This is Why Shale Gas Could Make You Rich…

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At some point in the near future the energy market and our government is going to realize — and embrace — abundant and cheap natural gas. When this happens, which could be sooner than you think, we’ll be in the middle of a natgas investing bonanza.

That’s what I wrote to you last week after day one of the Developing Unconventional Gas (DUG) conference.

Today I’m back to drop a bucket of fresh ink on the same point…

If you recall, last week I told you about the one of a kind shale gas endorsement from T. Boone Pickens. Pickens has been a long-time proponent of reducing our dependence on foreign oil. To him, shale gas could be one of the best ways.

In a big picture sense shale gas is a game changer.

Pittsburgh, the host city for the DUG conference, is at the epicenter of what could be momentous changes. I like to think of it as the “former” Rust Belt. Because the way I see it, there’s a lot of economic stimulus set to hit that area in the form of cheap and abundant energy.

“Facts win out in the long run” said Dan Dinges, CEO of Cabot Oil and Gas.

Dinges, in not so many words believes natgas is the energy source of the future. And that the facts about it — cleaner burning, abundant, domestic, efficient, environmentally friendly — will outweigh any negatives.

That’s the same line of thinking that we’ve held here from the beginning. No matter how hard politicians or environmentalists fight something like this — it’s going to still prevail. This clean, abundant energy will come to market — in fact, this energy wave has already started.

Today let’s cover the big picture of shale gas including new info on a rebuild of American manufacturing, more jobs and the personal effect of cheap energy.

American Manufacturing…

Earlier this week I hinted that John Surma, CEO of U.S. Steel Corp., is elated about the potential of abundant natural gas.

“Economics [of using natural gas] are just so good” he said.

Commenting on a switch from coal to shale gas Surma noted the environmental impact and the capital cost are way lower using gas. Gas is the most versatile and valuable energy, Surma said. “I don’t know” he continued “of anything else that has even a fraction of the potential of natural gas.”

Surma also believes that this gas will end up becoming a key to the future “green” agenda. Once the nation sees how much impact a switch to natgas can have — it’s only a matter of time before this industry really starts firing on all cylinders.

And from a business standpoint this cheap energy could give his company the lowest energy intensity per ton, world wide. Although labor costs are still much cheaper in some foreign countries this energy advantage directly adds to American industry’s bottom line. U.S. Steel proves it.

Shell Oil is another important player to keep an eye on. As I commented on Tuesday Shell has high interest in shale gas through its chemical and processing divisions. Shell is also an active driller in the area with a planned 100 new wells this year.

Here’s the kicker…

While some companies like U.S. Steel will be looking to set up long-term 10, 20, 30 year deals for natural gas — deals, that I may add, are tough to predict right now — a company like Shell will be internalizing all of this.

For it to be planning a huge ethylene cracking plant you can assume Shell implicitly gives the nod to a positive future for shale gas in this region. That’s huge. Integrated companies like Chevron hold a lot of acreage in the area as well — so watching its footsteps could also give us some hints.

American Jobs…

Next up on the docket was the President of CONSOL Energy, Nick Deluliis…

“Manhattan, DC and California” Deluliis says, “can talk about jobs, but here we do it…[and] their rhetoric doesn’t make power come on when you flick the switch”

The development in this area is creating jobs, well paid ones, too. Deluliis’ company hired over 1,300 people in the last year. He notes that the rising quality of life in the Marcellus area can’t be overstated.

“People really do like to work in America,” said Ed Cohen the CEO of Atlas Energy LP. He continued by showing that this ready/willing/able workforce is a huge advantage for our country.

In an anecdote, Cohen told a story about a conference he attended overseas on Polish shale gas. While he was there he heard a pessimistic comment from a Russian energy expert talking about Poland’s shale development and it went something like this: “you aren’t the Americans.”

He explained that in a backhanded kind of way the Russian was giving U.S. oil and gas very high regards. You could see Cohen was beaming with pride.

This shale gas bonanza located near America’s East Coast will allow American’s to do what they do best — produce oil and gas…. and make money doing it.

The shale gas revolution will increase jobs and productivity across the board for this region and lead to a real boost to the economy — something a government stimulus package only wishes.

America’s Cheap Energy…

“The enthusiasm surrounding this [Marcellus/Utica] play is technically warranted” Jackie Reed of Reed Consulting told the crowd at this year’s DUG.

If you’re a natural gas consumer you should be excited too. As I stated the other day EQT Corporation’s CEO David Porges is already seeing a $600 cost savings to his energy consumers per household, per year.

On the East Coast if your electricity and heat are powered by natgas you should expect to have abundant (and cheaper) energy for the years to come. As more infrastructure comes to this area I could see the price of natural gas dropping easily below $3.

This is also giving incentive to natural gas fired power plants. Although a power plant switchover is a huge undertaking, as time passes and more information becomes clear about the abundance of Marcellus and Utica shale gas, I expect to see more natgas fired plants coming online — potentially being switched out from the existing coal fleet.

Some legislation is already moving in that direction. “Maryland energy regulators” according to the Baltimore Business Journal “are requiring Baltimore Gas and Electric and other utilities to solicit proposals for new natural gas power plants in the state.”

This all leads to the same conclusion: the fully stocked Marcellus shale and newly found Utica shale will be important sources of cleaner burning natural gas. This supply/demand feedback loop will create stability in the area’s natgas market.

Although natgas power generation will be the first big move a gradual change from gasoline to compressed natural gas (CNG) could also make use of this abundant energy source.

There haven’t been many big moves in the automobile sector, but when it happens I could easily see buses, local trucks and other vehicles making the switch to CNG. Also, if I see any breaking news on CNG you’ll be the first to know.

All said, the excitement is stacking up in this shale gas region. With each passing day more development occurs. This is added reason to trust that this boom is here to stay. If you’re looking for a long-term energy play this is it. Don’t say I didn’t warn you.

Keep your boots muddy,

Matt Insley

Author Image for Matt Insley

Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he’s stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

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  1. Thanks Matt, I wish I had a crystal ball, or inside info on what stocks our Politicians are buying. Many states still appose Fracking

  2. Frank Jacquest on March 3rd, 2012 at 4:49 pm

    Matt, I really enjoy reading your articles. I have been doing a lot of research on Fracking over the last 5-6 months on a daily basis and I believe you to be spot on.
    Mikecfly, as far as your comments on having a crystal ball I believe that more networking should be done among the readers of publications like this.
    Myself and two partners have positioned ourselves to manufacture Frac Tanks, They hold the solution needed to be pumped into the well for the fracing process, we are looking for an interested investor to pull the trigger, and with the advancement of technonlogy in the Fracking industry, it’s like the wild wild west all over again.

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