U.S. Shale Basins
The New Leader in Natural Gas
Three years ago, I never would have thought I'd be seeing anyone else except Russia atop the energy throne.
At the time, Russia was an absolute energy giant, holding the world's largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves.
Furthermore, this energy powerhouse was the second largest oil exporter and the world's leading natural gas exporter. Last year, the country even managed to surpass Saudi Arabia as the world's leading oil exporter.
Russia was practically unstoppable.
Unfortunately, the party didn't last...
That's right, Russia has finally been dethroned. In 2009, the U.S. replaced Russia as the world's largest natural gas producer.
So what happened?
Well, the 12% decline in gas output certainly didn't help. A few people even pointed to lower demand from Europe and the rest of Russia's customers.
Let's give credit where credit is due. Shale gas basins across the U.S. have been gaining a huge amount of attention over the last several years. In fact, unconventional gas is expected to account for more than half of U.S. natural gas production during the next decade.
But let me ask you this: At what point does unconventional become conventional?
It wasn't too long ago that people considered offshore oil unconventional. It's a boundary that is continually being pushed back as technology develops and improves.
Feel free to weigh in on the topic by clicking the comment button below. I'm rather curious what your thoughts are on the subject.
The U.S. Shale Gas Basins
Today, I'll just stick with those U.S. shale plays.
The Barnett Shale
Believe me, if Russia isn't worried about shale gas, they certainly should be...
Russia's customers are already looking at their own shale potential. Total, one of France's largest companies (and also one of the six "supermajor" oil companies in the world), recently took at 25% stake in Chesapeake's Barnett Shale gas fields. The deal gave Chesapeake $800 million in cash and approximately $1.45 billion toward developing the Barnett fields over the next six years.
If the French wanted to start somewhere, they couldn't have picked a better spot.
As you know, breaking through the Barnett Shale is how the U.S. shale boom began, and its success soon spread to other shale plays. The Barnett is also currently the largest onshore natural gas field in the U.S. However, it's also most likely near (or past) peak production. The experience in extracting the shale gas is the real value here. To date, there is no shale gas production in Europe.
The Haynesville Shale
If we're talking about upcoming players in shale gas, you'd be remiss to leave out the Haynesville.
While areas like the Barnett are considered a mature play, it's easy to bet on the shale gas located near Shreveport, Louisiana. Within the next 10 years, the Haynesville Shale will be the largest gas field in North America. By 2020, approximately 5.2 Bcf/d is expected to be pumped out of this shale play.
Of course, drilling these shale wells can cost about $6 million a piece or more, depending on the location.
Then again, the opportunity is there. You see, the latest Louisiana land rush has already pulled in gains for most of my readers. I know for a fact that they're batting a thousand so far. And I prefer to put my newer readers on the same playing field, so feel free to check out their Haynesville plays for yourself in this new report.
The Marcellus Shale
The only other shale formation with as much potential as the Haynesville is the Marcellus Shale. Stretching from New York to West Virginia, the Marcellus has become a hotbed of activity.
Leading players like Range Resources (NYSE: RRC) have been successful so far. Range production has been growing for 27 consecutive quarters, with more than 1.4 million acres in the Marcellus play.
If you recall, the latest buzz over the Marcellus Shale is the fight over drilling in the New York City watershed. The interesting part, however, is that it's not exactly a fight. Nobody is trying to drill in the watershed. In fact, the one company with leases in the area — Chesapeake Energy — has repeatedly stated that drilling in the area wouldn't be worth their time.
Regardless of the accusations flying back and forth, it's clear that companies are going to steer clear of drilling in those controversial locations — Just look at the uproar from merely holding leaseholds in the area.
The Eagle Ford Shale
Located beneath the Austin Chalk and Edwards formation in South Texas, the Eagle Ford Shale is relatively new on the shale scene. Don't feel too bad if you've never heard of it before. You're not alone. This shale play is only now attracting attention.
I expect more companies will take notice as a recovery takes place. For now, there are a few companies poking around, including Conoco Phillips (NYSE: COP).
Looking ahead... Is Canada Out of the Picture?
The last time I talked about the shale gas boom in the U.S., a few of you were quick to ask how it will affect our relationship with Canada. After all, Canada is our largest source for natural gas imports...
I wouldn't be too concerned about it, especially considering that Canada has its own fair share of prospective shale plays. Of course, there's one in particular that I've had my eye on for the last two years. I'll tell you all about it next week, including the one company that will benefit the most from Canada's future shale gas plays.
Until next time,
Energy and Capital
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