Shell Oil makes move to natural gas service

HOUSTON -- In what could be a trendsetting move for the petroleum industry, Shell Oil is moving from the gas pump to the gas meter, beginning in Georgia.

Shell and the rest of the oilpatch may be reeling from a collapse in crude oil prices that has made a gallon of Coca-Cola twice as expensive as a gallon of gasoline. But the U.S. operating company for the Royal Dutch/Shell Group reports positive results from marketing natural gas in Georgia after four months.

Alan Raymond, president of Shell Energy Services, said the sales model and infrastructure established for Georgia will be carried over to other states. "One could not afford to do this business just for the state of Georgia," Raymond said. "We see this as a national business. As states restructure, we'll be there." Shell last month was certified to market both natural gas and electricity in Pennsylvania. Raymond added that New York, New Jersey, Michigan, Ohio and Texas "are all on our radar screen." Shell is rolling out its Georgia marketing effort with limited local on-the-ground presence. The nerve center is a suite of offices in downtown Houston, one block from the pink granite corporate headquarters at One Shell Plaza. The call center for natural gas sales and customer service is at a Syracuse, N.Y., telemarketing company. The company's one full-time employee in Georgia, sales manager Timothy Sheehan, works out of an office in his northwest Atlanta home. "You don't need to be in Atlanta, or the United States for that matter," Raymond said. "The more economically we can run the business, the lower costs and savings there will be for customers." Under Georgia's deregulation law, Atlanta Gas Light will continue to be responsible for delivering gas to homes and businesses, reading meters and repairing leaks. South Carolina-based Scana Energy, the early market leader, and Georgia Natural Gas Services, AGL's marketing affiliate, boast strong local presences. But Raymond said Shell's assets include its brand recognition, longtime experience with energy and attention to customer service. Shell's yellow pectin symbol is one of the world's best-known logos, right up there with Coke and the Olympic rings. More than 12 million Americans fill up each year at Shell's 9,300 service stations, including 350 in Georgia. Shell Energy can also count on the parent company's huge natural gas reserves, wholesale gas and electricity trading operation, and interstate pipeline company. For example, Ram/Powell, Shell's $1 billion offshore oil and natural gas platform 125 miles southeast of New Orleans in the Gulf of Mexico, produces enough natural gas to meet the needs of AGL's customers. Ram/Powell is just one of 11 deep-water offshore platforms operated by Shell in the gulf. Then there's the more than 8 billion cubic feet of gas traded daily by Shell's Coral Energy subsidiary, one of the top U.S. wholesale gas trading operations. That's enough for 34 million homes. Shell purchases supplies from its affiliates at market rates with no discounts. But executives say the market gained from their "seamless" proximity to Coral Energy is invaluable. Shell Energy `s offices are next door to Coral's 24-hour-a-day energy commodities trading floor. "We can walk across the hall and they won't feel we are spying on them," said Phyllis Borque, Shell Energy's vice president/ operations. Energy marketing is small potatoes in the grand scheme of the 97- year-old global Shell enterprise, with headquarters in London and The Hague in the Netherlands. But it may be one of the few bright spots in an industry that is reeling from a collapse of oil prices to $12-a-barrel lows not seen since the Great Depression. To cope, mergers have been announced to join British Petroleum with Amoco, and Exxon with Mobil. Royal Dutch/Shell Group, which earlier this month announced $3.6 billion in fourth quarter losses, is selling a large chunk of its chemical businesses, forming a marketing alliance with Texaco and eliminating thousands of jobs. Texaco and Amoco have announced plans to get into energy marketing but bypassed Georgia, and Raymond said he has seen "no evidence of their participation" around the country. "I'll bet the other oil companies are watching very carefully what happens to Shell here," said Walter M. Higgins, chief executive officer of AGL Resources Inc., parent of Atlanta Gas Light, which has been a major Shell wholesale customer for years. Shell, which had steered clear of utility businesses because of the regulation that has always come with them, started Shell Energy Services a year ago to take advantage of the start of deregulation of the nation's $300 billion-a-year utility industry. "People in London know about it. It is very important in terms of where the Shell group is going on a global basis," said Walter van de Vijver, president of Shell Exploration & Production, which oversees the marketing venture. He said Shell would not have gotten into the business unless it was clear it could generate $100 million in annual sales. "If we play it right, it can be a very profitable business," van de Vijver said. Shell declines to release Georgia sales figures, but says customer sales are exceeding expectations after four months. The company offers a pricing plan that features guaranteed rates for one year. Danato Eassey, Houston-based energy industry analyst at Merrill Lynch Global Securities, said Shell should be able to realize a "tremendous economy of scale" by entering utility retail energy sales. But, he said, Shell may have to wait as the industry is deregulated at a "glacial pace." Shell's commercial customers in Georgia include McDonald's, Kroger supermarkets, the Cobb County schools system and endorsements from the Georgia Textile Manufacturers Association and Building Owners and Managers of Atlanta. The company is also making a push for residential customers. To profitably market both gas and electricity, Shell will need to add electricity generation, van de Vijver said. Shell has looked at power plants being sold off by deregulating electric utilities and may build its own natural gas-fired power plants but has no interest in acquiring a regulated utility, executives say. "The world is changing, and if you don't adjust, you're not going to be there," said van de Vijver.

Copyright 1999
Provided by ProQuest Information and Learning Company. All rights Reserved.