While most people tend to look overseas to learn about the latest civil unrest, there’s a battle raging in our own backyard.
Its outcome will have an impact on every single one of us.
For years, the potential of shale formations has significantly increased. Now, we’ve all heard about the massive shale basins in the United States. It’s nearly impossible not to come across the success seen in North Dakota’s oil industry.
The battle-lines are being drawn right now.
Yet oddly enough, the shale war isn’t being fought over the actual oil and gas resources, but rather over how companies are producing it.
More important – and profitable, for some investors – is how the shale war will end.
Shale Gas Explosion
It’s difficult to dismiss 827 trillion cubic feet of natural gas; yet that’s the amount located in the United States, according to early projections from the EIA’s Annual Energy Outlook 2011.
In case you were wondering, it’s 480 trillion cubic feet larger than their previous estimate.
When it comes to our natural gas, it’s all about electrical power generation and industrial demand. Those two areas make up nearly 60% of our total consumption.
And we’re fully expecting that demand to grow, too.
The EIA has made that part clear. Industrial demand is expected to increase to 9.4 trillion cubic feet in 2020. That’s a 42% jump compared to the 6.6 trillion cubic feet the sector used in 2010.
You can tell the U.S. is gearing up for the next stage of its shale boom.
Within the next two decades, shale gas is expected to make up 45% of total production.
Can we ever expect that to happen without an end to the war over hydraulic fracturing?
The Fracturing War Rages On
Unfortunately, heated arguments in the hydraulic fracturing debate haven’t eased in the slightest.
Both sides refuse to let-up.
As you know, hydraulic fracturing is the dominant method being used to extract oil and gas from those shale formations. The process involves injecting the geologic formation with fluid, 99% of which is composed of sand and water. The fluid fractures the rock, allowing the resource to flow freely. Sand or ceramic proppant is used to keep the fractures open.
By now, you probably realize most people don’t take issue with the water or the sand part of the equation. Their problem is with less than 1% of the hydraulic fracturing fluid being used in the procedure. That cocktail of chemicals used by companies can be deadly if it gets into our drinking water.
And remember that only about 15-80% of the fluids injected into the well are recovered.
However, you should always step back and look at both sides of the fence before jumping on board.
Even the eye-catching documentary Gasland, which painted a gruesome picture of an industry laden with guilt concerning groundwater contamination, is not above scrutiny.
Flat Prices, Full Profits
Let’s face it, any investor with a dime in the natural gas markets is painfully aware of how flat prices have been lately.
And the drilling activity has certainly shifted away from natural gas.
According to Baker Hughes’ latest rig count, only 51% of active drilling rigs in North America are going after natural gas. The gap between those rigs drilling for natural gas and oil has narrowed considerably over the last few years. Then again, are we really surprised by that development?
After all, crude prices are once again above $100 per barrel. The price of Brent crude even topped $120 per barrel.
Yet despite the sub-$4/Mcf prices and an ever-present supply glut, my Energy and Capital readers are still smiling.
Why?
Over the last couple of months, we’ve seen several natural gas stocks refuse to give-up. Many of them are drilling in the heart of the hydraulic fracturing debate, too.
Take a look for yourself:
As you can see, some natural gas stocks are definitely worth a second look.
The Future is in Technology
If you can’t beat ’em, join ’em.
Take careful note, dear reader, because that’s how the hydraulic fracturing debate will end. We are well aware of our government’s agonizingly slow pace.
However, the two sides might not be fighting much longer.
Recently, I was fortunate enough to catch one drilling company’s latest earnings call. As it turns out, they may hold the fracturing technology that would put an end to the war, once and for all – particularly in the Marcellus formation.
You see, their alternative to hydraulic fracturing is turning some heads, and starting to attract a lot of attention from those Marcellus drillers. They’ve already made headway in the Canadian oil and gas markets.
Once this new technology takes hold in the massive U.S. shale basins, all bets are off.
Until next time,
Keith Kohl
Editor, Energy and Capital
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