Wednesday, September 23, 2009

NPR on Gas: The Rise of the Small Independent

"...Big oil got beat."  That's the last line of the introduction to the second of a three part series NPR's Morning Edition is doing on the changing natural gas industry.  The focus of today's report is how U.S. natural gas came to be dominated by small independent companies.  According to the report, 82% of domestic natural gas is produced by companies with an average of twelve employees.  Big integrated oil companies largely gave up on domestic gas production a long time ago.

This is a fascinating story, and it's uniquely American.  It shows how the persistence of the little guys has created a huge opportunity for everyone.  Two interesting facts from the story that show why the domestic gas industry favors little guys:
  1. Because terrestrial gas wells have rapid decline rates, domestic gas production requires lots and lots of new wells to be drilled.  Big guys don't like that. They want to drill the monster and keep feeding the downhill "value chain."
  2. Most drilling takes place on private land and land owners retain mineral rights, something else that is uniquely American.  That means a land owner can create his own small company.  It also doesn't favor Big Oil because they don't like to have to put thousands of parcels together to make a drilling tract.  They want to bid at auction and nail down a large single tract for a long period of time.
One downside to being a thousand tiny producers is the inability to speak with a single voice concerning large issues like environmental impacts and energy policy.  That will be tomorrow's story.

Check it out: 

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