A new-found bonanza of natural gas

Mississippi-based investment manager Ashby Foote has an excellent article entitled "US has gas bonanza" in which he notes that the US Energy Information Agency (part of the Department of Energy) continues to increase their estimates of the natural gas reserves present in the US.

"America, like Jed Clampett of old, finds itself sitting on a new-found bonanza of natural gas and oil reserves," he writes.

Mr. Foote explains that domestic oil and gas production has traditionally come from the sandstone layers that make up about 13% of the sedimentary rock in the US, but new techniques such as hydraulic fracturing (or "fracking") are unlocking the natural gas found in the vast shale beds that make up 79% of the rock beneath the surface of the US.

As the slide above from the Energy Information Agency proclaims, this means that US shale gas production has increased 14-fold over the past ten years alone, and estimates of reserves have tripled since the middle of 2007.

As usual, there are plenty of voices lining up already to try to make these massive new energy resources off limits (see our previous post, "Let's make it even harder to obtain oil in the US").

This morning, NPR ran a story about ozone levels in Sublette County, Wyoming. The culprit? As NPR explains, Sublette "is also home to one of the largest natural gas fields in the US." The NPR reporter ends by predicting "little chance for this remote spot of western Wyoming to ever be the pristine place it once was."

Previously, NPR has run stories about hydraulic fracturing implying that it might harm the water supply.

While we are not in favor of harming the water supply in order to extract natural gas, it occurs to us that preemptively poisoning public opinion regarding the ability to extract America's gas reserves safely carries its own potential side effects.

As we and others have observed before, the decades-long policies in the US which inhibit production of energy from domestic sources such as natural gas, coal, nuclear power, and domestic oil have artificially enriched despots in places such as the Middle East and given them a level of economic power that they otherwise would not have.

We believe investors should be aware of the new ability to tap the enormous energy resources in this country such as the natural gas reserves in shale deposits, and that they should also be alert to the often one-sided reporting generated by those who seek to discredit such efforts.

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