domestic oil and gas production in
the more than 150 years since it
began drilling commercial wells.
Improved technology that can un-
leash oil and gas from shale rock
formations helped domestic oil
output grow last year by a record
853,000 barrels a day, to the high-
est level in 17 years, according to
the U.S. Energy Information Ad-
ministration. And for natural gas,
whereas the amount extracted
from shale represented just 2 per-
cent of the U.S. natural gas supply
in 2000, it was 37 percent
in 2012.
the technology of "frack-
ing," or hydraulic fractur-
ing, coupled with horizon-
tal drilling methods that
allow for much faster,
more efficient extraction of
oil and natural gas. Frack-
ing is controversial, with
opponents noting that its methods
pumping a mixture of water,
sand and chemicals under high
pressure into source rock to crack
it open, allowing gas and oil to flow
-- may result in groundwater pol-
lution and other problems. But
energy companies have continued
to invest aggressively in this tech-
nology. And as processes have im-
proved, natural gas production has
become far more predictable.
price volatility and swings in suc-
cess of drilling rates, to a more sta-
ble current market that's largely
about manufacturing," says Fran-
cisco Blanch, managing director
and head of Global Commodity
Research at BofA Merrill Lynch
Global Research.
might suggest investment opportu-
nities in producers of natural gas,
he also notes that the bottomed-
out prices in the U.S. may actually
be adversely affecting these busi-
nesses, which include large ener-
gy companies that maintain signif-
icant natural gas operations as
well as firms that focus exclusively
on the fuel. Many stocks in this
sector have, however, historically
provided solid dividend income,
and low valuations now could
translate into long-term opportuni-
ties.
that might help tap the current U.S.
energy boom.
ers, particularly makers of steel,
aluminum and automobiles, may
benefit significantly from falling en-
ergy prices, which could reduce
operating expenses, increase prof-
itability and free up capital to in-
vest in expansion and new em-
ployees. Domestic companies also
are poised to save on transporta-
tion costs as many of them (partic-
ularly automakers) move factories
costs in many parts of the world
have made emerging markets less
competitive.
which has largely switched from oil
to natural gas for feedstock used
to make chemicals such as ammo-
nia, a vital ingredient of fertilizer.
Those cheaper chemicals serve
as economical raw materials for
everything from auto manufactur-
ing to farming and household
goods, and can now be exported
at globally competitive prices.
vices. According to the
U.S. Energy Department,
natural gas home-heating
prices have fallen 21 per-
cent in New England and
25 percent in the mid-
Atlantic during the past
five years. Those savings
leave consumers with
more discretionary in-
utilities, they're able to spend more
at restaurants and on electronics,
travel, and a host of other products
and services.
large fleets of delivery trucks.
Such businesses are exploring
options for converting from diesel
fuel to liquefied and compressed
natural gas. Meanwhile, railroad
companies are experimenting with
gas-powered locomotives.
help investors diversify within the
energy sector, and they bring po-
tential tax advantages (and risks)
as well. Energy MLPs are typically
offered by pipeline operators
whose profits are based more on
the volume of natural gas trans-
ported than on the price of the gas
itself.
tions on selling surplus natural gas
overseas. A Department of Energy
study released last December
suggested that increased exports
could provide a broad boost to the
economy. But it would likely raise
U.S. prices for the fuel, and that
worries groups such as America's
Energy Advantage, a coalition of
energy-dependent companies.
rent levels, "that would be a nega-
tive for U.S. gas-producing com-
panies but a plus for gas-consum-
ing companies and consumers,"
Blanch says. "North America has
become natural gas-independent,
and that's a big net positive for the
economy on all sides." That makes
this an ideal time to consider which
investments might benefit most
from these factors during the next
five years.
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