Innovations in the fracturing of underground shale formations have created an energy boom in the United States that has set financial pages throbbing with articles about energy independence, billion-dollar tax surpluses, the creation of millions of new jobs, and the skewering of America's trade deficit. Is it too late for the small investor to cash in on the great 21st century energy boom?
The United States had pretty much run out of natural gas by the 1980s; at least gas that was easily pulled from the ground. Oilmen knew that shale, which underlies great swaths of the North American continent, contained plenty of gas, but the tight rock formations did not surrender their hydrocarbons willingly. George Mitchell, an oil tycoon from Galveston, Texas was one of the few to pursue shale gas back then, trying to fracture the Barnett Shale in East Texas and release its gas. He tried chemicals and gels and expensive liquid potions to break down the rock, but nothing was working and it was costing a million dollars every time he tried a new well.
By the mid-1990s money was running out and soon Mitchell Energy would not be able to afford much more than water. Water was thought to swell rock and shrink fractures in the shale so it had been dismissed up to that point. But when the engineers tried it, the opposite proved true. After 17 years of frustration, the drillers had unlocked the secrets to making oil shale spew money. The boom was underway.
Today, to use a baseball analogy, the natural gas boom is considered to be in about the fourth inning. New fracking technology is still being developed and natural gas production and consumption is still reaching new records each year. There is still time to get in the game.
One of the best financial plays at this point may not be with the producers themselves, but with transporters. America is poised to become a net exporter of liquefied natural gas (NYSEMKT:LNG) in the upcoming years. There are only two ways to move gas from place to place; by pipeline or by carrier. Pipelines laid underwater are prohibitively expensive, so one place to look for investments in natural gas is with ship carriers.
GasLog Ltd (NYSE: GLOG) a company that went public in 2012, is well-positioned to take surplus American natural gas to far-away lands. The international owner of LNG carriers operates a fleet of 15 wholly-owned carriers, with seven on the water and eight scheduled for delivery between 2013 and 2016. GasLog also leases an additional 11 ships. None of its carriers, all equipped with the latest Tri-Fuel Diesel Electric propulsion technology, was launched before 2010.
The company holds signed contracts that will tie up all but two of its ships; some for most of the next seven years. Projected revenues from these ships will more than double company earnings from $114 million in 2013 to almost $250 in 2016. With United States gas reserves expected to produce at current levels for an estimated 20 years, GasLog could be a very attractive way to play natural gas.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.