Consolidated Natural Gas Company

CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222
U.S.A.
(412) 227-1000
Fax: (412) 227-1304

Public Company
Incorporated: 1942
Employees: 7,753
Sales: $2.71 billion
Stock Exchange: New York

Consolidated Natural Gas Company (CNG) operates one of the largest natural gas systems in the United States. It explores for, produces, and buys natural gas, which it transports to utilities and consumers in the East and Midwest. It owns the largest group of underground gas-storage fields in the nation, and is involved in subsidiary businesses including gas byproducts and oil production.

In the late 1870s, when the companies that later became CNG were being formed, western Pennsylvania held the same promise of profit that the Middle East oil fields were to have 100 years later. The company was founded by the merger of five individual businesses that were formed, merged, or acquired by John D. Rockefeller as a part of his Standard Oil Company, then consolidated to form one of the largest fully integrated producers and distributors of natural gas in the United States. Based on its early history of growth through mergers and reliance on its skills in exploring and developing new gas wells and properties, CNG has been able to expand as a service and distribution company as well as a producer of natural gas.

The companies that became CNG were born of an important by-product of the Standard Oil Company’s search for oil. Standard Oil’s original mission was to find and develop oil in the Appalachian mountains of western Pennsylvania, and early in Standard Oil’s history, Rockefeller saw that natural gas, the discovery of which goes hand-in-hand with oil, was a valuable commodity. Within the first 30 years after Standard Oil’s founding in 1870, Rockefeller had formed and acquired companies that explored for gas throughout the Appalachian basin and piped it to Pittsburgh, Pennsylvania; Cleveland and Akron, Ohio; and other growing industrial centers in the region. Natural gas fueled the nascent iron, steel, rubber, and glass industries. It also provided home heating and, in the early portion of this period, municipal street lighting.

In 1911 the network of natural gas production, transmission, and distribution companies assembled by Standard Oil came under the umbrella of the Standard Oil Company (New Jersey), one of the 34 companies that resulted from the dissolution of Standard Oil that was ordered by the U.S. Supreme Court under the Sherman Antitrust Act. At that time, Standard Oil Company (New Jersey) held four of the five companies that were to form the Consolidated Natural Gas system: The Peoples Natural Gas Company, of Pittsburgh, Pennsylvania, which had been founded in 1885; The River Gas Company, of Marietta, Ohio, which had been founded in 1894; The Hope Natural Gas Company, now known as Hope Gas Inc., of Clarksburg, West Virginia, which had been founded in 1898; and The East Ohio Gas Company, of Cleveland, Ohio, also originating in 1898. Each of these companies remained in the early 1900s as operating units of CNG. They were augmented in 1930 by a pipeline that supplied nonaffiliated utilities in New York state. In 1942 Standard Oil (New Jersey) organized Consolidated Natural Gas Company as a subsidiary and transferred to CNG its natural gas gathering and transmission assets. CNG was spun off as a privately held, independent company from Standard Oil (New Jersey) in 1943 because Standard did not want to be declared a public utility holding company falling under the Public Utility Holding Company Act of 1935.

CNG began its independent corporate history with assets of more than $211 million and with 750,000 retail customers in Ohio, western Pennsylvania, and West Virginia. In its first year as an independent company, it sold 127 billion cubic feet of gas. During World War II defense production created such a demand for natural gas that CNG contracted for the first time to purchase gas, piped from the southwestern United States, to supplement the gas it produced in the Appalachian basin.

In 1947 to cope with the postwar surge in demand, CNG made its first public stock offering, totaling $8.2 million. CNG’s first debenture issue, which totaled $30 million, came in 1948. Postwar growth forced the company into occasional restrictions on gas sales, and proceeds from the equity and debt issues were used to finance the construction of additional pipelines and storage fields.

By the early 1960s CNG had extended its market saturation in northeastern Ohio from Cleveland to the Pennsylvania border with the purchase of Lake Shore Gas Company of Ashtabula, Ohio, and had reached a market share of 92% for space heating and 96% for water heating. At the same time, in pursuing additional supplies of natural gas, CNG in 1957 became one of the first companies to explore and drill in the Gulf of Mexico, and was a lease owner in the gulf by 1962. With a group of partners, CNG purchased 168,000 acres of developable drilling sites in the gulf that year, and in 1966 established a full-scale exploration and production staff in New Orleans, Louisiana, to become the operator on many of its leases. By 1972 the New Orleans office was made into a subsidiary, CNG Producing Company.

CNG formed Consolidated Natural Gas Service Company, Inc. in 1961 to centralize accounting, data processing, employee relations, marketing, and rate and tax administration functions. In 1965 CNG merged its Hope and New York State Natural Gas interstate pipeline companies to form Consolidated Gas Supply Corporation, now known as CNG Transmission Corporation. CNG Transmission Corporation continues to supply gas to CNG’s six distribution companies and sells gas at wholesale to utilities throughout the northeastern United States. In 1969 CNG acquired the West Ohio Gas Company, of Lima, Ohio, along with its 50,000 customers.

