Shale gas has become an important feature of U.S. energy supply with a daily production increase from less than 1 billion cubic feet of gas per day (bcfd) in 2003, when the first modern horizontal drilling and fracture stimulation was used, to almost 20 bcfd by mid-2011, according to the Paragon Report from Paragon Financial Ltd.

While North American natural gas production is skyrocketing, prices have collapsed in recent years as demand has yet to match supply, according to the Paragon Report, which examines investing opportunities in the natural gas market and provides equity research on United States Natural Gas Fund and Cheniere Energy.

The price of natural gas in the United States has been cut in half from three years ago after new drilling techniques boosted output, Paragon says. However, two promising trends may be able to boost demand and shrink supply — stabilizing prices — in the coming years. Natural gas production in Canada, the world”s third largest natural gas producer, is declining at a significant rate. The Conference Board of Canada recently issued a report arguing that production is expected to drop over the next five years, led by declines in Alberta output, which is expected to slide by 20 percent. Drilling activity is expected to be weak for a third consecutive year as explorers shift from natural gas plays to oil plays, where more favorable pricing exists, Paragon says.

The United States” abundant natural gas reserves could provide a new path toward achieving energy security, according to Paragon. With clean energy still a top priority, Americans have begun heralding shale gas as a cheap and clean transitional fuel to renewable energy and President Obama has said natural gas has “enormous” potential as a clean energy alternative to oil.

However, concerns have been raised over water contamination from hydraulic fracturing, or “fracking, ” the technique used to extract shale gas, therefore, there is potential for regulatory scrutiny going forward.

Full Paragon reports can be found at paragonreport.com.