Enron Essay

3797 WordsDec 8, 201316 Pages
Enron’s Unethical Decision Table of Contents • The History of the Natural Gas Industry • The Formation of Enron • The Nature of the Problems • Off-the-Balance-Sheet Financing • Extravagant Corporate Expenditures • The Exploitation of Market Control in the California Electrical Power Market • The Collapse and Bankruptcy • Conclusion 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, face investment choices between equipment to use natural gas or fuel oil. They worry that they may invest in equipment for one type of fuel and later find the alternative would have been more economical. This led to businesses entering into long term contracts for natural gas. It also led to the government trying to eliminate the price uncertainty by price controls. The natural gas industry became heavily regulated. The unavoidable problem

More about Enron Essay

Open Document