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The Rise and Fall of
Enron |
The rise and fall of Enron is an important, complex story. In its early days Enron did the right things for the right reason and garnered substantial credibility. Later successful operations were replaced with the illusion of successful operations. In the last phases Enron milked its credibility to sustain operations through loans. When its credibility with lenders crumbled the loan funds dried up and the corporation imploded. It is reminiscent of the old cartoon of the wily coyote who runs off a cliff. For a period of time after the coyote leaves solid ground he is suspended and tries by furious windmilling to stay suspended but eventually plummets to the ground. In Enron's case the magical period of suspension after it had left the solid ground of economically profitable operation lasted for years.
The History of the Natural Gas Industry
Natural gas, primarily methane, was originally an unwanted byproduct of petroleum extraction. For many years when an oil well vented gas it was simply flared; i.e., burned off. But people eventually learned the uses and virtues of natural gas and built pipelines to convey it to the cities where it took the place of coal gas for residential and industrial lighting and heating.
The market for natural gas has three major types of economic units: 1. Suppliers, 2. Customers, 3. Pipeline companies. In a competitive market the fluctuations in the supply of natural gas creates fluctuations in the spot market price of gas. Such uncertainty in the price of gas creates problems for the suppliers and customers. The suppliers who are making decisions about exploration for natural gas worry that they may invest in development of fields only to find a downturn in the market price which may result in losses. Customers, such as electrical power generators,