The Haynesville shale offers the best prospects for consolidation as US LNG capacity expansion looms, writes Julian Hast
While the US shale oil sector continues to consolidate following major mergers and acquisitions (M&A) activity late last year, meaningful consolidation among US natural gas producers looks unlikely to take place soon owing to historically low, volatile commodity prices and a dearth of large privately-held operators.
The benefits of consolidation among gas producers are the same as for oil producers — owning more acreage grows the inventory of reserves and well sites and allows for economies of scale, such as drilling longer laterals from fewer wells and using existing midstream infrastructure. These perks can make producers more profitable by driving down breakeven rates, or the gas price at which producers' expenses break even with their revenue.
Generally, a strong environment for oil and gas consolidation involves low volatility and prices near the mid-point of the cycle, Enverus analyst Andrew Dittmar says. But US gas prices have been on the low end for more than a year and are highly volatile, particularly compared with US crude. There are also far fewer large, privately-held gas producers than crude-focused ones, Dittmar says. Publicly listed company mergers are more difficult to complete.
US gas prices are currently lower because of persistently high production despite low heating demand this year, pushing inventory levels above average. "I just don't see how these gas producers consolidate in this current price environment," Rystad analyst Ademiju Allen says.
Any gas-focused producer consolidation is likely to be concentrated near the next wave of LNG export terminals entering service along the US Gulf coast — specifically, in the Haynesville basin of east Texas and northern Louisiana. This may be why the most recent high-profile gas acquisition involved Rockcliff Energy, a privately held Haynesville operator, being acquired last month by a subsidiary of Japanese gas supplier Tokyo Gas from private equity firm Quantum Energy Partners for $2.7bn.
It is also far easier to build intrastate pipelines shipping gas from Texas or Louisiana to nearby export terminals than , where appeals to state regulators are highly likely to derail construction. "We don't see, necessarily, a wave coming across Appalachia that would consolidate the industry," Marcellus shale gas producer Seneca Resources chief executive David Bauer said on the company's most recent earnings call in November.
Riding the wave
Gas producers with access to overseas markets expect to sell at a large premium to gas being traded near the Marcellus shale in Pennsylvania and the surrounding states. If there is gas-focused consolidation, it looks more likely to ramp up from mid-2024, some months before the first wave of new US LNG export terminals is due to enter service, Dittmar says.
Prospective upstream gas deals to watch may include Aethon, the Haynesville's largest privately-held gas operator, with estimated 2023 output of 2.7bn ft³/d (27.8bn m3/yr), Rystad data show. At 1.2bn ft³/d, Rockcliff is the second-largest private-sector Haynesville driller, followed by Paloma (520mn ft³/d), Trinity (450mn ft³/d) and Silver Hill (320mn ft³/d).
Developers expect LNG exports from the 27.2mn t/yr Plaquemines LNG terminal in Louisiana to begin at the end of 2024, while first LNG at Texas' 18.1mn t/yr Golden Pass LNG terminal has been pushed back to the first half of 2025. How those terminals' construction timelines shake out could spell hard or happy days for the US gas market and its prospects for consolidation.
