Global shale gas phenomenon

Posted By Dick Sterling
May 1, 2013

The stunning effects of North American shale gas production are being felt all over the world.

First, as domestic producers churn out record quantities of cheap natural gas, utilities and other consumers switch away from coal. This results in coal producers exporting more of their product, keeping a lid on global coal prices. European countries benefit, switching from expensive Russian gas to relatively cheap US coal. This puts pressure on Russia to lower its gas prices or lose sales. It also reduces Russia's geopolitical clout. It's to Europe's gain.

Second, US horizontal multi-stage frac technology is being applied globally. Poland has discovered massive quantities of shale gas. But it's not just Poland --- countries all over the world who once thought they had no economic hydrocarbon deposits are now waking up to a new reality. China and South Africa have massive resources, largely untapped so far.

This should result in sustained cheap natural gas, globally. But as I've indicated previously this may put pressure on producers to form some kind of international cartel, just in order to prevent prices from dropping to the point of being uneconomic.

The pace of conversions to natural gas will continue to increase --- a great opportunity for investors --- more on that another day.

All this should put downward pressure on oil prices, via the substitution effect right? But the substitution effect between the two commodities isn't strong enough to counterbalance exploding world demand from emerging economies, which need vast quantities of oil to function. China. India. Brazil. I remain bullish on oil.

These are great times for oil investors. Learn more here.

Posted by: Dick Sterling, Editor   contact here