Dismal domestic natural gas prices have hurt industry revenue
Los Angeles, CA (PRWEB) August 22, 2013
The Natural Gas Distribution industry in Canada has been leaking revenue over the past five years, due to dismal domestic natural gas prices. According to IBISWorld Industry analyst David Yang, “in the five years to 2013, Canadian natural gas prices are expected to fall due to the North American shale gas boom”. In response to falling natural gas prices, government utility regulators cut gas rates charged to consumers. Additionally, wholesale gas prices rapidly dropped, because gas marketers and brokers quickly underbid each other in an attempt to attract more customers. In contrast to prices, natural gas consumption was stable over the past five years, though it suffered some setbacks following the recession. Industrial gas demand slowed because the manufacturing sector contracted during the recession. The depressed housing market also limited residential gas consumption. Nevertheless, natural gas is a necessity for nearly all sectors of the economy, which supported stable consumption levels. Moderate consumption growth was unable to make up for rapidly deteriorating prices. IBISWorld expects industry revenue to fall an average 8.9% per year to $18.3 billion over the five years to 2013, mostly matching Canadian natural gas price trends. Revenue is estimated to rise 22.5% over 2013, because a recent contraction in natural gas extraction is anticipated to bolster prices over the year.
Over the next five years, IBISWorld forecasts that industry revenue will rise. Canadian gas prices are projected to increase due to pipeline infrastructure expansion, which makes it easier for gas extractors to export gas to international markets. “As a result, domestic gas prices will converge upward to global gas prices”, says Yang. Wholesalers will also have more arbitrage opportunities, because the pipeline expansion improves the ease of transportation gas across the country.
The Natural Gas Distribution industry is characterized by a low level of market share concentration. Extensive provincial regulations make it difficult for any one firm to dominate the national market. Instead, large natural gas distributors typically operate within a single province. Additionally, there are a large number of medium-sized natural gas marketers and wholesalers operating in this industry. Gas marketers purchase natural gas in bulk from gas extractors and wholesales gas to utilities, manufacturers and other bulk consumers. Gas marketers require sufficient capital to procure natural gas in bulk, but face minimal capital costs otherwise. Moderate start-up expenses have allowed a relatively large number of gas marketers to participate in this industry, thereby driving down market share concentration. Nevertheless, industry concentration has increased over the past five years due to dismal natural gas prices. Falling domestic gas prices cut into industry revenue and profitability, creating a more difficult operating environment for smaller firms. Consequently, these firms consolidated or exited industry. The top three companies in the industry are Enbridge Gas Distribution, Spectra Energy, and Gaz Metro.
For more information, visit IBISWorld’s Natural Gas Distribution in Canada industry report page.
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IBISWorld industry Report Key Topics
This industry distributes natural gas to manufacturers, businesses and consumers through utility gas pipelines. Industry establishments are also comprised of natural gas marketers, who purchase and sell natural gas on wholesale markets. This industry does not include long distance gas transportation firms.
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