How to cash in on America's next energy rush

Twenty years ago, Fort Worth, Texas, was a much different place than it is today. Once an unremarkable Dallas suburb, it has blossomed over the last two decades into the most important natural gas hub in the United States.

Just this week, I flew into the Dallas-Fort Worth Airport. Driving around, I was struck by how the typical suburban landscape in Fort Worth has been overrun with natural gas infrastructure. Natural gas pipes wend their way through the community. New pipeline rights of way and wells are everywhere. Companies are leasing subdivisions cul-de-sac by cul-de-sac to drill beneath them for gas.

You see, Fort Worth sits in the heart of the gas-rich geologic formation known as the Barnett Shale. Shale is a sedimentary rock made of fine particles of clay and mud deposited at the bottom of ocean basins or giant lakes. The shale oil and gas companies covet has a lot of old plants and algae mixed in. That kind of shale makes natural gas and sometimes oil over time. The Barnett Shale is a textbook example.

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Here's what Oil and Gas Investor recently said about the Barnett Shale:

"With high-profile Barnett asset sales of more than $1 billion and gross production topping 1 billion cubic feet per day (bcf) and even the Fort Worth City Council willing to lease city land for drilling no one needs to be convinced that shale plays are valuable, highly prospective and worth a closer look."

Indeed, the boom is on... Between 2004 and 2007 alone, the number of well permits issued by the state for the Barnett Shale rose 231%, from 1,112 to 3,679. As of June 3, energy companies had drilled 7,766 gas wells in the Barnett Shale, and drilled and permitted another 4,661 wells.

The Barnett Shale adds $5.2 billion per year to the Fort Worth economy. You can expect that to double in the next seven years.

And plenty of energy companies have made fortunes in the Barnett Shale over the last five years. One company in the S&A Oil Report portfolio, XTO Energy (XTO), went from $32 per share to more than $73 at its peak in just two years. Another Barnett player, Quicksilver Resources (KWK), went from $19 to $45 this year alone.

The U.S. consumes about 23 trillion cubic feet of natural gas per year, but only produces about 19 trillion cubic feet. Canada supplies the rest, but it is falling short. Between a lack of drilling and the increased use in developing tar sands, Canada's exports will dwindle.

That means the future of U.S. natural gas prices looks good for the long run.

Of course, the run-up in share prices for Barnett Shale developers like XTO and Quicksilver means we won't find a lot of bargains there. But seeking to repeat its overwhelming success in Barnett, the energy industry has turned its attention to an equally promising shale region this one in the birthplace of the U.S. petroleum industry, Pennsylvania.

Central Pennsylvania is flush with a dark, organic-rich shale industry professionals compare to the Barnett Shale. The shale, called Marcellus, has the kind of potential to turn poor farmers into millionaires.

Importantly, these gas-rich shale beds are close to the demand centers of the urban corridor from Boston to Richmond unlike natural gas stranded in Colorado and Wyoming.

In 2002, the U.S. Geological Survey estimated these eastern shale beds hold 30.7 trillion cubic feet of natural gas that's a little more than a year's worth of consumption for the entire U.S. But more recently, Schlumberger's engineers updated those estimates, taking into account the technological advances from 2002 to today. Schlumberger puts the volume up as high as 1,000 trillion cubic feet more than 32 times the old estimate.

Right now, companies are rushing to the shale region of Pennsylvania the way they did in Fort Worth a few years ago. Pretty soon, companies working there will see their shares take off the way Barnett developers did.

I'm a long-term natural gas bull, so I think you'll do well in several different kinds of investments here... from pipelines to ETFs to exploration companies. But for the biggest returns, I recommend focusing on Pennsylvania the site of the next great American energy boom.

This article was written by Matt Badiali, editor of the S&A Oil Report, and published in DailyWealth, a free daily investment letter. To receive a free report on our latest way to potentially make hundreds of percent returns with very little risk, click here.