I love the smell of natural gas country in the morning…
Driving through the heart of the Marcellus Shale Formation in Western Pennsylvania, it smells a lot like money.
Not familiar to me in my native Baltimore, the land in these parts has an odor that is as unique as it is profitable — and unmistakable, as the roads fill up with the hustle and bustle of trucks and crews hard at work pulling money right out of the ground.
Along with the odors, within all of this activity may be the elusive paradigm that politicians have been promising us for over forty years now: energy independence.
That is the unspoken goal here in Pennsylvania and in other areas around the country just like it.
Because after years spent being bogged down by Middle Eastern conflicts and high energy prices, it has become pretty obvious that America desperately needs to develop the resources within its own borders.
Mining Profits in the Marcellus
That’s where the ongoing development of the Marcellus Shale Formation comes in…
Covering an area of roughly 54,000 square miles, its sheer size gives weight to the claims that the formation could have the energy equivalent of Saudi Arabia’s resources.
As a result of these projections, it’s hard to underestimate the magnitude of what is going on in Pennsylvania and other gas-rich areas right now.
The shale rock buried 5,000 to 8,000 feet underground here is believed to hold trillions of cubic feet of natural gas.
Thanks to the explosive growth in shale gas nationwide, the U.S. Energy Information Agency’s latest Annual Energy Outlook now projects technically recoverable unproven shale gas reserves of 827 trillion cubic feet — 474 trillion cubic feet more than estimated in Outlook 2010.
These massive volumes mean the United States has enough natural gas to meet current demand levels for more than 100 years, according to a recent IHS CERA research study.
What’s different now — than, say, as little as ten years ago — is the technology.
After all, everyone has always known these parts were rich in hydrocarbons. But with the emergence of new horizontal drilling and fracking techniques, resources that were once unavailable can now be brought into production.
This has created a boom environment in rural Pennsylvania, where nearly 3,000 Marcellus Shale gas wells have already been drilled since 2005, and tens of thousands of more wells are now being planned.
“It’s a real game changer as far as the American economy,” says Brian Grove, senior director of corporate development for Chesapeake Energy, the most active natural gas driller in the country.
Hot Investments
As a result of this relatively new activity, natural gas investments are suddenly hot.
Even the world’s major energy companies have gotten involved over the last few years as the trends in unconventional oil and gas have started to deliver hefty profits…
In one of the biggest deals to date, Exxon Mobil purchased XTO for $41 billion in 2010, while companies like BP, PLC, and Royal Dutch Shell have broadened their shale footprint in the U.S. with recent partnerships. More recently, Chevron snapped up Atlas Energy in a deal that gave the energy giant vast access to the natural gas reserves in the Marcellus Shale in Pennsylvania and New York.
One way for investors to bet on the surging market for natural gas is with the First Trust ISE-Revere Natural Gas ETF (NYSE: FCG).
The fund’s holdings include investments in Pioneer Natural Resources Company (NYSE: PXD), Chesapeake Energy Corp. (NYSE: CHK), Noble Energy Inc. (NYSE: NBL), Cimarex Energy (NYSE: XEC), and Brigham Exploration Company (NASDAQ: BEXP), which my pal Keith Kohl first recommended in June 2009 when it was trading around $3.20 a share.
Since then, Keith’s subscribers who bought and held the stock are up 792%…
Now that is one pretty chart. Great call, Keith.
As for FCG, one of the reasons I like this fund is that natural gas prices appear to finally be rising off of the mat. And while picking a bottom in natural gas has been a loser’s game over the last few years, the rising price of the commodity would undoubtedly send this fund’s shares higher.
What’s more, this fund is based entirely on North American natural gas investments, so it limits the geopolitical risks of investing in Eastern Europe, Africa, or the Middle East.
Another way to play this trend is with the technology that makes it all possible in the first place. Keith has discovered a company that makes horizontal drilling environmentally friendly — addressing one of the industry’s biggest concerns. It’s something he calls petro-frack technology, which literally uses petroleum to produce more petroleum.
To me, at least, it sounds like his next winner. After all, the guy has got a nose for money…
And all along these roads, that smell is unmistakable.
Your bargain-hunting analyst,
Steve Christ
Editor, Wealth Daily
