Chesapeake Energy Corporation (CHK), Devon Energy Corp (DVN), The Dow Chemical Company (DOW): Is This the Next Natural Gas Hot Spot?

But can it be made economical?
While frozen gas deposits could provide Japan with an energy source to call its own and a greater degree of independence from LNG imports, the cost issue remains the largest hurdle to cross. Until extracting gas from methane hydrate can be made economically viable, those vast reserves of undersea frozen gas are pretty much useless.

In its latest breakthrough, the team aboard the drilling ship used a depressurization method, a technology first utilized by Japan and Canada when they joined forces in 2008 to test production from frozen gas in northern Canada’s permafrost. According to JOGMEC, Japan aims to make the technology commercial by 2018.

Final thoughts
There are some obvious similarities between Japan’s recent discovery and the beginning of the shale revolution in that researchers have long known that gas hydrates under the ocean existed, just as they knew for decades that some shale formations held massive quantities of oil and gas. So, in that sense, the fact that we now know it’s possible to extract gas from these frozen deposits is a major step forward.

However, the future of gas hydrate extraction technology will depend crucially on bringing costs down so as to make it economical. If and how fast that occurs will largely be determined by the results of current tests, such as those being conducted by Japan, as well as projects being carried out by the U.S. Department of Energy as part of its broad investigation into the potential of gas hydrates as a future energy supply.

While most commentators have hailed Japan’s breakthrough as a promising development, few expect gas hydrate extraction technology to gain commercial popularity within the next few years. But then again, very few saw the shale revolution coming, either, so who knows what the future will hold.

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Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.

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