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Merger activity quadruples in the natural gas industry Specific objectives of mergers vary, but many share the goal of expanding beyond a single commodity or a single function to become a “one-stop energy center” By the Energy Information Administration U.S. Department of Energy
The value of mergers and acquisitions within the natural gas industry has risen nearly four-fold in this decade, from $10.4 billion in 1990 to $39 billion in 1997. This increase parallels an enormous surge in corporate combinations — including mergers, acquisitions, joint ventures and strategic alliances — across the energy sector, from $21.4 billion in 1990 to $106.4 billion in 1997, and then, with the announcement of such blockbuster combinations as British Petroleum with Amoco and Exxon with Mobil, to $220 billion in 1998.
The growth in natural gas industry combinations does not indicate a decrease in competition. For example, between 1992 and 1997, the share of sales by the top four marketers declined by one-third to 21 percent, while their sales volumes more than doubled. Sales by the top 20 slipped only from 69 to 66 percent but sales volumes more than tripled to 40 trillion cubic feet.
These results were released Jan. 12 by the EIA in an analysis entitled “Mergers and Other Corporate Combinations in the Natural Gas Industry.” Merger wave continues The current wave of corporate combinations appears set to continue as companies throughout the energy sector jockey for position not only in North America but worldwide with both the number and size of combinations increasing.
Nevertheless, combinations in the energy sector remained a relatively small part of corporate combinations in general, representing only about 11 percent of the total value of all combinations in 1997.
Corporate combinations in the natural gas industry have become an integral part of the strategies developed to address changing conditions in the industry. Specific objectives behind the combinations vary, but many share the goal of expanding beyond a single commodity or a single function to encompass a broad spectrum of energy sources, products, and services, thus becoming a “one-stop energy center.”
Under governmental scrutiny Corporate combinations remain under close scrutiny by both federal and state regulatory agencies, particularly to see whether the resulting entities would exert undue market power and to insure benefits to consumers.
Regulatory oversight of corporate combinations, particularly at the state level, often results in mandated savings, rate freezes, caps on the ability of the utilities to recover stranded costs, and other cost limitations and savings-sharing mechanisms, and consumers benefit if savings are passed on to them.
For example, in the merger between New York based Consolidated Edison and Orange & Rockland in New Jersey, the Public Utilities Commission required the companies to pass on to the customers the estimated savings from the merger of $50 million per year.
In other cases, such as the merger of Delmarva Power & Light and Atlantic Energy that formed Conectiv, state agencies have required rate freezes or rate reductions.
This analysis is contained in the second released portion of an upcoming report, “Natural Gas 1998: Issues and Trends,” expected to be published in February. It may be accessed electronically from EIA’s world wide web site at: http://www.eia.doe.gov/oil_gas/natural_gas/analysis_publications/natural_gas_1998_issues_and_trends/it98.html
Printed copies of the full report will be available from the U.S. Government Printing Office 202 512-1800 or through EIA’s National Energy Information Center 202 586-8800.
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