The Poster-Child for the US Shale Gas Revolution

There’s been plenty of celestial action in the last few days.

An asteroid, 2012 DA14, missed the earth by a whisker on Saturday morning.

When I say whisker, it missed us by just 27,000 kilometres. But for context, the moon is 384,000 km away, so the asteroid was pretty close. If it had hit planet earth it would have wiped out everything for at least a few hundred kilometres.

And just when all the telescopes were pointed that way, another asteroid snuck up on us from the other direction. It burnt through the Russian skies, injuring 1,000 people as its sonic boom shattered windows.

Two totally unrelated one-in-a-century asteroid events in a single day! Where’s Bruce Willis when you need him?

But the most impressive night-sky spectacle isn’t in fact found looking out from earth, but rather looking at earth from space.

From a space station, satellite, or convenient Red Bull upper-stratospheric balloon, today you can see an entirely new city bigger than New York. This has appeared in the space of just a few years out in the dusty American Mid-West.

This ‘city’ is little known, but is quietly revolutionising the world. And at the same time is giving investors some exceptional gains…

The city in question is the ‘Bakken‘.

And in just a few years it has grown from nothing to become the biggest bright spot on the North American skies.

Bakken ‘City’ – the Biggest New Place in the States
 

>Bakken 'City' - the Biggest New Place in the States

 

Source: IEA

But there is a catch. It’s not street lights that make the Bakken visible at night, it’s burning gas.

The New Saudi Arabia?
 

You see, the Bakken is America’s most exciting shale oil and gas region. Using modern ‘shale’ drilling techniques, oil companies can open up vast new reserves that were once written off. And those lights in fact come from the flaring (burning) of surplus gas at oil projects.

The fact that you can see it from space, gives you a clear sense of just how enormous the Bakken is now. There are thousands of shale oil wells in production night and day across the region.

The hard production numbers from ground level give you a more tangible sense of the immense scale of the region.

While the Rest of North Dakota has long produced a steady 100,000 barrels a day, the Bakken has gone from almost nothing in 2007, to 650,000 barrels a day at last count.

So the total for the state of North Dakota is 750,000 barrels a day and rising fast. This chart nicely traces this remarkable growth.

North Dakota is the Poster-Child for the US Shale Revolution
 

 

Source: American Enterprise Institute

North Dakota is the trail blazer, but other regions like Eagle Ford in Texas are also having spectacular success. This region is producing around 350,000 barrels a day at last count.

I tipped a North American oil shale stock active in this region last year as I liked the US shale story more than the Australian shale story. So far it has made readers gains of 108%, but is just getting going.

In total, North American shale oil companies produced 3.5 million barrels of oil a day last year. In a global oil market that is around 90 million barrels a day, that’s a significant contribution.

So you can see Dakota is almost a quarter of the total. In fact it’s now producing so much oil thanks to the huge success of the Bakken field that the locals refer to the state as ‘Saudi Dakota’!

The thing is that the joke has some truth in it.

While the Bakken on its own is not enough to challenge the status of the world’s largest oil producer, Saudi Arabia, with the combined success of shale regions across the US, the country is rapidly on its way to the number one spot.

And the timeline for this just keeps getting closer.

Just last year, the International Energy Agency (IEA) reported that the US would overtake Saudi Arabia as the biggest producer by 2020.

However, the most recent IEA report shows that the US is now set to overtake the Saudis as soon as 2017, just four years away!

The Big Global Shift Coming

They are also forecasting energy dependence in the same time frame. This would have some huge implications to US foreign policy, which after all is dictated by securing energy supplies in the Middle East.

Energy independence also means that the US energy imports bill will fall, which will give the US a chance to partly tame its trade deficit. This is already showing up in the numbers. In fact the petroleum trade deficit fell from $360 billion a year ago, to $220 billion at last count. It’s a start at least.

I mentioned in my free Google plus page last week sometime how this increasing domestic source of energy could be one of the engines of the US recovery this decade.

At this point, this new source of US oil supply hasn’t shown up in the US-centric West Texas Intermediate oil price. It has held steadily in an $80-$110 price range for the last few years. It looks strong and the chart has recently turned quite bullish.

US Oil Price (WTI) – No Sign of Weakness Yet
 

 

Source: StockCharts

This will be something to keep an eye on in future though. Shale gas production was so successful in the States that the US gas price has more than halved over the last five years as the new supply kicked in.

The big difference is that the US is still an importer of oil, for now at least; but is already self-sufficient for gas, which is harder to export.

There’s no perceivable weakness in the oil price at the moment though. And those North American shale producers are offering some excellent investment opportunities.

Dr Alex Cowie
Editor, Diggers & Drillers

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