Natural Gas Distribution & Marketing
Description
Companies in this industry operate natural gas distribution systems that serve customer locations, broker the sale of gas to distributors, and buy natural gas and directly distribute it to customers. Major companies include CenterPoint Energy, NiSource, and Sempra Energy (all based in the US); Centrica (the UK); Engie (France); GasTerra (the Netherlands); Gazprom (Russia); and Naturgy (Spain); as well as the natural gas distribution subsidiaries of US companies such as Dominion Energy and Duke Energy.
Global consumption of natural gas in 2023 amounted to about 4 trillion cubic meter, according to Statista. Natural gas consumption has increased by 36% in 2023 due to economic growth driven by exports and industrial use, according to the US Energy Information Administration. Growth in natural gas consumption is strongest in emerging markets, including China and India.
The US natural gas distribution and marketing industry includes over 2,500 establishments (single-location companies and units of multi-location companies) with combined annual revenue of more than $100 billion.
Natural gas producers are covered in the Oil & Gas Exploration & Production industry profile. Companies primarily engaged in pipeline transportation of natural gas from production sites to distribution systems are covered in the Natural Gas Pipelines industry profile.
COMPETITIVE LANDSCAPE
Demand for natural gas is driven by energy use, which in turn is influenced by overall economic activity. The profitability of natural gas distributors depends largely on the efficiency of their operations, because prices typically are fixed by public utility commissions (PUCs). Companies that operate multiple distribution networks may enjoy economies of scale in purchasing. Small companies can compete effectively through a strong regional presence. The US industry is highly concentrated: the 50 largest companies account for about 90% of revenue.
Economic downturns can impact gas distribution and marketing operations. During the 2020 COVID-19 pandemic, gas companies saw decreased demand from industrial and commercial customers due to stay-at-home orders. Many utilities expanded residential service assistance programs to keep unemployed workers from being disconnected.
Distribution utilities have limited exposure to competition due to natural monopolies and high barriers to entry. Utilities are awarded long-term franchise contracts by counties and municipalities, allowing them to operate gas transmission and distribution facilities in a given service territory. Infrastructure maintenance is a major expense. In deregulated markets, consumers are able to shop for a gas supplier, though distribution duties remain with the local utility. A majority of US states have some form of gas deregulation, though it may be restricted to certain territories or offered only to large consumers. Some states with deregulated markets have little to no participation.
Due to domestic production increases, the US was a net exporter of natural gas in 2017 (and again in 2018) for the first time in 60 years. The US exports natural gas to more than 30 countries; gas shipped by pipeline to Mexico accounts for more than 60% of exports. A portion of exports consist of LNG (liquefied natural gas) or CNG (compressed natural gas) exported on ships or trucks. Nearly all imports of natural gas come by pipeline, primarily from Canada. LNG, mainly from Trinidad and Tobago, accounts for about 3% of natural gas imports to the US.
PRODUCTS, OPERATIONS & TECHNOLOGY
Natural gas distribution and support services accounts for about 60% of industry revenue, while power marketing and brokering accounts for about 40%.
Natural gas distributors buy gas from producers or gas marketers and distribute it to local customers via networks of pipelines. Gas is moved from production regions via high-pressure transmission pipelines to gate stations operated by local gas utilities, where flow rates are measured, pressure is reduced to distribution levels, and odorants are added so that consumers can smell gas leaks. Distribution lines get smaller as they near customers, further reducing pressure.
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), 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.
Global consumption of natural gas in 2023 amounted to about 4 trillion cubic meter, according to Statista. Natural gas consumption has increased by 36% in 2023 due to economic growth driven by exports and industrial use, according to the US Energy Information Administration. Growth in natural gas consumption is strongest in emerging markets, including China and India.
The US natural gas distribution and marketing industry includes over 2,500 establishments (single-location companies and units of multi-location companies) with combined annual revenue of more than $100 billion.
Natural gas producers are covered in the Oil & Gas Exploration & Production industry profile. Companies primarily engaged in pipeline transportation of natural gas from production sites to distribution systems are covered in the Natural Gas Pipelines industry profile.
COMPETITIVE LANDSCAPE
Demand for natural gas is driven by energy use, which in turn is influenced by overall economic activity. The profitability of natural gas distributors depends largely on the efficiency of their operations, because prices typically are fixed by public utility commissions (PUCs). Companies that operate multiple distribution networks may enjoy economies of scale in purchasing. Small companies can compete effectively through a strong regional presence. The US industry is highly concentrated: the 50 largest companies account for about 90% of revenue.
Economic downturns can impact gas distribution and marketing operations. During the 2020 COVID-19 pandemic, gas companies saw decreased demand from industrial and commercial customers due to stay-at-home orders. Many utilities expanded residential service assistance programs to keep unemployed workers from being disconnected.
Distribution utilities have limited exposure to competition due to natural monopolies and high barriers to entry. Utilities are awarded long-term franchise contracts by counties and municipalities, allowing them to operate gas transmission and distribution facilities in a given service territory. Infrastructure maintenance is a major expense. In deregulated markets, consumers are able to shop for a gas supplier, though distribution duties remain with the local utility. A majority of US states have some form of gas deregulation, though it may be restricted to certain territories or offered only to large consumers. Some states with deregulated markets have little to no participation.
Due to domestic production increases, the US was a net exporter of natural gas in 2017 (and again in 2018) for the first time in 60 years. The US exports natural gas to more than 30 countries; gas shipped by pipeline to Mexico accounts for more than 60% of exports. A portion of exports consist of LNG (liquefied natural gas) or CNG (compressed natural gas) exported on ships or trucks. Nearly all imports of natural gas come by pipeline, primarily from Canada. LNG, mainly from Trinidad and Tobago, accounts for about 3% of natural gas imports to the US.
PRODUCTS, OPERATIONS & TECHNOLOGY
Natural gas distribution and support services accounts for about 60% of industry revenue, while power marketing and brokering accounts for about 40%.
Natural gas distributors buy gas from producers or gas marketers and distribute it to local customers via networks of pipelines. Gas is moved from production regions via high-pressure transmission pipelines to gate stations operated by local gas utilities, where flow rates are measured, pressure is reduced to distribution levels, and odorants are added so that consumers can smell gas leaks. Distribution lines get smaller as they near customers, further reducing pressure.
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), 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.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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