The rush to develop liquid-rich oil and gas basins by the exploration and production industry is leading to significant increases in production of other hydrocarbons, including ethane and natural gas liquids. The industry is dealing with this issue by constructing infrastructure to process and transport these liquids to end markets and users. (To help you invest in this industry, read A Guide To Investing In Oil Markets.)


Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Ethane
Ethane is a chemical compound that exists in a gaseous state at standard temperatures and pressures. It is present in the production stream generated from many domestic natural gas wells.

Natural gas that contains ethane is sometimes referred to as "wet" gas and is sought after by the industry, since ethane and natural gas liquids can be extracted from the natural gas stream and sold separately. This increases the revenues generated compared to a dry gas well.

Ethane is used by the chemical industry as a feedstock to produce ethylene, which is then used to manufacture a number of polymers used to produce products in the consumer and industrial marketplace.

Industry Activity
Range Resources (NYSE:RRC) is active in the Marcellus Shale and anticipates rising ethane production from its development here. The company estimates that its position in southwest Pennsylvania contains total resource potential of 500 million barrels of ethane.

Range Resources estimates that a typical wet gas well in the Marcellus Shale will generate revenue of $6.34 per thousand cubic feet, with NYMEX natural gas prices of $4.

Range Resources recently signed an agreement to supply ethane to NOVA Chemicals, which is revamping a facility in Ontario, Canada. The ethane will be transported as part of the Mariner West Project, a system designed to process and transport ethane to the Canadian market. The project will be able to scale up to 65,000 barrels per day of capacity and will be in service by 2013.

The Mariner West Project is being jointly developed by Sunoco Logistics Partners (NYSE:SXL) and MarkWest Energy Partners (NYSE:MWE).

NOVA Chemicals is diversifying its supply, and in July it signed a memorandum of understanding with Statoil (NYSE:STO) to purchase ethane from the company's Marcellus Shale properties.

Integrated Oil Companies
Integrated oil companies are taking a different approach to ethane. Royal Dutch Shell (NYSE:RDS.A, RDS.B) entered the Marcellus Shale in a big way in June 2010 through a $4.7 billion acquisition of a private oil and gas company that held 650,000 net acres. Royal Dutch Shell is considering building an ethylene cracker plant in the Appalachian Basin to handle ethane production from its own leasehold as well as from other operators in the region.

The Bottom Line
The rapid development of onshore domestic oil and gas basins is having a number of collateral effects that are forcing the industry to invest billions in infrastructure. These investments will help the unemployment situation in the United States as well. (If you are interested in investing in natural gas, see Natural Gas Industry: An Investment Guide.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
  2. Stock Analysis

    The Top 5 Platinum Penny Stocks for 2016 (PLG, XPL)

    Examine five penny stocks in the platinum mining business that investors may wish to consider adding to their investment portfolios for 2016.
  3. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
  4. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  5. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  6. Stock Analysis

    Analyzing Dish Network's Return on Equity (ROE) (DISH, TWC)

    Analyze Dish Network's return on equity (ROE), understand why it has vacillated so greatly in recent years and learn what factors are influencing it.
  7. Investing Basics

    The Importance of Commodity Pricing in Understanding Inflation

    Commodity prices are believed to be a leading indicator of inflation, but does it always hold?
  8. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  9. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  10. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center