In less than five years, the natural gas business has gone from shortage to surfeit. Technological breakthroughs have unlocked massive quantities of natural gas from shale deposits that were previously thought to be uneconomic. The result? The U.S. no longer needs to import huge quantities of natural gas. Domestic gas resources should easily last many decades.

Relatively inexpensive, abundant supplies of natural gas will affect everything from electricity generation to petrochemical production. And while the effects of what is now known as the shale-gas revolution will be felt most quickly in the U.S., the technologies behind that revolution are going global.

1. Natural gas saves consumers money

Between 2005 and 2008, U.S. natural gas prices averaged about $7 per million British thermal unit (Btu). But thanks to surging production, natural gas prices in 2010 had fallen to an average of about $4.25 per million Btu. That price reduction of about $3 per million Btu is now saving U.S. consumers about $65 billion per year or about $180 million per day—savings which are particularly important in an economy characterized by high rates of unemployment, stagnant wages, and rising prices for commodities such as corn, oil, coffee, sugar and copper.

Consumers are saving money because U.S. drillers are producing record amounts of natural gas. In 2010, U.S. natural gas production was 21.5 trillion cubic feet (Tcf), only a bit shy of the production record (21.73 Tcf) set in 1973. And the nation is using more natural gas than ever. In 2010, consumption hit a record 24.1 Tcf, an increase of nearly 6% over the 2009 level.

Even better news may be ahead. Analysts are expecting a sustained period of robust gas production and relatively low prices. There are many reasons for this expectation, but chief among them is this: Domestic gas producers are, in many cases, compelled to continue drilling even though the return on their investments may be minimal.

Why? Because many U.S. energy companies have leased properties with contracts that require them to drill within a certain time frame. If they do not drill, they could lose the money invested in the lease.

2. If it’s not going to be nuclear, it’s got to be gas

In response to the accidents at the Fukushima nuclear reactors in Japan, electricity generators around the world have announced plans to slow, or even halt, the development of new reactor projects. Environmental groups have seized on the problems in Japan to promote their anti-nuclear agenda. For example, on March 26, 2011, some 200,000 protesters took to the streets in Berlin and other German cities to urge that country’s leaders to abandon nuclear energy altogether.

But if nuclear energy is taken off the table, then natural gas is the only non-coal energy source that can provide dispatchable electricity generation in the volumes needed and at affordable prices. Concerns about global carbon dioxide emissions provide yet another argument for natural gas, which produces about half as much carbon dioxide during combustion as coal. Furthermore, unlike coal, natural gas produces almost no air pollutants and no solid waste. Although some environmental groups and a few politicians are using the Fukushima mess to push for increased use of renewables, wind energy and solar energy simply cannot provide the vast quantities of electricity that the world demands and at prices consumers can afford.

3. Natural gas is abundant and the globalization of the gas market is accelerating

In June 2005, Lee Raymond, then-chief executive of ExxonMobil Corp., stated the accepted wisdom when he declared that “gas production has peaked in North America.” That month, U.S. gas production totaled 1.53 Tcf. In June 2010, exactly five years after Raymond made his declaration, U.S. gas production hit 1.75 Tcf, an increase of 14% over the level achieved in June 2005.

Surging gas production in the U.S. is being matched by increased natural gas availability around the world. Indeed, global markets are now awash in gas. In November 2010, the chief economist of the International Energy Agency (IEA), Fatih Birol, said that the world is oversupplied with gas and that “the gas glut will be with us 10 more years.”

This surfeit of gas stems from soaring production of unconventional gas as well as huge increases in natural gas liquefaction capacity in Qatar, Russia and Nigeria. Although the U.S.—and the rest of the world—is producing and using more natural gas than ever, gas resources continue to grow apace.

One of the great paradoxes of the global gas business is that the more gas the world uses, the more gas it finds. In 1970, about 10 countries were producing more than 1 billion cubic feet (Bcf) of gas per day. By 2009, 41 countries were producing at least 1 Bcf per day.

