Thursday, February 7th 2013 - 21:53 UTC

Aubrey McClendon and the Destruction of the Natural Gas Market

Aubrey McClendon is gone – or at least he's on his way out from Chesapeake energy (CHK). But the destruction of the natural gas market, where he was the ringleader in the shale gas land grab and cratering well price, is his real legacy, and not likely to be recovered from anytime soon. While Aubrey will now go into a very wealthy retirement, he leaves behind a decimated market and a long road to making natural gas a true transition fuel to energy independence and a renewable future.

McClendon made himself the best paid CEO in the US

The market failed us, failed all of us as a nation – because it couldn't prevent McClendon and Chesapeake from poking holes randomly through Texas and Western Pennsylvania in search of shale gas and ultimately flooding the market with it, cratering the price and its profitability. And it is margins and profitability that make markets work.

And while McClendon made himself the best paid CEO in the nation, he assured us that our necessary and important transition to natural gas would be made much more difficult, if not impossible: you just cannot support innovation without profits. It is not just “cheap gas” that is the answer to spurring economic growth, grow manufacturing and sell natural gas as a transport fuel or even as an export fuel here in the US – it is margins and it is profits.

And Chesapeake destroyed that for everyone in the gas game (and destroyed themselves too), with forced development of leases, multiple joint ventures with foreign oil companies, over leverage, over production and destruction of shareholder value to the benefit of the CEO. Natural gas is no longer a good business to be in, there are too many players, too many wells and no ready demand sources to soak up the surplus. We are further away from a natural gas future, a cleaner, greener and more independent future, and we have Aubrey McClendon to thank.

So, good riddance to the “Bernie Ebbers of Energy” – but where does that leave us in natural gas? We have a surplus not likely to end anytime soon and a price that will languish well under “excitement” levels for those that explore and produce. Without that excitement, you'll not see any incentive to fundamentally move any closer to a natural gas future, either as a transport or as a further supplement into the electrical grid. It may be counterintuitive but true: cheap gas hasn't done anything to promote gas. Recent proposals to convert LNG import terminals into export plants are a bizarre market reaction to a natural gas BUST – and a silly solution to what really is a US natural resource bonanza.

But that legacy is what we're saddled with now, and makes practically everything in the natural gas space difficult to invest in. I haven't recommended a natural gas company (save for EnCana at an opportune low) and won't until the numbers in the market can generate some excitement again. I have no interest in E+P in natural gas, or even transport and do not believe in much in the projected export business, save for Cheniere (LNG), the lone working export terminal here in the US.

For 2013 at least and perhaps through 2014 as well, natural gas will greatly under perform almost everyone in the rest of the energy sector – and that's the unfortunate legacy of Aubrey McClendon.

By Dan Dicker of Oilprice.com

This report is part of Oilprice.com's premium publication Oil and Energy Insider. Oil & Energy Insider gives subscribers an information advantage when investing, trading or doing business in the energy sectors. Successful investors, hedge funds and senior executives, have access to high level intelligence and power in ways that you, as an individual investor, are locked out of (the game is and never has been fair.) Let us help you level the playing field by using our network of traders, intelligence assets and high level partnerships to ensure you are making the right investment decisions.
 

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1 Think (#) Feb 07th, 2013 - 10:15 pm Report abuse
TWIMC

Oil Industry article says....:
“It is margins and profitability that make markets work.”

And Silly me that always thought that....:
“It is competition that makes markets work.”
2 DanyBerger (#) Feb 08th, 2013 - 06:45 am Report abuse
Another US tragic story...

Poor people from world power to a big source of laugh...
3 Captain Poppy (#) Feb 08th, 2013 - 04:20 pm Report abuse
dumburger....your predecessor troll possessed better English than you.
4 ChrisR (#) Feb 10th, 2013 - 08:00 pm Report abuse
But isn't this what TMBOA wants?

Dead Cow promises (no technique available to win the gas) AR to provide ALL the gas energy for years to come.

But we all know what will happen with the present goons that are in the government don't we? It will be a FUBAR of gigantic proportions and only TMBOA will come out with any money as history repeats itself AGAIN!
5 DanyBerger (#) Feb 10th, 2013 - 09:48 pm Report abuse
US shrinking and shrinking sad but so true.

I feel sorry for these poor souls like YankeeLadyBoy and Crap Tain PooPY ...

Once a superpower and now has less influence than Israel in Iran.

It is not sad?

I don't really know how these 2 guys can resist so much humiliation.

I cannot even think the kind of humiliation they will suffer when Yankee and Crap Tain PooPy have to clean toilettes in Tijuana for $0.50 per day.

But not all is so bad at least sure the Mexican will pay an extra $0.10 to hear Yankee and Crap Tain telling wonderful stories from US when they were so rich and so respected in the world...
6 Captain Poppy (#) Feb 11th, 2013 - 12:24 am Report abuse
You obviously know the wages based on your salary dumburger.

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