There’s more shale gas coming online.
The fact above shouldn’t be news to you. But when we dig a little deeper, as we did last week, you’ll see that there’s a profitable bottleneck setting up with “wet” byproducts from shale gas.
Just to recap, with more shale gas coming online, there’s an increased need to separate the wet hydrocarbons from the dry methane. These wet byproducts are the key. Not only are shale gas wells producing tons of consumer-grade natural gas (mainly methane), they are also churning out lots of byproducts.
This is where our opportunity lies. These hydrocarbon byproducts have a lot of value — they include some familiar household names like butane, propane and some less commonly known names like ethane.
Ethane in particular can be “cracked” to make ethylene, a common feedstock for the plastics industry. This sector is set to explode with demand in the coming years, so the added feedstock supply is very welcome and profitable.
To be clear, the companies that can increase their capacity to produce these byproducts and get them to market will profit. And today, I’d like to look at a few of the more-appealing choices. So let’s get to it…
Much as with the shale gas revolution that’s sweeping the nation — there will be regional pockets of opportunity for “wet” byproducts. So all the common shale gas names — Marcellus, Eagle Ford, Barnett, Haynesville, Fayetteville and others — are poised for byproduct profit.
Let’s start with the Marcellus.
Shell Oil Co. (NYSE: RDS.A) recently announced that it will develop a cracker to produce an ethylene and potentially a polyethylene plant in the Appalachian region. These new plants would serve Pennsylvania, West Virginia and Ohio.
According to a June article from Plastics News:
The decision is being prompted by discoveries of massive amounts of natural gas in a geological formation known as Marcellus Shale. Natural gas can be used to make ethane, which is then converted into ethylene. The new discoveries are leading the industry’s top firms to reconsider their approach to ethylene and related plastic products in the region.
Surely, Shell Oil put a lot of man-hours into the planning of this ethylene plant and its location. Shell is no newcomer to the ethylene game, either — in fact, it’s a world leader in ethylene production. To see Shell moving into the region, you know something big is set to happen.
Along with Shell, some other big players are moving into the U.S. ethylene space.
Down south, nearer to the Gulf of Mexico — serving various conventional and shale deposits — Chevron Phillips (A joint venture between Chevron Corp. (NYSE: CVX) and ConocoPhillips (NYSE: COP) is planning a huge ethane cracker.
According to the press release:
Chevron Phillips Chemical Co. LP (Chevron Phillips Chemical) today announced that it is advancing a feasibility study to construct a world-scale ethane cracker and ethylene derivatives at one of its existing facilities in the U.S. Gulf Coast region. The new facility would utilize the advantaged feed sources expected from development of shale gas reserves…
“A project of this nature would afford Chevron Phillips Chemical an exciting opportunity to meet growing customer demand while at the same time supporting national, state and local economies in a very meaningful way,” said Tim Taylor, COO for Chevron Phillips Chemical. “We intend to expedite our development decisions to capitalize on the advantaged feedstock position that shale gas resources could bring to the chemical industry in the U.S.” The feasibility study is expected to be complete by the end of 2011.
When this cracker comes online, it’ll be a one-stop shop for ethylene production — and lots of it. Indeed, ethylene is a big business, and it’s getting even bigger in the U.S. — coming to a shale gas patch near you.
Truly, we’re in the early innings here. When you see names like Shell, Chevron and ConocoPhillips digging in and developing plants, you know there’s money to be made.
But there’s more…
Along with ethylene production, there are other ways to profit from these “wet” byproducts.
One such way is to look at the guys that are fractionating (separating) the gas straight from the wellhead and transporting the usable feedstock components downstream.
One such company is Dominion Resources Inc. (NYSE: D). Dominion recently announced a project to utilize the wet Marcellus gas with increased processing and new lines of transportation.
According to the press release:
Dominion Transmission’s Marcellus 404 project is designed to provide firm and interruptible transportation, as well as gathering and processing services, for up to 300,000 Mcf (thousand cubic feet) per day of natural gas. Fractionation capacity for 32,000 barrels per day of natural gas liquids will be available.
That’s a lot of Marcellus gas that’s set to be separated — and surely, these plants will be running full tilt once constructed.
So while industries like this used to be located all over the world — in Singapore, Russia and the Middle East, to name a few places — they’re now popping up in the U.S.
Plants are being built and jobs are being created. Now’s the chance for early investors like you to profit from energy production and wet byproducts in your own backyard.
Keep your boots muddy,
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