The shale gas industry is facing much stricter regulation going forward and this has thrown up some compelling investment opportunities in related sectors, according to Impax Asset Management.

The so-called “shale revolution” refers to the increased use of shale gas as a cheap energy source – a trend which looks set to continue as the world searches for alternative energy sources. Shale means that new gas plants can quickly be brought online to plug the supply gaps left by wind and solar power, and so this gas source looks to be an important part of the flexible power generation which the future will bring.

However, while shale gas is a cheap energy source its production entails a process called hydraulic fracturing which requires huge volumes of water, containing a cocktail of chemicals, to be injected into each well. These massive volumes of water (estimates say that 70 – 140 billion gallons of water per year are used by the industry in the US) then have to be treated to ensure that they are safe after being forced back out of the well.

As regulations tighten on the shale gas industry, those firms helping suppliers to operate more efficiently, reduce pollution and meet increasingly strict environmental controls are poised to reap rewards, argues Bruce Jenkyn-Jones, managing director of the listed equity team at Impax.

Impax believes that four key areas are set to benefit from shale gas development, the first of which is the water sector, meaning firms involved in the sale of water chemicals, fracking pumps or wellheads. Also, we can expect an uptick in treatment for contaminated water and water recycling as regulation increases, Impax believes.

The second area to look at are firms involved in the testing of the output from wells and throughout the gas refining process, while the third are companies which help safely dispose of hazardous waste.

As regulation of the shale gas industry is ratcheted up, Impax also expects environmental consultancies to benefit as producers will require significant consulting advice to achieve compliance standards in the use of water, environmental assessments, site remediation and other activities such as tracking gas lost to the atmosphere and monitoring well-case linings. 

It has often been the case that industries tangential to a boom industry have been the real long-term beneficiaries of a trend – the classic example being the supplies shops which serviced those flocking to the California Gold Rush of the mid-1800s.

As such, with the shale gas explosion, “we could be about to witness a modern day equivalent of selling shovels during the gold rush,” said Bruce Jenkyn-Jones.