Top US Natural Gas Drillers Seek to Remove Middlemen From Sales

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(Bloomberg) — Expand Energy Corp. and EQT Corp. are trying to displace traders that act as middlemen so the biggest US natural gas drillers can reap bigger profits from their output.

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Expand has increased its staff of marketers and related positions by 50% to 60 in the past year to strike more supply deals with end users that have typically relied on trading houses and other middlemen. The largest domestic gas producer also is shifting corporate headquarters to Houston from Oklahoma City to be closer to potential customers.

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The new hires have included marketer and researchers tasked with signing supply agreements with smaller regional markets, rather than selling gas into larger hubs where a tier of middlemen often close the gap with utilities, manufacturers and other end users, said Interim Chief Executive Officer Michael Wichertich.

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Expand plans to continue growing the team as its works to expand into Southeast markets and increase utilization of underground storage to capture seasonal arbitrages, Wichterich said during an interview at the CERAWeek by S&P Global conference in Houston.

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He acknowledged that long-term agreements with regional hubs carries some risk because demand may not materialize when and where expected. But Expand’s broad footprint provides a market-intelligence advantage that will help it trade more effectively than some competitors, he noted.

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“We’re seeing the flow of real data and real customers because I know when my wells are on and when they’re off,” Wichterich said. “If something goes down, I probably know about it before everybody else.”

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As for EQT, the company is pursuing more long-term deals with power plants and LNG exporters, as well as focusing more on reducing pipeline-transportation costs, CEO Toby Rice said.

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It’s a break from the past for an industry that since deregulation in the late 20th century has been characterized by passive price taking and squeezing costs out of operations. Rice said he’s eager to capture the “pretty good margins” that the middlemen have been reaping. 

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To the extent the drillers succeed in elbowing aside the merchants, “this will probably mean less business for the large trading houses,” said Leo Mariani, an analyst at Roth Capital Partners.

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Still, Wichterich doesn’t think commodity trading houses are “particularly worried” about shale companies getting more aggressive about marketing. Most of those firms’ profits, after all, come from taking large speculative bets, something drillers are usually loathe to attempt.

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“But we are taking away their easy money,” he said.

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