16 Aggregation of demand and supply allows marketers to diversify the risk of demand and supply mismatch. This risk arises when market participants with different demand characteristics try to match supply and demand individually. Marketers are able to pool the risks of contracts in one portfolio that gives them flexibility to adjust purchasing or selling strategies in response to changes in the market. The larger a marketer's portfolio, the better able the marketer is to diversify individual supply and demand risks.

Marketing companies constitute a dynamic segment of the U.S. natural gas industry. Producers, local distribution companies, and large end users have found trading through marketing companies beneficial because marketers offer both traditional gas supply services and a large variety of hedging instruments that reduce price and supply risks. The first marketing companies emerged in the late 1980s, but their numbers surged after implementation of Order No. 636. Producers, pipeline companies, and local distribution companies formed marketing subsidiaries that took over natural gas acquisition and sales from the parent companies. The share of deliveries arranged by marketers increased from 20 percent in 1987 to 49 percent in 1995 (Interstate Natural Gas Pipeline Association of America 1993 and 1996).

The efficiency of trading intermediated by marketers depends on the fees they charge for services. The U.S. gas marketing segment is very competitive. Marketing fees and operations are liberalized, and the segment is open to entry. Marketing firms compete fiercely for market share and customers. The increasing complexity of natural gas markets has forced marketing companies to expand and diversify in order to accommodate their clients' diverse needs. In 1995 and 1996 the marketing segment experienced a wave of mergers and acquisitions intended to achieve "operating economies of scale, superior databases and the ability to offer superior risk management products" _(Energy Online Daily News,_ February 27, 1996).

The restructuring of gas marketing has increased the market shares of the top competitors. For example, Chevron Corporation and NGC, the second and sixth largest gas marketers, merged in 1996 to create the largest marketing company in the United States, with average daily sales of 10 billion cubic feet. Similar mergers took place between other large players, increasing the concentration of sales. While the top 10 marketers arranged average daily sales of about 31 billion cubic feet, or 42 percent of U.S. daily consumption, in 1994, the top four marketers accounted for this volume in 1996 (U.S. Department of Energy 1996). This market concentration leaves little room for small marketing companies. But small marketers play an important part in local markets, where they meet the needs of local customers that are not commercially attractive to major marketers.

_Market Centers and Spot Markets_ The liberalization of natural gas prices and increasing flexibility in the natural gas market have promoted the development of market centers and hubs. Transactions in the wholesale market have gradually moved from wellheads or consumption sites to hubs at major interconnections of interstate and intrastate pipelines. Hubs were formed and are typically operated by one or several interstate pipeline