If one is looking to make an investment in the energy sector an investor would do well to consider the rapidly growing shale oil and gas exploration market in the United States. It has created a Renaissance in American energy production.
Shale gas is a rapidly growing available new source of natural gas. This has become possible because of the utilization of two new processes known as horizontal drilling and hydraulic fracturing technology (fracking).
The number of unconventional natural gas wells is expected to continue to increase until at least 2040. It has been estimated by some analysts that the new supplies being discovered could well last for a century but that has not been proven yet.
The economic success of shale gas in the United States in the last decade has lead to a rapid development of this resource in Canada as well. Exploration has now spread to Europe, Asia and Australia.
In the United States the development of shale resources had created over 600,000 jobs by 2011. By 2020 analysts predict that will increase to 1.7 million. If there is to be a rebirth of American manufacturing there a quite a few analysts that feel that it can only be achieved by two factors. One would be the continuing development of shale gas. The other would be to continue the government practice of not allowing major natural gas exports from the United States. It is quite true, that a rejuvenation of the steel and chemical industries in the US would be dependent on a cheap source of fuel. This is because both industries are energy intensive in manufacturing.
The issue on whether to export natural gas has split the business community. Manufacturers want to keep energy prices low by prohibiting exports. This will benefit the exports of industrial products in general. On the other hand, energy companies want to export this new resource to take advantage of higher prices in Europe and Asia (especially Japan). It must be stated that energy exports abroad especially to Europe, would serve American geopolitical interests at this juncture in history.
It has been estimated that a 25% increase in the supply of ethane (a liquid derived from shale gas) alone could easily add over 400,000 jobs in the United States. It would also bring over $16 billion USD (United States Dollar) in new investment by the chemical industry and over $4 billion USD in new tax revenue.
If relatively cheap natural shale gas continues to be available over 1 million new jobs would be created in the manufacturing sector in the United States by 2025. Over $100 billion USD is going to be invested in the US Petrochemical Industry (much of it in Texas) in the years ahead.
Lower energy costs will benefit the entire economy reducing costs in agriculture and transportation as well as utilities across the United States.
The present boom in the United States was made possible by the long term efforts of the natural gas industry in partnership with the United States Department of Energy. The emphasis was on three different fronts. Exploration was expanded as improvements were made to drilling and extraction.
To show the scale of the rapid expansion in production one can simply look at the yearly increase. In 2008 for example, United States production of shale gas was 2.02 trillion cubic feet (57 billion cubic metres). It was a 71% increase from the year before. In 2009 production would increase by another 54%. Shale gas production on the whole rose by 400% between 2007 and 2010. By 2012 the EIA (Energy Information Administration) in the United States estimated that proven reserves stood at 482 trillion cubic feet (23.4 trillion cubic metres).
Gas output increased in the United States by 20% in 5 years. This made the United States the largest producer in the world. It has been predicted by energy analysts that production in North America mostly centered in the United States will increase by an average of 5.3% a year until at least 2030.
So much gas is now being produced that domestic prices have gone from $13 USD per million British Thermal Units (mmBTU) in 2008 to $ 1-2 USD in 2013. There has been a slight recovery in 2014 because of increased demand, but it has transformed the energy industry in the United States.
The United States has the second lowest world price for natural gas among the developed countries after Canada. American factories pay 1/3 the cost of German factories and ¼ the cost that South Koreans factories incur.
The abundance of cheap shale gas is also keeping electrical rates low as well. American factories are paying half the rate that Mexico and Chile do and 1/4 the rate that Italy does. Prices are now dropping in the United States back to rates last seen in the 1990’s.
Investors both domestically and internationally have taken notice and are pushing ever larger sums of money into energy-intensive industries in the United States. All this activity is lifting American GDP by at least .05% per year. That will translate into hundreds of billions of dollars in new economic activity and millions of new jobs in the next decade.
