All industries change over the years to different markets and companies must shift to meet the demands of the customers. In the world of oil and gas, particularly gas has changed from heating homes and making electricity (less expensive than coal) to liquefied natural gas (LNG). The shift generally involves heavy infrastructure spending which limits the number of players involved due to the cost of the refinery plants. The refineries can easily cost into the billions of dollars, so when politicians say they want more, who is paying for them?

In an article by Arunima Kumar and Arathy Somasekhar of Reuters two large gas companies have decided to merge to create the largest independent US natural gas producer. The 2 companies are Chesapeake Energy and Southwestern Energy. The larger output from the combined company will improve the company’s position as it relates to unlocking and securing additional LNG opportunities according to Matt Portillo, an equity analyst at Tudor Pickering & Holt.

Thanks to shale production, US gas production has jumped well above domestic demand, pushing up inventories and reducing profits at gas producers. Most of Southwestern production is in Appalachia’s shale formations in the US East and in the Haynesville shale basin close to US LNG export plants in East Texas and Western Louisiana.

New to the industry are gas plants being built on the coast in Mexico. About an hour’s drive south of San Diego, California is Ensenda, Mexico and the Energia Costa Azul a $2 billion liquid natural gas refinery is being built which will connect to gas pipelines to send the LNG to India, China and wherever else there is a demand. With this refinery and others in the planning stage, Mexico would become the world’s 4th largest exporter of gas, although most of the gas will come from the US. Each terminal is expected to be in operation for decades.

If the deal goes through, shareholders in Chesapeake will own 60% of the company and its likely the company will be changing its name.

Linking to dividend paying stocks, companies change to reflect changes in markets. In a commodity-based business, supply and demand are the key to the reason for changes. When supply for domestic markets, prices fall and companies look to export or in this case LNG to stabilize and grow their revenues. Similar to many industries, it is easier said than done because of infrastructure concerns. In this case where the refinery plants are and where the commodity is found. It is often less expensive to merge.

There are more questions than answers, till the next time – to raising questions.