Three of the calls into our office last week came from owners holding gas-weighted acreage, two in the Haynesville footprint and one with a small interest in the Marcellus. None of them asked about LNG. All three were affected by it, whether they knew it or not.
That gap, between what shapes a check and what an owner has heard about, is worth closing.
The short version of a long story
For most of the modern history of American natural gas, the price was a domestic affair. Gas produced in Louisiana competed with gas produced in Pennsylvania for buyers in Chicago, Atlanta, and Boston. Pipelines moved it. Storage fields buffered it. Winter weather and power plant demand pushed it around.
That has been changing for about a decade, and the change has accelerated. The United States is now one of the largest exporters of liquefied natural gas in the world. Liquefied natural gas, or LNG, is simply gas that has been cooled until it becomes a liquid, which makes it dense enough to ship across oceans. Once it arrives at its destination, it is warmed back into gas and sent into a pipeline network on the other side of the world.
The practical effect is that a molecule of gas produced in East Texas now has more places it can go than it did fifteen years ago. Some of it still heats homes in the Midwest. Some of it ends up in Europe or Asia.
Why this matters for an owner who has never seen a tanker
When an industry develops a new way to sell its product, the price behavior of that product tends to shift. Domestic gas prices used to be driven almost entirely by domestic weather, domestic storage, and domestic industrial use. Today, conditions in Europe and Asia have a measurable influence.
A cold snap in northern Europe can pull cargoes that would otherwise have stayed near the Gulf. A warm winter in Asia can do the opposite. None of this changes the basic geology under an owner’s property. It does, over time, influence the price an operator receives for the gas it sells, and that price flows through (after deductions and taxes) to the royalty check.
We are not making a prediction here. Prices move in both directions, and anyone who claims to know which way they are headed next quarter is selling something. The point is simply that the inputs to the price have broadened.
The infrastructure piece
LNG export only works if three things line up: gas to liquefy, a facility to liquefy it, and pipelines to connect the two. The first is plentiful. The second has been built out aggressively along the Gulf Coast, with more capacity under construction and more proposed. The third, pipelines, is where the friction tends to show up.
For owners in basins that already connect well to the Gulf, like the Haynesville in Louisiana and East Texas, the path is short. For owners further north or in the Appalachian region, the path depends on which pipelines have capacity and where they terminate. This is part of why two owners with similar-looking wells in different basins can experience different price realizations at the wellhead. The geography of the pipe matters as much as the geology of the rock.
Associated gas, and why oil-weighted owners should also pay attention
Not all gas comes from wells drilled to produce gas. A large share of American natural gas is “associated gas,” meaning it comes up alongside oil from wells that were drilled primarily for crude. The Permian Basin is the most prominent example. When oil drilling is busy in the Permian, associated gas production rises whether anyone wanted more gas or not.
That has knock-on effects. When local gas production outruns local pipeline capacity, regional prices can soften considerably, even when prices at the major national hubs look healthy. Owners with Permian interests have seen this dynamic show up in their statements over the past several years. It is one of the less intuitive parts of the business, and it is worth understanding even at a high level: the price printed in the newspaper is not always the price the operator receives in a given basin on a given day.
What we tell owners who ask
When an owner calls and asks whether now is a good time to do anything in particular, we resist the urge to answer that question directly. Markets move. Personal situations vary. What we can do is help an owner understand what they actually hold, how their basin connects (or does not) to the larger market, and what the documents in their file mean.
For gas-weighted owners specifically, a few things tend to be worth understanding: which pipeline system the production flows into, how the lease handles deductions for gathering and processing, and whether the property sits in a basin where takeaway capacity has historically been tight or loose. None of these require a finance degree. They do require sitting down with the paperwork and reading it carefully, which is most of what our office does on any given day.
A closing note
LNG is one of those topics that sounds far removed from a rural section of land in Texas or Louisiana or Pennsylvania. The connection is real, though, and it has grown stronger every year since the first export cargo left Sabine Pass.
If questions come up about a specific property, a specific check, or a stack of documents that has not been opened in a while, our office is happy to take a look. No pressure attached. We answer questions for a living, and we are comfortable doing it whether or not anything ever comes of the conversation.