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The discovery of shale deposits in Texas, and other states, could very well be the beginning of another oil boom in the United States that can be monumental in helping the country reduce its dependence on imported foreign oil.

The largest shale deposits of the world are here in the US, making it a potential goldmine. In the Green River Formation, shale oil deposits are estimated to be 1.2 to 1.8 trillion barrels, almost five times the reserves of Saudi Arabia. Though not all of it is recoverable, even if only 25% were, it could help the US meet its rising energy demands.

With natural gas prices declining and crude oil prices reaching all-time highs and Brent futures trading at over $115 a barrel, shale oil seems to offer a potential solution to America’s energy crisis. Also shale oil exploration will mean more domestic jobs and less dependence on foreign oil.

The shale oil boom promises to be a game changer

The one drawback to the recovery of shale oil is that it is expensive both financially and environmentally. The cost of extracting shale oil has made it commercially unviable and also restricted any technological progress that can make extraction more cost-effective. However, this is slowly changing.

As the technology improves, shale oil will prove to be the fuel of the future. This can herald a new energy revolution in the US due to its phenomenally abundant supply. Instead of depending on the Middle East for oil, we will become a prime player in the oil market and the balance of power will once again shift to the US.

The oil companies that make the first move and enter into projects for shale oil exploration and extraction will make billions of dollars and service companies and investors holding these stocks can smile all the way to the bank.

Shell Oil(NYSE:RDS.A) - Royal Dutch Shell is once again emerging as a discovery-driven oil company after its reputation was destroyed due to the five consecutive cuts to its hydrocarbon reserves in 2004. Shell is second only to Exxon (NYSE:XOM) in energy production and has more than 40,000 service stations worldwide.

Shell recently announced its plans to build a plant in the Appalachia basin to explore the shale reserves in the area.

The stock is a good buy as a long-term investment at its current price of $69.49. The company has increased its return on capital employed from 2009 to 2010 and at 11.5%, is well above the industry average. With improved refining margins and cost-saving efforts against a backdrop of rising oil prices, the stock has the potential to generate solid returns and to continue its uptrend.

Shell has reported gains in both its upstream and downstream operations for 2010. With more acquisitions and new projects in the pipeline, its upstream operation is bound to benefit. Lower operating expenses and higher margins help improve its downstream operation as well.

Shell increased its shale gas holding in 2010 and is continuing to do so in the Eagle Ford formation of Texas, and the Marcellus formation in the Appalachian Basin, to total over 3.5 million acres. The company has been working on a technology called “in situ” mining that does not involve rock extraction and heating but rather the shale rock is heated in the ground itself and the oil is extracted.

Shell has also entered into a joint venture with Cosan Limited (NYSE:CZZ) in Brazil to produce and sell ethanol, making it one of the biggest biofuel deals to date. In 2010, the company sold 9.6 billion liters of biofuel to become the world’s largest biofuel distributor.

Shell’s biggest competitor, Exxon Mobil is also increasing its shale assets and acquiring companies like Phillips Resources that are active in the Appalachian Basin. Exxon has also developed its Electrofrac process that is based on in situ mining for shale oil.

Service companies like Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) among others provide support to the oil companies exploring shale and are positioned to make huge gains when the oil companies strike gold. Shell Oil is in a position to leverage its outstanding project management skills to develop long-term growth projects and strategic partnerships with service providers to generate greater returns for shareholders.

Even if renewable energy sources develop faster than other energy sources, the bulk of our energy needs will still continue to be met by coal, petroleum and uranium. Over the coming years natural gas and shale oil will become a reliable and important source of energy as technological advancements will make it commercially viable and a mainstream source of energy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Shell Oil Becoming a Strong Player in Shale Oil