Especially the Polish gas resources seem to contain enormous potential. Conservative estimates set the volume of the reserves at 500 to 700bn cubic metres. Wood Mackenzie even expects possible reserves of 1.4tn cubic metres. So far 30 companies have secured themselves licences in Poland, among them Chevron, Lane Energy, BNK, Exxon, and ConocoPhillips. Geologists see a striking similarity between the Lublin basin and the Barnett shale reserves in Texas. In fact, the thickness of the Silurian layer14 of more than 200 metres seems to offer decidedly more potential than comparable reserves in the USA. Given that geological formations know no borders, the Ukrainian part of the Lublin formation could have an equally large potential. This would appear plausible and logical, given that ExxonMobil, ConocoPhilipps, Marathon Oil, and the national Polish oil company PGNiG have reported the acquisition of licences in Eastern Poland, directly along the Polish-Ukrainian border. Due to the current dependence on Russian gas imports the development of these gas reserves would be of considerable relevance to Poland's and Ukraine's future supply reliability.

The question of whether the geological setting in Europe is as good as in North America has not been answered yet. The pan-European co-operative research project GASH (Gas Shales in Europe) was founded with this in mind. It is coordinated by the geological research centre Potsdam, which provides information and investigates into new technologies for the efficient exploration of shale gas.

Daniel Yergin, Chairman of IHS CERA, said the most important innovation in the energy sector in the past decade was neither solar nor wind power, but unconventional gas. Peter Voser, CEO of Royal Dutch Shell, called shale gas the biggest hope for the future decades, not the least as gas causes only half as much toxic emission as oil. And Thierry Desmares, Chairman of the board of Total, recently voiced his doubts in public that the industry could ever produce more than 95mn barrels/day (+13% relative to the current output). Therefore there should be a focus on natural gas given that it was the only economically and ecologically agreeable alternative to oil. JPMorgan thinks that shale gas has the potential to replace 20mn tonnes of LNG by 2015, and 60mn by 2020. In Western Europe alone, JP expects 510tn cubic feet of shale gas reserves. This equals about the consumption of Germany for 175 years. Tony Hayward, CEO of BP, called shale gas a "game changer" as well given that it could also revolutionise the energy policy of the USA in the next 100 years. The following chart of the EIA also highlights the growing importance of shale gas.

After many multinational oil groups have missed the development, acquisition should pick up drastically. The takeover of XTO Energy by ExxonMobil worth more than USD 40bn was probably just the starting signal. It was the largest takeover of the sector in ten years and indicates the expected future perspective and relevance of shale gas. XTO has been active in the development of alternative gas resources for years and has amassed countless licences and an excellent expertise in the production of unconventional gas reserves. Moreover, Schlumberger recently announced the takeover of rival Smith Industries for USD 11bn. Just like BJ Services (that was taken out by Baker Hughes for USD 5.5 bln.), Smith specializes in a wide range of fracturing and shale gas drilling techniques. Total has entered into a joint venture with Chesapeake Energy, another leader in the area of shale gas. And the Japanese Mitsui has recently reported to invest USD 3bn in the development of the Marcellus shale reserves in Pennsylvania in a joint venture with Anadarko Petroleum.

Eoin Treacy's view Shale gas has the potential to change the energy landscape dramatically over the next decade since many of the most promising reserves, found so far, are in close proximity to end users as well as being in politically secure parts of the world. There has been a great deal of talk about the benefits of wind and solar as energy alternatives, but this argument stems from their green rather than economic credentials. Natural gas is considerably less polluting than oil or coal, is cheaper than green alternatives and shale gas discoveries indicate that supply is abundant. Therefore, natural gas is the clear alternative to oil over the medium to longer term, on green, supply and cost metrics. In the short term, demand will take time to catch up with this change of trend.

According to the author of this report, the great promise of this previously untappable resource is that energy independence is now a realistic proposition for the USA and, depending on the results of geological studies, Europe's situation could be considerably improved. This might sound a pipe dream but the result will surely mean that energy security is far less a problem than previously stated. Much will depend on the ability of companies to bring this new supply to market and to find more areas where natural gas can replace oil in transport, power generation and home heating. Given the downward pressure this new supply is putting on natural gas in nominal terms as well as relative to oil, it appears to be more a question of when rather than if, natural gas displaces oil in an increasingly large segment of the energy mix.

A search of the Archive using 'shale gas' as keywords will produce a number of results. Here is a link to Comment of the Day on December 15th. where Exxon Mobil's acquisition of XTO energy is discussed. Also see Comment of the Day on December 9th for a relatively extensive list of the companies involved in the sector.

Southwestern Energy is one of the few companies in the sector to have retested its 2008 high. It continues to consolidate between $40 and $50 and needs to hold above the former level if the medium-term bullish outlook is to be sustained.

Anadarko Petroleum remains in a consistent step sequence uptrend. It completed a mean reversion, defined by the 200-day moving average in December and retested it in February. The share broke upwards to new recovery highs four weeks ago and a downward dynamic would be required to check potential for a retest of the 2008 high near $80.

Apache Corp, EOG Resources and Noble Energy share a relatively similar chart pattern with progressions of higher reaction lows from the March 2009 nadir. They all found support in the region of the 200-day moving average over the last month and would need to take out February's lows to question the consistency of the medium-term move.

EnCana Corp, Canadian Natural Resources, Talisman Energy, Chesapeake Energy and Devon Energy have all been consolidating in the region of their October highs and have completed reversions towards their 200-day moving averages. Sustained moves below their means would be required to question scope for further higher to lateral ranging.

All of these companies are susceptible to a pullback in the oil price. However, provided oil's progression of higher reactions low remains intact, the ranging uptrend can continue to be given the benefit of the doubt.