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.
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 U.S. — 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 U.S. 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 underperform almost everyone in the rest of the energy sector — and that's the unfortunate legacy of Aubrey McClendon.