Energy Transfer 2012 Annual Report Download - page 47

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A significant portion of our sales of natural gas are to industrial customers and utilities. As a consequence of the volatility of
natural gas prices and increased competition in the industry and other factors, industrial customers, utilities and other gas customers
are increasingly reluctant to enter into long-term purchase contracts. Many customers purchase natural gas from more than one
supplier and have the ability to change suppliers at any time. Some of these customers also have the ability to switch between
gas and alternate fuels in response to relative price fluctuations in the market. Because there are many companies of greatly
varying size and financial capacity that compete with us in the marketing of natural gas, we often compete in natural gas sales
markets primarily on the basis of price.
We also receive a substantial portion of our revenues by providing natural gas gathering, processing, treating, transportation
and storage services. While a substantial portion of our services are sold under long-term contracts for reserved service, we
also provide service on an unreserved or short-term basis. Demand for our services may be substantially reduced due to
changing market prices. Declining prices may result in lower rates of natural gas production resulting in less use of services;
while rising prices may diminish consumer demand and also limit the use of services. In addition, our competitors may attract
our customers' business. If demand declines or the effects of competition increases, we may not be able to sustain existing
levels of unreserved service or renew or extend long-term contracts as they expire or we may reduce our rates to meet
competitive pressures.
Revenue from our NGL transportation systems and refined products storage is also exposed to risks due to fluctuations in demand
for transportation and storage service as a result of unfavorable commodity prices, competition from nearby pipelines, and other
factors. We receive substantially all of our transportation revenues through dedicated contracts under which the customer agrees
to deliver the total output from particular processing plants that are connected only to our transportation system. Reduction in
demand for natural gas or NGLs due to unfavorable prices or other factors, however, may result lower rates of production under
dedicated contracts and lower demand for our services. In addition, our refined products storage revenues are primarily derived
from fixed capacity arrangements between us and our customers, a portion of our revenue is derived from fungible storage and
throughput arrangements, under which our revenue is more dependent upon demand for storage from our customers.
The volume of crude oil and refined products transported through our oil pipelines and terminal facilities depends on the availability
of attractively priced crude oil and refined products in the areas serviced by our assets. A period of sustained price reductions for
crude oil or refined products could lead to a decline in drilling activity, production and refining of crude oil, or import levels in
these areas. A period of sustained increases in the price of crude oil or refined products supplied from or delivered to any of these
areas could materially reduce demand for crude oil or refined products in these areas. In either case, the volumes of crude oil or
refined products transported in our oil pipelines and terminal facilities could decline.
The loss of existing customers by our midstream, transportation, terminalling and the storage facilities or a reduction in the volume
of the services our customers purchase from us, or our inability to attract new customers and service volumes would negatively
affect our revenues, be detrimental to our growth, and adversely affect our results of operations.
Our midstream facilities and transportation pipelines are attached to basins with naturally declining production, which we
may not be able to replace with new sources of supply.
In order to maintain or increase throughput levels on our gathering systems and transportation pipeline systems and asset utilization
rates at our treating and processing plants, we must continually contract for new natural gas supplies and natural gas transportation
services.
A substantial portion of our assets, including our gathering systems and our processing and treating plants, are connected to
natural gas reserves and wells that experience declining production over time. Our gas transportation pipelines are also
dependent upon natural gas production in areas served by our gathering systems or in areas served by other gathering systems
or transportation pipelines that connect with our transportation pipelines. We may not be able to obtain additional contracts for
natural gas supplies for our natural gas gathering systems, and we may be unable to maintain or increase the levels of natural
gas throughput on our transportation pipelines. The primary factors affecting our ability to connect new supplies of natural gas
to our gathering systems include our success in contracting for existing natural gas supplies that are not committed to other
systems and the level of drilling activity and production of natural gas near our gathering systems or in areas that provide
access to our transportation pipelines or markets to which our systems connect. We have no control over the level of drilling
activity in our areas of operation, the amount of reserves underlying the wells and the rate at which production from a well will
decline. In addition, we have no control over producers or their production and contracting decisions.
While a substantial portion of our services are provided under long-term contracts for reserved service, we also provide service
on an unreserved basis. If the reserves available through the supply basins connected to our gathering, processing, treating,
transportation and storage facilities decline and are not replaced by other sources of supply, a decrease in development or
production activity could cause a decrease in the volume of unreserved services we provide and decrease in the number and
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