In the early 1970s CNG and its competitors were faced with shortages of natural gas supplied from the southwestern United States. The company established CNG Producing Company to pursue new production sources and Consolidated System LNG Company to import liquefied natural gas (LNG) from Algeria and convert the LNG back to gas.

The record cold winter of 1976-1977 led the U.S. Congress to pass the Natural Gas Policy Act of 1978. CNG, which by then had plentiful gas supplies, expected the act to encourage conservation. At the same time, the steel industry, an important GNG customer, was undergoing an historic contraction. This prompted CNG to develop nontraditional markets for gas and its other services. In 1979 CNG became the first gas utility company to sell significant amounts of gas and associated storage to neighboring pipelines and utilities, and later sold independent storage services.

CNG, like the United States in general, developed an over-supply of natural gas by the mid-1980s. That oversupply, worsened by a string of unusually warm winters, led to declining gas and oil prices, and produced a trying time for CNG. Profits remained flat or fell off while corporate revenues reached peak levels, cresting at $3.5 billion in 1984. Despite this difficulty, CNG continued its exploration and development activities, taking advantage of low costs to build reserves and to increase its drilling prospects. CNG made a major find of oil at Cottonwood Creek in Carter County, Oklahoma, in 1988. It was the second-largest oil- and gas-producing well in the history of Oklahoma, with production levels of 3,700 barrels of crude oil per day and 2.9 billion cubic feet of gas per day. The company centralized all of its drilling in the Appalachian region under the CNG Development Company, a non-utility subsidiary established in 1982 and, in 1990, merged CNG Development with CNG Producing, which then oversaw all of the company’s drilling programs in the Appalachian basin, in the Gulf of Mexico, and in other areas.

In 1983 CNG negotiated agreements with a group of utilities in New England, New Jersey, and the New York City metropolitan area, under which CNG would sell gas at wholesale prices to the utilities. Those negotiations produced contracts to supply 20 utilities with a total of up to 39 billion cubic feet of gas annually. Deliveries began in 1984. In 1988 CNG expanded its market again, beginning deliveries of gas under 20-year contracts to utilities in Washington, D.C.; New York City; and Baltimore, Maryland.

Although CNG’s year-to-year profitability was volatile, the company provided a 24% average annual return to investors during the 1980s and by January 1990 had a 98% saturation of its traditional distribution area. At that point, it moved to expand this area by acquiring Virginia Natural Gas, Inc., of Norfolk, Virginia, from Dominion Resources Inc. for $160 million. This gave CNG access to a fast-growing and economically diversified region. It also required a 162-mile pipeline extension, construction of which began in early 1990.

CNG has always depended on the discovery and successful exploitation of supplies of natural gas. To cope with peaks and valleys in natural gas demand, CNG has developed a system of storage for the gas it produces throughout the year. Since 1937 CNG has led the United States in natural gas storage capacity. The capacity was developed through conversion of depleted Appalachian gas fields into 26 underground storage pools. CNG also has used its storage capacity as a new source of revenue. It provided 128 billion cubic feet of storage service to other companies in 1990.

Gas distribution, historically the company’s core business, accounted for $102.1 million of CNG’s 1990 operating income, a 16% decline from the previous year, due to abnormally warm weather in its service areas. The income came on sales of 125.2 billion cubic feet of gas to industrial customers and 185.9 billion cubic feet of gas to residential customers, both down slightly from 1989, while sales to commercial customers were 80.8 billion cubic feet, about the same as in 1989.

Gas transmission activities contributed $74 million to the company’s operating income in 1990, compared with $64.9 million in 1989. The increase resulted from the positive impact of a rate settlement case, higher transportation rates, and higher prices for by-products and lower income taxes, all of which combined to offset reduced demand.

To enhance its position in this area of service, CNG embarked on a five-year, $900 million capital improvement program in 1990 aimed at adding transportation and storage facilities. This program was the largest single investment in the company’s history and was financed partly through the company’s first stock offering since the 1950s. CNG has won praise from the investment community for its conservative finances, including a generally low amount of debt.

Throughout its history, CNG has grown by providing a basic utility service to its residential, industrial, and commercial customers under the direction of its conservative management. Through considered acquisitions, measured capital expansion, and the exploration and development of oil and gas resources, the company won a high ranking in the industry. With its transmission and storage facilities expansion under way, and with the wellhead price of natural gas expected to rise through the 1990s as resources become depleted, CNG seems to be headed for increasing profits.

Principal Subsidiaries

CNG Transmission Corporation; The East Ohio Gas Company; The Peoples Natural Gas Company; Virginia Natural Gas, Inc.; Hope Gas, Inc.; West Ohio Gas Company; The River Gas Company; CNG Producing Company; CNG Energy Company; CNG Trading Company.

—Bruce Vernyi