28 Jun Rethinking my Natural Gas Approach
If you’ve read my piece on how we approach natural gas lease purchase and development evaluation, you would read that I always “begin at the end”. Simply, I research the local gas purchasers and try to see where their demand for supplying natural gas is coming. Since most wells are drilled in rural areas, a bulk of demand in the not-so distant-past mostly came from single large consumers like manufacturing plants. If the aluminum plant goes, so does the bulk demand…and you won’t get a good price for your gas, or none at all as small towns came and went with the jobs.
Driving through TX for the past few months has made realize I need to change that line of approach.
When I lived in Texas 3 years ago (and on and off for decades), there was urban sprawl, but rural areas were not growing at the pace as those urban areas. Now, as I drive through TX, even small towns with no large employer are having new neighborhoods slapped in! As people move in from other states in droves, they are not simply sprawling, they are purposely moving to smaller communities away from urban centers. This creates consistent natural gas utility demand with little flexibility from the end user on price negotiation. A good business model for stability states it’s better to have many small accounts than 1 big one.
As part of the evaluation process and/or gas gatherer shopping, I’m now looking at permits for residential construction and population trends. If I see this trend for present upcoming demand, I know we may be able to garner a higher price per mcf, even for middle-of-the-road btu gas. I know other areas in the country are experiencing this too so this can be incorporated into other areas we’re in like Kansas and Kentucky.
As a natural gas player, this trend is not only good for lease development now, but I feel it will also help keep prices per mcf up for a few years and we should see stability in a year on market price…and that’s good for everyone!