Shale production is projected to increase from 23% of total gas production in the United States to 49% in 2035. Some of the most promising new activity are in fields such as the Marcellus in the Northeast (Pennsylvania, New York and West Virginia), Haynesville in Louisiana and Texas, and Eagle Ford in Texas exclusively.
The Marcellus field stretches 600 miles and is considered to be the country largest gas field. In 2013 alone, the state of Pennsylvania issued 2,848 permits with 1,365 actually being drilled. Wells just in the Pennsylvania part of the Marcellus produced 895 billion cubic feet (bcf) in the first half of 2012 up from 435 bcf from the same period in 2011. As recently as 2008 there was little or no activity in this endeavor in Pennsylvania.
In 2013 it was estimated that residents of Pennsylvania collected some 1.2 billion in royalties from the new activity in shale gas production. It supports 100,000 jobs in the state already and that will rise to over 200,000 by 2020. It has brought $14 billion USD economic activity to the state in 2013. This is due to rise to over $26 billion USD by 2020. Tax receipts will also rise proportionately which can be factored in the billions.
Other shale gas fields can be found across the United States and Canada. The Bakken being one of the most famous. It is mostly centered in North Dakota but does cross over into Montana and South Dakota as well.
Arkansas, Louisiana, Oklahoma and Texas have all seen the same kind of economic activity.
In the North you can also find Antrim Shale and Collingwood-Utica Shale both in Michigan. This area has been considered one of the most promising new sites. New Albany Shale is found in Illinois, Indiana and Kentucky.
The Devonian Shales are found in the Appalachian Basin. The main producing area is Kentucky, Virginia, and West Virginia. It extends into Ohio and Pennsylvania. The most popular fields are the Chattanooga Shale also known as the Ohio Shale. The Utica Shale field is found in New York and Ohio and stretches into Quebec, Canada.
Gothic Shale can be found in Colorado. Barnett Shale is found in Texas as is Pearsall Shale. In Oklahoma one can find Caney Shale and Woodford Shale.
In the South one will find Conesauga Shale and Floyd Shale both in Alabama and Fayettesville Shale in Arkansas.
The rising supply and overall lower prices for shale gas has led to the construction of new power plants in the United States. It is being done as a replacement for coal fired plants and as a backup for other renewable sources of power like energy derived from wind.
The excitement generated has led to the “Great Shale Gas Rush” of the 21st century in North America. However, it is important to note that in 2013 the 20 largest exploration companies had outspent their income by $29.9 billion USD in 2012 and $11.5 billion USD in 2013. The few companies that are spending less than they make are focusing on smaller and higher quality operations. These profitable companies would include Diamondback Energy Inc, RSP Permian Inc in West Texas, Andarko Petroleum Corp and ConocoPhilips.
As of 2014, in the 9th year of fracking in the United States, many energy companies are still cash flow negative. A number of companies like Antero and Chesapeake Energy (which pioneered the huge land leasing approach), Royal Dutch Shell and Southwestern Energy Co., all predict future profitability.
To be sure, there will be continuing complaints by environmental groups. There have been controversies over supposed uranium exposure and issues concerning water. This would include lack of water infrastructure for fracking and possible contamination concerns. In northeastern Pennsylvania for example, a halt in further development has been declared because of the contention caused by the release of waste water from fracking into local rivers. These water sources serve as consumption reserves for a number of cities including New York City. There is also the release of methane that results from the extraction of the shale gas which concerns some environmental groups as well.
If one is considering an investment in the industry, you could invest in a stock purchase in one or more of the companies involved in the exploration and production of shale gas.
Another option is to invest in an energy fund.
A third choice would be to buy property that more than likely has potential or is already in shale gas production. One would need to do a thorough investigation about gas rights and whether the area is due for development. You will also need to concern yourself with any legal challenges or moratoriums in development of the resource. This is already the case in a number of places in the United States.
The demand for energy will continue to increase in the years ahead so an investment in this sector if carefully researched, is bound to be profitable for the entrepreneur.