The Shale Gas Revolution Is Dead … Here’s What To Do Now

It’s difficult to look beyond bitcoin and MicroStrategy (NASDAQ:MSTR) at the moment, the later in particular. Nobody expected this, not even Chairman Michael Saylor. The returns have been astonishing. A couple of readers have reported to me that the gains have been life-changing. Wow! What an email to receive.

It’s easy to get hubristic when you have a big win. Instead, let us express gratitude for the good fortune that has smiled upon us.

But look beyond we must, and so today I want to look at what I can only describe as a stealth bull market – natural gas. The price is creeping up, and few are talking about it.

Natural gas is a bit like silver: if it can disappoint, it will. So we begin this piece with that reminder. Natural gas has broken the soul of many a wiser man than me.

On the other hand, the next five years look pretty positive.

It’s obvious that the world is going to go nuclear now, and that Small Modular Reactors (SMRs) are going to provide the power AI so badly needs. However, it will be a good five years before they on stream, so what is going to provide the power in the interim?

The answer is natural gas.

There is a problem, however: Supply.

America’s Gas Wells Are Drying Up

The North American Shale Gas Revolution dramatically changed the outlook for fossil fuels. Peak Oil was a huge theme leading up to the Global Financial Crisis, and then it disappeared, almost overnight.

Between 2005 and 2020, US natural gas production grew by 90%, with shale accounting for the bulk of it. In 2005, shale gas made up about 5% of US natural gas production; by 2020, it was over 75%. By 2017, the US had become a net exporter, especially of more transportable liquefied natural gas (LNG).

The price, meanwhile, plummeted. Good for consumers!

Here’s the long-term chart so you can see those price declines since 2005. From almost $16 to $3.50 today (as low as $1.50 earlier this year, where it has formed an attractive double bottom – you know how I like those).

Obviously, we in the UK and Europe pay way more for our natural gas than they do in North America. It’s so dumb; we have enough to supply ourselves in the UK. But we don’t because fracking is deemed environmentally damaging. So we import gas from abroad, which is produced by, you guessed it, fracking. I guess if it is fracked somewhere else, it’s less harmful. Not

Then there are the transport costs and the environmental costs that come with that.

Anyway …

Spanning Ohio, New York, West Virginia, and Pennsylvania, Marcellus is the largest natural gas-producing field in the United States, contributing over 25% of production. In 2010, output was 2 billion cubic feet per day (bcf/d). By 2023, it exceeded 35 bcf/d, but production has been falling for almost a year now. We are currently at 26.7 bcf/d

The next largest is Haynesville, in Louisiana, Texas, and parts of Arkansas. Extraction costs here are higher, and production stands at 16 bcf/d, but it is slowing here too, according to analysts Goehring & Rozencwajg.

One of the few areas of growth is the Permian Basin, in Texas and New Mexico, currently around 23 bcf/d, but even there, growth is modest.

Now, it might be that the reason for stagnating growth is low prices – they often are – and higher prices will result in increased production. They usually do. That is the way with commodities.

But natural gas prices have already doubled this year, and they keep on creeping up.

The other interpretation is that the North American Shale Gas Revolution has passed its peak.

With America’s new president, you can expect plenty more investment in production than under the Democrats, and that should bring the price down, but the gas price has actually risen – from $2.70 to $3.50 – since the election.

It might also be that Russian gas taps come back online to the EU sometime next year, which means America will lose its new market.

But all of this conjecture is factored into the price. And that is rising.

Dominic Frisby ~~ The Flying Frisby

It’s easy to get hubristic when you have a big win. Instead, let us express gratitude for the good fortune that has smiled upon us.

But look beyond we must, and so today I want to look at what I can only describe as a stealth bull market – natural gas. The price is creeping up, and few are talking about it.

Natural gas is a bit like silver: if it can disappoint, it will. So we begin this piece with that reminder. Natural gas has broken the soul of many a wiser man than me.

On the other hand, the next five years look pretty positive.

The answer is natural gas.

There is a problem, however: Supply.

America’s Gas Wells Are Drying Up

The price, meanwhile, plummeted. Good for consumers!

Then there are the transport costs and the environmental costs that come with that.

Anyway …

One of the few areas of growth is the Permian Basin, in Texas and New Mexico, currently around 23 bcf/d, but even there, growth is modest.

Now, it might be that the reason for stagnating growth is low prices – they often are – and higher prices will result in increased production. They usually do. That is the way with commodities.

But natural gas prices have already doubled this year, and they keep on creeping up.

The other interpretation is that the North American Shale Gas Revolution has passed its peak.

It might also be that Russian gas taps come back online to the EU sometime next year, which means America will lose its new market.

But all of this conjecture is factored into the price. And that is rising.

Dominic Frisby ~~ The Flying Frisby

The “Donroe Doctrine,” the White House is calling… because Trump hasn’t yet stamped his name on every facet of U.S. political life.

America in the Americas. China in East Asia. Russia, where Russia still can.

There is a certain gangster logic to it. Not the UN Charter. Not the Magna Carta. More Godfather than Geneva.

Markets, predictably, shrugged.

Oil stocks rallied. Defense stocks jumped. Consultants booked flights to the oil fields near Lake Maracaibo and the Orinoco Belt.

Interest rates are coming down, emboldening consumers to take on more debt.

The latest data highlights a central feature of the real economy. Americans no longer manage savings and income but credit cards, HELOCs, and mortgages in an effort to keep up appearances.

Day-to-day expenses, health insurance, housing, car payments and tuition will continue to plague Americans throughout the year ahead of going to the polls in November.

Roughly 70–80% of global silver supply comes as a byproduct of mining other metals—copper, lead, zinc, gold. This means that even if silver prices doubled tomorrow, production wouldn’t automatically increase unless mining of those other metals ramped up too. You can’t just “decide” to mine more silver.

Layer China’s export controls on top of all that, and you’re looking at a supply profile that’s unusually tight—and unusually vulnerable.

The High Yield Bond Distress Index measures levels in the junk bond market, including liquidity, market functionality, and how easily companies can borrow.

A reading this low signals extremely healthy borrowing conditions for high-yield issuers. It’s also where we would look for distress in the corporate AI build out debt issuance.

And if the high yield bond market isn’t worried yet, stock market pullbacks are likely to be short and shallow – and will likely play a role in a midyear “crack-up boom.”