Capacity Under Management
From the first quarter of 2018 to the first quarter of 2019, eight companies saw an increase in excess of 500,000 dth/day under their management. Not Everyone Was That Fortunate
Not every company was able to increase the amount of capacity that they were managing in the first quarter of 2019 as compared to 2018. The following companies saw a decrease of over 500,000 dth/day.
Sequent Energy Management, which saw the greatest decline, is a subsidiary of Southern Company and provides asset management for its utilities, except Nicor Gas. The decline in the capacity it represents in AMAs can be attributed to the sale of Elizabethtown Gas and Elkton Gas to South Jersey Industries, Inc. As a result, South Jersey Industries’ subsidiary, South Jersey Resources Group, has taken over these agreements.
The key feature of this marketplace is how fractured it is. The leader in the marketplace as of the first quarter of 2019 held just over 5% of the market, and the top ten asset managers, together, held less than 40%.
Insights Coming Soon
- Quarterly Contract Developments and Review of Pending Rate Cases
- Update on TPG rate case