With all the attention paid to fracking—and the oil and gas sectors generally—many want to know where the good investment opportunities are. Are fracking companies set on ♏finding oil or natural gas a good bet? Do you need to invest in fracking infrastructure?

What Is Fracking?

Fracking is short for 澳洲幸运5官方开奖结果体彩网:hydraulic fracturing, also kn♔own as hydrofracking, which is a process that allows companies to more easily extract oil and gas by artificially breaking up rocks in the way.

Typically, a fracking process involves drilling a well, which is designed to go horizontally through the rock. Then water is pumped into the well, and mixed with a substance called a 澳洲幸运5官方开奖结果体彩网:"proppant," which is usually sand. A trace of other chemicals is often added to inc💙rease the viscosity of the fluid, such as guar gum.

The pressure fractures the rock, allowing whatever hydrocarbons are in it to flow more freely and exit through the well. The proppant helps keep those cracks open, and the result is more natural gas and oil. Hydraulic fracture is generally used on rock that ordinarily wouldn't be permeable enough to allow oil and gas out fast enough to be profitable.

It's an old technique, but it was only the twin pressures of higher 澳洲幸运5官方开奖结果体彩网:oil prices and improved technology for digging that made it what it is today: the source of 78% of the natural gas production in the United States.

Big Companies Trailing

The companies that do the fracking are a varied lot. There are some big, familiar energy giants in that group, such as Chevron Corp. (CVX), ExxonMobil Corp. (XOM), and ConocoPhillips Co. (COP).

However, the big petroleum companies have more often been on the trailing edge of the boom that fracking has produced; only Conoco is primarily a natural gas company and it has shifted away from ⛦that.

More often, the traditional 澳洲幸运5官方开奖结果体彩网:oil producers own the leases to the land on which fracking is done and contract the work out to o🐼ilfield ♋services companies.

, managing director and energy equity research analyst at Cowen Inc., notes that the pressure pumping and drilling businesses don't have high 澳洲幸运5官方开奖结果体彩网:barriers to entry, as getting the pumping eq𝓡uipment is relatively easy to do.

At the same time, that also puts a cap on profit margin growth, as competition holds prices down. And big players, like Halliburton Co. (HAL), are still in the industry as 🧜well. "It ends up with some pretty seᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚvere booms and busts in that business," he says.

Growing Demand

The bust, though, might still be some years away. The demand for energy—and natural gas—has been increasing steadily. This is, after all, a big reason why hydraulic fracking is worth doing. In 2023, the United States set a new record using 89.4 billion cubic feet per day of natural gas, up 1% from the previous year.

Then there are the companies that provide the equipment to do the fracking, and the sand that goes into the water used to fracඣture the rock. Bianchi says one interesting area regards proppant providers.

U.S. Silica Holdings In💎c. and Emerge Energy Services LP are two examples of companies that have benefited from the increased aꦅctivity in both oil and gas extraction.

Bianchi says it's actually more difficult to add supply in this market, so the product providers tend to be more insulated from competition. At certain points in time, the stocks of both U.S. Silica and Emerge have produced five-year returns measured in the hundreds of percentage points.

Not Just Gas Prices

For anyone wanting to play in the fracking space, oil prices are going to be a factor. Natural gas and oil are different markets, in the sense that oil i𓆏s global while natural gas is more localized.

The extraction of natu⛦ral gas, though, tends to track oil production because the types of rock that produce natural gas also happen to be the ones that carry oil. Historically, a lot of natural gas production is a byproduct of oil production.

That's changing, however, as there are "pure" gas plays as the technology has developed for getting gas out where oil isn't worth it.

Exporting

Another factor to consider in investing in fracking infrastructure is exporting natural gas. In 2022, the U.S. exported some 6.90 trillion cubic feet of natural gas to 46 countries, according to the EIA (the latest figure available).

That's the highest on record; in fact, the trendline has been steeply rising since 2000, when the U.S. sent out 240 billion cubic feet. Almost all of it leaves the country via pipeline to Canada and Mexico.

The wild cards in this are Europe and Japan. To be sent to either place, natural gas has to be liquefied, which costs a significant sum to make economic sense. The price of natural gas has to stay relatively high in Europe and Asia while staying low enough in the domestic market that it isn't simply more profitable to sell it here.

This did shift majorly when Russia invaded Ukraine in 2022 and the European Union slowly weaned itself off of Russian natural gas. A large part of that shortfall ༒has been replaced by U.S. natural gas, which has to be liquefied before being transported. This resulted in Europe significantly expanding its LNG infrastructure to accommodate the change.

The Bottom Line

With a low barrier to entry, the amount of competition to drill for and extract oil and gas via fracking t🉐ends to keep profits down, not to mention the relatively low price of gas. The companies that provide the infrastructure and services to frackers could be the better investment.