4. Unconventional gas is driving unconventional oil production

Meanwhile, the revolution in unconventional gas has fostered breakthroughs in unconventional oil. By using horizontal drilling and hydraulic fracturing on low-permeability formations, drillers are now unlocking huge quantities of liquid hydrocarbons. Those breakthroughs are reshaping the U.S. oil business, a sector that has been on a long, steady decline since production peaked in the early 1970s.

In 2010, U.S. crude oil production was 5.5 million barrels (bbl.) per day, the highest level since 2003. Some analysts are now predicting that domestic oil production could increase by as much as 1 million bbl. per day during the next five years.

The importance of unconventional oil can be seen by looking at the Bakken shale, a giant formation which underlies parts of Canada, Montana and North Dakota. In July 2010, oil production in North Dakota averaged some 303,000 bbl. per day, more than triple the amount produced in July 2005. North Dakota now ranks fourth among U.S. states in oil production, ahead of more familiar oil-producing locales like Wyoming, New Mexico, Oklahoma and Louisiana.

North Dakota regulators are predicting that production could hit 700,000 bbl. per day by 2018. Furthermore, some industry officials are now saying that the Bakken alone may hold as much as 24 billion bbl. of recoverable oil.

The increasing push for unconventional oil is having a knock-on effect on natural gas production. As more companies are drilling for oil in low-permeability reservoirs, they are also producing significant quantities of natural gas. The economic returns from oil-focused drilling depend largely on the value of the liquids extracted, not the gas. For some operators, therefore, the gas that comes up alongside the liquids is, from an economic perspective, essentially free.

5. Unconventional oil production is stimulating the U.S. petrochemical sector and global oil production

In September 2010, U.S. production of natural gas liquids (NGLs) hit a record 2 million bbl. per day. That surging production of ethane and other NGLs has spurred several petrochemical companies to announced major expansion plans.

ChevronPhillips Chemical Co. and Eastman Chemical Co. have both announced plans to restart production at dormant plants. In December 2010, Dow Chemical Co. reported a plan to upgrade its capacity to crack ethane (high-temperature cracking is one of the first steps in the petrochemical production process) in the U.S. by up to 30% during the next three years.

Indeed, for the first time in decades, petrochemical producers and refiners are saying that the U.S. has a competitive advantage over the rest of the world due to the abundance of low-cost feedstock and relatively cheap natural gas.

The potential turnaround in the petrochemical and refining sector provides some much-needed good news for the U.S. manufacturing sector, which has been steadily losing jobs for many years. Finally, just as unconventional gas is going global in places like Europe and India, so, too, is unconventional oil. In February, Continental Resources Inc., an Oklahoma-based company, announced that it is hoping to begin drilling in the Paris basin in France. The company says it believes there are “significant recoverable oil reserves” in the shale formations near the French capital.

6. Huge gas production and vast infrastructure make the U.S. uniquely positioned to take advantage of the shift to natural gas

The U.S. is the world’s largest producer and consumer of natural gas and, with some 2.2 million miles of gas pipelines, it has the world’s most extensive gas-distribution network.

Added to the pipeline systems is more natural gas storage capacity than any other country. Its 4 Tcf of natural gas storage capacity is 10 times the capacity of France and nearly six times that of Germany. Gas storage provides a vital buffer against transportation and supply interruptions. Also, the U.S. is home to the biggest, most transparent and most liquid gas trading market.

In addition, the robust natural gas system can be leveraged to increase the use of natural gas for electricity generation and provide opportunities to increase its use for transportation. Currently, the volume of natural gas used for transportation is miniscule when compared to that used for electricity generation. For example, in 2009, the amount of natural gas consumed by the transportation market averaged just 87 million cubic feet (MMcf) per day. That’s nearly insignificant in a market that burns about 62 Bcf per day.

