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Energy Output From Shale Rock Could Match 20th Century Oil Boom

Wednesday, 30 Mar 2011 | 3:48 PM ET

Get ready for a sequel to “There Will Be Blood.”

Energy analysts, and even President Barack Obama, believe that the potential oil and gas production from shale rock could match America’s total hydrocarbon output during the 20th century, which began famously with the Texas ‘Gusher Age’.

The Lucas Gusher at Spindletop
John Trost | Wikimedia Commons
The Lucas Gusher at Spindletop

“Conventional liquids production from the lower 48 (states) since the beginning of the last century has totaled around 160 billion barrels,” said Rehan Rashid, energy and natural resources analyst for FBR Capital Markets. “We believe that the industry will be able to recover similar amounts of both oil and gas from the shales.”

Rashid compiled his overall estimate from a multitude of sources, including scientific papers, current production estimates for already discovered basins like the Barnett Shale in Texas, and figures from EOG Resources, a natural gas and oil producer.

Obama hinted at this potential in his speech Wednesday, where the President emphasized the need for the US to reduce both imported oil and total pollution.

“Recent innovations have given us the opportunity to tap large reserves - perhaps a century's worth - in the shale under our feet”, said the President at Georgetown University.

FBR’s Rashid made the point that at the peak of American oil production in the late 1970s there was more than 1 million people employed in the industry. Now, there is maybe a quarter of that.

“Utility conversions are just beginning and natural gas is the natural path for the U.S. to follow for an energy policy,” said Stephen Weiss of Short Hills Capital. He noted that plants by Progress Energy recently converted from coal to natural gas.

So what’s stopping the country if it’s under our feet, it’s relatively clean, and it could create thousands of jobs? The answer is environmental and cost issues.

“Now, we have to make sure we're doing it safely, without polluting our water supply,” added the President in his speech. “And that's why I'm asking my Energy Secretary, Steven Chu, to work with other agencies, the natural gas industry, states, and environmental experts to improve the safety of this process.”

Removing the gas and oil from shale rock takes new technology such as hydraulic fracturing and horizontal drilling. Fracturing, using fluid to crack the rock and unlock the hydrocarbons, could pollute drinking water. On the cost side, the price of natural gas needs to stay high enough for energy companies to spend the money to make this process clean and still turn a profit.

Rashid thinks that technology will bridge this gap, making this process both safer and more cost effective. He recommends owning companies that he says will lead the way in this initiative, including Pioneer Natural Resources , Newfield Exploration , Southwestern Energy and Endeavour International Corporation .

Ironically, because the natural gas supply could be so plentiful, its price has stayed low, which has impacted these companies’ share prices. Natural gas is down 4 percent so far in 2011.

Perhaps this is where the government could step in and incentivize companies to forge ahead with this discovery process. After all, President Obama’s goal in this year’s State of the Union was to have 80 percent of the country’s electricity come from wind, solar, natural gas, nuclear power or clean coal by 2035.

“We have to,” said FBR’s Rashid. “You can’t leave 160 billion barrels in the ground.”

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.


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Trader disclosure: On March 30, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Kinahan Owns (GE) Through Stock And Options; Kinahan Owns (MOS) , Is Short (MOS) calls; Kinahan is Long (NFLX) puts; Kinahan is Owns (YHOO); Kinahan is Short (SPY) through Options; Kinahan Owns (CSCO); Kinahan is Long (TBT) through Options; Kinahan Owns (WAG); Kinahan is Short (XHB) Through Options; Kinahan is Long (MSFT) Through Options; Adami owns (AGU); Adami owns (C ); Adami owns (INTC); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Terranova owns (CNQ); Terranova owns (RSX); Terranova owns (CVI); Terranova owns (DIS); Terranova owns (AKAM); Terranova owns (JNPR); Terranova owns (XOM); Terranova owns (IBM); Terranova owns (TEVA); Terranova owns (BAX); Terranova owns (PBR); Terranova owns (MS); Terranova owns (UPL); Terranova owns ( C); Terranova owns (JPM); Terranova owns (VRTS); Terranova owns (GS); Terranova is long (AAPL) puts; Terranova is long (AKAM) calls

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