Editor’s note: For more updated information from Keith Kohl on Shale Gas Stocks, click here…
“It’ll never happen.”
That’s what my colleague, Chris DeHaemer, told me last week. In the past, we’ve gotten into a row or two when it came to natural gas versus coal.
His latest jest came after I tried to tell him natural gas consumption would overtake coal by 2035. His laugh was skeptical enough, and soon enough I found myself in a bet that will last more than two decades – or until he concedes.
I knew exactly why he was so adamant, too. A few weeks before Chris skipped town on a 31-hour flight to Mongolia, he explained why he was so bullish on coal.
That morning, however, our argument became heated as each kept rejecting the other’s idea. That is, until he stopped and cracked a smile.
“You know who will really win out, right?” he said in a nonchalant manner.
I replied without thinking twice, “Us.”
If our argument had only stayed within U.S. borders, I’d be slightly concerned. After all, our demand for the two fuels will be a tight race over the next two decades.
And even though China and India are expected to double coal imports by 2015, the IEA’s latest World Energy Outlook has natural gas consumption squeaking by coal by 2035:
By 2035, the world’s consumption of natural gas could reach as high as 2.5 trillion cubic meters thanks to a surge in unconventional production.
Last week, we talked about how the shale boom is about turn the U.S. into an LNG exporter over the next few years. Our domestic production growth has already taken its toll in lowering our natural gas imports:
Unfortunately, not everyone is thrilled to see a boom in shale gas production.
Russia’s Greatest Fear
If anyone should be concerned about the growing activity in shale gas, it’s Russia — and with good reason, too.
Things have certainly become more interesting since the last time we talked about Russia’s growing fear of losing its control over energy.
To start with, the country will lose its edge over neighboring countries. Gazprom currently satisfies approximately two-thirds of Poland’s natural gas needs.
Last week, Poland’s first horizontal well was completed. The well, at a depth of 13,385 feet, was drilled into the lower, organic-rich shales.
The U.S. Energy Information Administration has estimated Europe holds about 618 trillion cubic feet. The largest amount of those reserves, however, is found in Poland, with 187 trillion cubic feet of recoverable gas.
For Poland, energy independence from Russia can’t come soon enough. If enough of Russia’s gas customers suddenly find themselves free of their shackles, the loss of revenue will have a devestating effect on Russia’s future energy production, which is already showing signs of distress from a lack of investment.
We know Russia isn’t afraid to turn off the taps if a country doesn’t pay. Several years ago, a dispute between Russia and the Ukraine (they receive roughly 80% of their natural gas from Russia) ended up with the former cutting off all gas supplies moving through Ukrainian land.
Now, Russia is hoping to tap into the Ukraine’s shale gas fortunes, investing nearly $2 billion in a joint venture in unconventional gas projects throughout the next decade.
Russia could be losing its advantage over China, too. A recent deal between China and Russia for a new gas pipeline fell apart after the two sides were unable to reach an agreement over prices.
So is it really surprising to see China start developing its shale assets?
China reportedly has 1,275 trillion cubic feet of recoverable shale gas resources. It’s one of the reasons why their taking so much interest – and spending billions of dollars in the process – in U.S. shale projects.
Our Win-Win Scenario
One of the things Chris and I can agree on is that investors are in a win-win situation.
We both know there’s one catch to our bet: Whether or not consumption of natural gas overtakes coal within the next two decades, it’s the investors that will come out on top.
Within the last fifteen years, both energy sources have delivered us gains:
Click to Enlarge Image
Over the next 25 years, there’s no reason why we can’t take advantage of both natural gas and coal opportunities, especially considering global demand is heading much higher.
Investors, however, have several options in front of them, and it’s not just from producers. Another way to focus on those shale profits is through new techniques being used to extract the oil and gas from the rock formation.
This small company, for example, has developed a process that can replace the need for hydraulic fracturing. And the best part is this new technology uses absolutely no water whatsoever.
Until next time,
Editor: Energy and Capital