Who will replace the US shale boom? – Fat Tail Daily
It’s difficult to overstate the importance of the fracking boom. But it is ending.
The four big US basins are drying up. Decline is baked in. Last December may have been a peak for US shale oil. Gas may have peaked back in 2024.
Rather a lot of billion-dollar companies are looking for some new basins to sink their drills into. If they can’t find any, they’ll fade away.
Eligible basins do exist in a lot of countries around the world. Including in Australia. But not many governments accept the fracking that makes oil and gas extraction hugely profitable.
But that’s changing. With the Americans proving fracking’s potential, a few countries that banned fracking are now on the cusp of electing governments that are openly pro-fracking. Places like the UK and several countries in Eastern Europe.
Some countries home to proven gas reserves have already triggered their own booms. Billions are already being invested as you read this. Argentina tops that list. Oil and gas majors are hoping to get first dibs on a re-run of the US shale story, which they came late to.
It all amounts to a huge boom in gas supply that’ll be competing with Aussie gas exporters. Countries that we sell to could unlock their home-grown energy reserves. Some could even become gas exporters.
But is it a risk or an opportunity?
How the shale and fracking
revolution reshaped America
America knew about its four key basins of oil and gas for many years. But much of the shale oil and gas hadn’t been economically recoverable.
Fracking turned a large chunk of those resources into reserves. Meaning they became economically viable to extract. It also made existing wells dramatically more profitable by increasing their production.
The boom was on. Fracking turned marginal shale oil and gas into a $1.4 trillion sector.
At least eight companies I could find became ten-baggers thanks to fracking. Meaning their shares went up more than 1000%.
Fracking and the US shale boom it unleashed became one of the most economically and geopolitically important developments of the last 50 years. The combination reshaped the US economy, global oil and gas markets and redefined geopolitics.
Fracking turned the US from a major energy importer into the world’s largest oil and gas producer. The US also became the world’s largest exporter of LNG.
The shift helped reign in the US trade balance and propped up the petrodollar link between energy and US dollar trade by adding more seaborn oil and gas to global trade.
It smashed the OPEC cartel’s control over oil markets and thereby geopolitics.
It allowed the US to dodge Europe’s deindustrialisation by keeping energy prices in the US far lower.
It turned the world’s energy chokepoints into minor inconveniences by creating alternative supply routes that could adjust for supply disruption.
It fuelled the US AI data centre boom while most of the rest of the world missed out.
It pushed US GDP growth far ahead of other developed economies.
It provided cheaper energy for US consumers at a cost saving of $800 billion per year, about 3% of US GDP.
In the state of Pennsylvania alone, the natural gas industry alone generated over $5.8 billion in local, state, and federal tax revenues in 2022.
But shale’s importance goes well beyond that. Without it, Europe’s energy crisis of 2022 would have been catastrophic…
Fracking saved Europe once already
When Europe decided to starve itself of Russian energy, America filled the void. The continent now gets a quarter of its gas from the US. And that’s on track to become half by 2030.
Ironically enough, Russia’s attempt to seize eastern Ukraine has been replaced by the US’ attempt to seize Greenland. Gas is the gun pointed at Europe’s head in both cases. As one Wall Street Journal commentator put it, “I think Greenland was a wake-up call. There is more talk [in Brussels] about replacing one dependency with another.”
The point is that shale oil and gas is not just a speculative mania. It is also a potential solution to the geopolitical, economic and fiscal nightmare that many nations face right now. Especially European nations.
That’s why I suspect Europe is about to turn to fracking to unlock its own vast oil and gas reserves. It’ll be home to the next big oil and gas boom.
But how can investors position themselves to profit?
There’s not even a microcap fracking
company in Europe today
I spent ages looking for one. They all exited the business to become geothermal or hydrogen companies in the last few years.
Back in 2022, several UK fracking stocks surged during the energy crisis. There was some speculation that the war in Ukraine would force the government to permit fracking after all.
But that never played out. Which doused the last great hope for fracking in the UK.
Until Nigel ‘Mr Brexit’ Farage came along…
Back in 2022, he was still working with me at The Fleet Street Letter. That’s the UK’s oldest financial newsletter. It even predicted the very month World War II would start!
In 2024, Farage left us to take up politics again. And now he’s odds-on favourite to be the next Prime Minister.
His new political party is avowedly pro-fracking.
And I believe he’s about to unlock the UK’s truly vast shale and gas resources. All he needs is an election to be called.
The question is, which company will soak up the gains?
That’s what I’m working on now. So stay tuned.
But if you’re feeling impatient, know this…
China is pursuing its own fracking revolution. It could soon become the world’s third largest gas producer thanks to fracking’s ability to enhance production.
This could make China dramatically more energy independent than in the past. A major dagger at its throat would be fracked away. That would reshape China’s geopolitics.
But the home-made oil and gas China is unlocking thanks to fracking is just part of its multi-pronged energy strategy. There’s an even better way to position yourself to profit from what they have planned next.
