Industry Information
Natural Gas
The natural gas industry has undergone a rapid process of evolution and growth over the past 15 years. Led by the progressive efforts of gas marketers, end-users, and regulators, the natural gas market has become the leader of the U.S. domestic energy industry. The driving force for change has been the desire of the participants to create an effective and efficient gas industry through competition. Deregulation has been the means for promoting that competition. Deregulation has allowed participants in the U.S. to openly compete in the wholesale, industrial, commercial, and now residential markets for natural gas. The end result of these changes has been the emergence of a commodity market that:
- has a breakout of financial and physical transactions
- is primarily driven by the market of gas as a commodity
- has a multitude of players
- has highly volatile prices, and
- requires a great deal more decision-making by all market players who previously relied upon regulated prices.
In this new deregulated environment, novel integration, electronic communications, rapid consolidations, unprecedented levels of purchasing power, and a whole new view of value-added marketing services, are forcing even the most aggressive firms to closely analyze their own strategies and plans for survival. Traditional ways of competing and much of the conventional wisdom about organizations are being overturned by a convergence of forces:
- information technology is blurring the traditional lines between markets and organizations, while the decision-making is quickening
- natural gas prices are under constant pressure from the end-user marketplace
- technological changes are shortening product life cycles, while customers are demanding higher levels of responsiveness and quality
- organizational arrangements are changing, creating networks and partnerships among suppliers, channel members, and customers, and
- hedging strategies such as options, swaps, and futures contracts are changing the ways firms do business.
The market participants are now actively seeking a means by which to assess, accept, or reject various methods and products to manage their new found risk exposures. During the past several years, the industry has rapidly moved forward in developing a vehicle comprised of innovative financial instruments for managing those risks. Risk management has become this vehicle whereby the industry participants can manage their risks.
