U.S. boom in oil & natural gas

A U.S. boom in oil and natural gas production is fueling a wide range of potential opportunities for investors. But they may not be the ones you’d expect.

In 2012, the U.S. saw the largest expansion in domestic oil and gas production in the more than 150 years since it began drilling commercial wells. Improved technology that can unleash oil and gas from shale rock formations helped domestic oil output grow last year by a record 853,000 barrels a day, to the highest level in 17 years, according to the U.S. Energy Information Administration. And for natural gas, whereas the amount extracted from shale represented just 2% of the U.S. natural gas supply in 2000, it was 37% in 2012.

This U.S. energy boom comes largely thanks to the technology of "fracking," or hydraulic fracturing, coupled with horizontal drilling methods that allow for much faster, more efficient extraction of oil and natural gas. Fracking 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 pollution and other problems. But energy companies have continued to invest aggressively in this technology. And as processes have improved, natural gas production has become far more predictable.

Another area to look at may be the U.S. petrochemical industry, which has largely switched from oil to natural gas for feedstock used to make chemicals such as ammonia, a vital ingredient of fertilizer. Those cheaper chemicals serve as economical raw materials for everything from auto manufacturing to farming and household goods, and can now be exported at globally competitive prices.

What's Next for Natural Gas?

Today's investing landscape could shift if the U.S. eases restrictions 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. At the same time, however, issues around the potential environmental damage caused by fracking could intensify and may need to be resolved one way or the other.