Flammable Ice Investing

They did it!

Last week something major happened off the coast of Japan…

Nearly 1,000 feet below the seabed, Japanese engineers successfully accomplished something that has the potential to turn this resource-poor island nation into a world leader in fossil fuel production.

After hundreds of millions of dollars and more than a decade of research and testing, Japan has officially extracted natural gas from underwater deposits of methane hydrate.

I know that doesn’t sound very exciting — but bear with me, because this event has officially marked the beginning of a new energy revolution that could actually be bigger than fracking!

Let me repeat that: bigger than fracking.

Flammable Ice

According to a 2010 International Energy Agency report, it’s estimated methane hydrates — also known as “flammable ice,” because it’s essentially a frozen gas — contain almost twice as much energy as all the world’s resources of gas, oil, and coal combined.

Let that sink in for a moment…

Now consider this: Japan is a country entirely dependent upon other countries for oil and gas — even more so now, as the fight rages on to shut down most of the nation’s nuclear power plants.

Bottom line: Japan is in a very tight spot when it comes to energy, so it’s no wonder so much time, money, and effort has been spent on what has long been considered an exercise in futility.

Truth is most experts have long considered flammable ice little more than a theoretical possibility for future generations.

As John Kemp from Reuters wrote: “Outside of Japan, where hydrates have the potential to provide energy security, flammable ice will remain an interesting curiosity — a last reserve of fossil fuels if humanity should ever need them in centuries to come when other, far easier hydrocarbon resources are nearing exhaustion.”

Maybe…

Maybe not.

Awash in Hydrates

Japan Oil, Gas and Metals National Corporation (JOGMEC), the state-owned company that’s responsible for extracting natural gas from flammable ice, claims it can have a commercially viable model of this operation ready to go by 2019.

But not everyone’s quite so excited about it.

As it turns out, methane is 20 times more potent than CO2. And a number of climatologists and environmentalists worry that tapping those methane hydrates could actually expedite climate change — especially if the technology used to extract gas from hydrates is adopted by other countries.

Make no mistake; there are methane hydrate deposits all over the globe. Check it out…

flammable ice

Of course, some have actually argued that if we extract gas from flammable ice in such a fashion, it could alleviate the threat of a potentially catastrophic methane release. I don’t know if there’s much accuracy to that claim, but in 2007, the Intergovernmental Panel on Climate Change did report that mass releases of methane hydrates from the ocean floor likely occurred with rapid warming periods in the Earth’s history.

Either way, climate change concerns or not, it is highly unlikely that Japan will not go full force on this.

Figuring Conservatively

Now JOGMEC claims it can have commercial operations up and running by 2019. I actually think that’s very optimistic, but for now, we’ll give them the benefit of the doubt. If this is accomplished, it will likely take another decade before all the technological hurdles are overcome and new deployments are green-lighted.

Figuring conservatively and assuming this technology proves economically viable, significant expansion in the waters of Japan is probably at least twenty to thirty years away.

Understand I don’t say this to trivialize this major accomplishment in the world of gas extraction. But as an investor, it’s still way too early to get overly excited about flammable ice.

Of course, we will definitely continue to monitor developments in flammable ice going forward.

To a new way of life and a new generation of wealth…

Jeff Siegel Signature