Natural Gas Distribution
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 2,500 natural gas local distribution companies (LDCs) in the US supply gas for residential usage, commercial usage, industrial usage, and electric power generation. The operations and financial performance of a natural gas distributor are highly dependent on the regulatory structure in which the company operates.
Industry size & Structure
A typical local distribution company has 43-44 employees and annual revenues of $41-42 million.
- About 2,500 local distribution establishments provide natural gas distribution services in the US.
- The natural gas distribution industry is concentrated with the 20 largest firms representing 64% of revenue.
- Large natural gas distribution firms include: ATMOS Energy, NiSource, New Jersey Resources, and Energy Transfer.
- Entry into the business is difficult as a built out pipeline infrastructure (valued in the billions of dollars), approval of the public utility commission, and a demonstrated competence in safety and environmental compliance is required to provide service.
Industry Forecast
Natural Gas Distribution Industry Growth
Recent Developments
Mar 23, 2023 - Price Volatility May Be New Normal
- In 2022, natural gas prices were the most volatile on record, and some industry watchers expect price shocks could become a feature rather than a bug moving forward, according to The Wall Street Journal. Russia’s invasion of Ukraine in February 2022 sent global gas markets reeling as Europe struggled to secure enough supply. European imports of American liquified natural gas (LNG) have linked US gas prices to international events even more than before. Retirements of coal-fired power plants have also contributed to instability in natural gas prices. As more coal capacity goes offline, fewer power plants can switch from gas to coal, or vice versa, based on which one offers the best pricing. Meanwhile, renewables are not coming on fast enough to meet the gap left by coal.
- In weaning itself off Russian natural gas, the European Union sped up plans to build the infrastructure needed to import liquified natural gas (LNG) by sea from the US, Qatar, and other gas-rich nations, but the bloc’s plans may be going too far, according to Politico. The Institute for Energy Economics and Financial Analysis (IEEFA) estimates that if Europe’s current capacity expansion plans (which include Norway, the UK, and Turkey) are carried out, LNG import capacity could reach 400 billion cubic meters (bcm) by 2030. However, the IEEFA notes that the EU’s gas demand is already dropping due to conservation efforts and the shift to renewables. By 2030, Europe’s LNG demand could be as low as 150 bcm, which would leave a huge investment in unused, stranded assets. Countries with the biggest potential mismatches between LNG import capacity expansion and estimated future demand include Germany, Spain, Turkey, France, and Italy.
- In February, the US Energy Information Administration (EIA) reduced its pricing forecast for natural gas amid warmer-than-expected conditions in early 2023. For 2023, the EIA expects the price of natural gas at the Henry Hub to average $3.40 per million British thermal units, down by 47% compared to the average price in 2022. EIA Administrator Joe DeCarolis said, “US natural gas inventories fell by less than our expectations in January because of the warmer-than-average weather. With more natural gas in inventory, we reduced our forecast for natural gas prices over the coming year.”
- In 2023 the US is expected to regain the title of the top global exporter of liquified natural gas (LNG), according to Reuters. Australia captured the lead from the US after a fire in June 2022 at the Freeport LNG terminal led LNG exports to drop by about 2 billion cubic feet per day (Bcf/d). Pending regulatory approvals, the Freeport LNG plant expects to be back online in the second half of January 2023, which should result in the US surpassing Australia as the top global LNG exporter. The US is expected to remain in the lead for some time. Two new US LNG plants in Texas and Louisiana are scheduled to come online in 2024. Australia won’t have new LNG export capacity before 2026, and third-place Qatar’s next plant likely won’t be ready until 2025.
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