Natural Gas Producer-Marketer Relationship in Perspective

David A. Boger

Each market participant in today's natural gas industry has a distinct relationship with one or several of the other participants. Perhaps the relationship that has witnessed the most significant changes over the past four years has been the one between the Appalachian producer and the independent marketing company. This relationship has blossomed due to a combination of regulatory policies and market conditions.

The three specific advantages tied to a strong producer-marketer relationship are (1) the producers' and marketers' improved understanding of regulatory factors that influence market trends, (2) increased sales options for producers' gas through the marketers' access to end-use markets, and (3) the producers' ability to concentrate manpower on reserve exploration and development efforts by relying on the marketing company to provide a consistent sales market.

Possible disadvantages are also associated with the producer-marketer relationship. Three specific disadvantages are (1) the potential loss of control over where and how the supply is sold due to an overdependence on the marketing company, (2) the possible loss of revenue due to a lower negotiated sale price than if the producer marketed gas directly, and (3) the possible loss of a marketer's sale due to an inadequate gas supply.

Both the producer and marketing company must face some degree of risk when entering together into the competitive arena of natural gas marketing. The advantages associated with such a relationship are based on a strong line of communication and open exchange of knowledge. The relationship often fails or becomes unprofitable for one of the parties when this open line becomes closed. Through a strong relationship, producers and marketers can effectively manage these risks and make educated decisions that will benefit both parties.

AAPG Search and Discovery Article #91031©1988 AAPG Eastern Section, Charleston, West Virginia, 13-16 September 1988.