Seen as a more abundant and cleaner alternative to coal and oil, the U.S. has gone gaga for natural gas. New horizontal drilling techniques have allowed companies to tap various shale formations, creating new sources of supplies, and have started a new natural gas "gold rush". One of the biggest supply sources lies in the Pennsylvania foothills. Covering 65 million acres, or approximately two-thirds of Pennsylvania's land mass, the Marcellus Shale formation has the potential to impact not only the future of Pennsylvania but the United States as well. Playing the region's activity could be one of the best portfolio positions for years to come.

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The Keystone to Our Natural Gas Future
Pennsylvania has had a long history of energy production in the U.S. After all, the first oil well in our nation was tapped in 1859 near Titusville, not in Texas, as many people would guess. The state is now home to one of the biggest natural gas booms. The IEA estimates that global consumption of natural gas will rise by more than 50% over the next 25 years, and the state's massive Marcellus rock formation contains one of the richest natural gas deposits in the world. Overall, the U.S. Geological Survey reports that the Marcellus Shale holds 84.2 trillion cubic feet (Tcf) of natural gas combined with 3.4 billion barrels of natural gas liquids. This is quite an increase based on the agency's previous report in 2002, which indicated that the rock formation contained only 1.9 Tcf of natural gas.

Those resources are finally being tapped, and natural gas production has started to grow rapidly in Pennsylvania. With nearly 1,632 producing wells within the region, Pennsylvania extracted 432.5 billion cubic feet of gas during the first six months of the year. That's a 60% increase from the amount of gas produced during the second half of 2010. The northeastern region of the state has seen its natural gas production reach 2 billion cubic feet per day, or about 750 billion cubic feet per year. Pennsylvania, with a small contribution from West Virginia, now accounts for more than 85% of all the natural gas produced in the Northeast. By 2020, the Marcellus Shale Commission estimates that formation could produce 17.5 billion cubic feet per day, or about 25% of the nation's total production.

Playing Pennsylvania's Energy Resurgence
With the long-term potential of Marcellus shale to change the future of energy production within the United States, investors should consider adding exposure. Broad-based funds like the First Trust ISE-Revere Natural Gas (NYSE:FCG) or the Jefferies TR/J CRB Wildcatters E&P Equities (Nasdaq:WCAT) make adding that exposure easy. However, there are plenty of individual ways to win.

Gathering and moving all of this newly produced natural gas will be a boom to pipeline owners. Williams Partners (NYSE:WPZ) continues to add gathering systems within the Marcellus region. The company recently purchased 75 miles worth of pipelines from Cabot Oil & Gas (NYSE:COG) and has begun construction on a 33.5-mile pipeline that will move 250 million cubic feet of natural gas per day eastward. Williams plans on spending nearly $2 billion over the next year on CAPEX in the region. Similarly, both MarkWest Energy (NYSE:MWE) and Sunoco Logistics (NYSE:SXL) have assets in the region as well.

Playing Shale's Production Side
For those investors who wish to play the production side of the shale, Range Resources (NYSE:RRC) could be the top play. The company is largely focused on the Marcellus and has approximately 900,000 net acres under lease. Small-cap Rex Energy (Nasdaq:REXX), along with natural gas leader Chesapeake (NYSE:CHK), are ideal plays as well.

With the study by the Marcellus Shale Commission showing that increased natural gas production could support more than 256,000 jobs and add an additional $20 billion into the Pennsylvania economy, the long-term picture for Pennsylvania's municipal bonds seems rosier. Utah's recent resurgence is a perfect example. Funds like BlackRock MuniYield Pennsylvania Fund (NYSE:MPA) and Nuveen Pennsylvania Quality Municipal (NYSE:NQP) could see their underlying bonds strengthen and be great ways to add some yield.

The Bottom Line
The Marcellus shale rock formation has the potential to change America's energy future. Tapping that natural gas has just recently begun, and for investors it represents one of the more exciting portfolio opportunities. The previous stocks, along with Ultra Petroleum (NYSE:UPL), make ideal choices in playing that future. (For additional reading, see our Oil And Gas Industry Primer.)

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