Nevertheless, the use of natural gas in transportation is increasing. Between 1999 and 2009, domestic consumption of natural gas in the transportation sector nearly tripled. That growth will likely continue over the coming decades, particularly if natural gas prices stay relatively low and crude oil prices rise.

7. Coal regulations lead to fuel switching

In recent years, owners of coal-fired power plants have been facing an increasing myriad of regulatory challenges, including increasingly stringent standards on air quality, restrictions on heavy-metals emissions and possible new rules on the management of coal ash.

In 2005, the Environmental Protection Agency issued the Clean Air Interstate Rule to cut releases of sulfur dioxide and nitrogen oxide by as much as 70% by 2015. Also, the agency issued the Clean Air Mercury Rule to cut the releases of mercury from coal-fired power plants.

U.S. coal-fired power plants release some 96,000 pounds of mercury into the air each year. In addition to mercury, coal plants release significant amounts of lead, chromium and arsenic. Cutting the emissions of these toxins will cost the owners billions of dollars.

Add in the possibility of taxes or caps on carbon dioxide emissions, and coal’s disadvantages become even more apparent. Rather than install all the equipment needed to cut emissions, many companies will switch to natural gas.

Coal’s share of the power market has been flat since the mid-1990s. In fact, between 1997 and 2009, the amount of electricity generated by coal actually declined slightly, falling from 1,845 billion kilowatt hours to 1,764 billion kilowatt hours. During that period, nearly all the growth in U.S. electricity generation came from natural gas.

In November 2010, analysts at Deutsche Bank estimated that 60 gigawatts of older, inefficient, coal-fired generation capacity will be retired by 2020 and another 92 gigawatts will be retired by 2030. Most of that 152 gigawatts will be replaced by natural gas-fired units. Deutsche Bank estimates that coal’s share of U.S. electricity generation will fall from nearly 50% today to about 22% in 2030.

8. Low-cost natural gas means lower-cost electricity

There are many reasons why natural gas will retain a cost advantage over other forms of electricity generation. Perhaps the most important of them is that, in some areas of the U.S., natural gas is now cheaper than coal.

Also, new gas-fired power plants have shorter lead times than other forms of conventional generation. A gas-fired plant can be built in about two years. A comparable coal plant can take twice as long. And, in the wake of Fukushima, the permitting process for a new nuclear plant in the U.S.is likely to become extremely lengthy.

9. Decarbonization and urbanization favor natural gas

Two current key trends point to natural gas as the energy of the foreseeable future. First is the decarbonization trend, which can be understood by looking at the ratio of carbon to hydrogen atoms in the most common fuels. From pre-history through the early1800s, wood was the world’s most common fuel. Wood has a carbon-to-hydrogen ratio (C:H) of about 10:1.

Then, wood lost its dominance to coal, which has far higher energy density, and a C:H ratio of about 2:1. Later, coal lost market share to oil, which has a C:H ratio of about 1:2. Natural gas has a C:H ratio of 1:4, or one carbon atom for every four hydrogens. In 2005, Italian physicist Cesare Marchetti wrote about the decarbonization trend and declared that for the next five decades natural gas “is to be the dominant primary energy.”

The second key trend is urbanization. As millions more people move into cities, they are living in much closer proximity. That proximity, by necessity, requires the use of easily transported, clean-burning fuels. That largely disqualifies bulky fuels such as wood and coal. And it favors fuels like natural gas and NGLs such as propane and butane.

10. Global electricity demand is growing

During the past two decades, electricity use has grown faster than any other type of fuel consumption. Between 1990 and 2007, electricity use increased by about 68%, nearly three times as fast as the growth in oil consumption during that period.

Demand for electricity will continue to grow. In late 2010, the IEA projected that global electricity demand will soar by some 80% by 2035. The vast majority of that electricity will have to be produced from hydrocarbons. And the hydrocarbon of choice will be natural gas.