American Gas - May 2014 - (Page 15)

In the five years leading to 2014, IBISWorld reports, sector revenue sagged an average 1.4 percent a year to $158 billion. The revenue fall-off was driven by annual price erosion of 1.7 percent resulting from the shale-gas boom and the economic recession, which crimped both prices and demand. Yet profits rose during the period, IBISWorld notes. While the retail prices distributors charge to end users fell 1.7 percent a year, the city-gate prices distributors pay fell 3.5 percent, protecting margins. "Retail gas rates are regulated by public utility commissions," David Yang, IBISWorld analyst, told American Gas. "In contrast, city-gate prices are unregulated [and] determined by the market.... When wholesale/wellhead prices plummeted after the shale-gas boom, citygate prices also quickly dropped." Distributors trimmed workforce and slowed capital expenditures after a period of heavy infrastructure investments, further lifting profits, Yang adds. In the past two years, he says, the industry recovered strongly, with gas prices climbing in response to slower production. Revenue leapt 17.2 percent in 2013 and is pegged to expand 2.2 percent this year. Looking forward to the next five years, IBISWorld says gas production will slow while infrastructure investments boost exports. As a consequence, regulators will set higher retail rates, and upstream extractors will be able to charge higher prices on export markets. Overall, IBISWorld expects gas prices to rise 4.4 percent in 2014 and an average 6.9 percent a year through 2019. City-gate prices should increase an average of 4.9 percent a year. The firm expects that wage costs will grow at 2.4 percent a year, and capital costs should also grow slowly. At the same time, consumption by power generators, industrial users, and residential users should expand gradually with the economy. A demand increase of 2.1 percent is expected to help lift revenues by 5.6 percent in 2015. Overall, says IBISWorld, revenues will grow 5.4 percent a year to $205.5 billion in 2019. Profits are expected to increase by about 6 percent a year during the same period. -E.S. What is it that makes A.Y. McDonald the #1 Name in Gas Distribution products? It's A.Y. McDonald Pride - pride in our products, our service, and most of all, our people. It's over 150 years of knowing that every member of our company family takes pride in their job - from the people assembling our meter bars, to the customer service representatives who answer the phone when you have a question, to the engineers who design the most innovative products in the industry. Our pride is what sets us apart and makes us the #1 Name in Gas Distribution products. Tami Eastlick 15 Years of Service G A S VA LV E S | W AT E R W O R K S | P L U M B I N G VA LV E S | P U M P S A.Y. McDonald Mfg. Co. 800.292.2737 | FAX 800.832.9296 | sales@aymcdonald.com | www.aymcdonald.com may 2014 AmericAn GAs 15 http://www.aymcdonald.com http://www.aymcdonald.com

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American Gas - May 2014