The U.S. oil and gas business is all about shale these days. According to recent IHS Cera studies, gas production from shale plays grew to 27% of total U.S. natural gas production in 2010. By September 2011, it had reached 34%. By 2015, that share is predicted to top 43% and will more than double, reaching 60% by 2035.

Nearly $1.9 trillion in shale gas capital investments are expected between 2010 and 2035. Capital expenditures are especially strong in the near future, growing from $33 billion in 2010 to $48 billion by 2015.

And in 2010, the shale gas industry supported 600,000 jobs. That statistic is expected to reach some 870,000 in 2015 and to more than 1.6 million by 2035. Inarguably, one of the largest drivers to such phenomenal numbers is the Marcellus shale play.

Despite the past few years of frenzied development, the Marcellus shale gas and liquids play in the northeastern U.S. continues to excite all segments of the energy industry. Upstream exploration and production companies like its vast and dependable hydrocarbon resource. Midstream operators like the growth opportunities in the region because it lacks sufficient gathering, processing and transmission infrastructure to handle production volumes. And downstream electric-power generators and petrochemical companies like the play's low-cost natural gas and natural gas liquids (NGLs) for use as feedstock.

From the initial stages of exploration through ongoing production, gathering, processing and transmission activities, the building blocks of the Marcellus resource promise new opportunities for decades to come.

Exploration

The Marcellus play is a relatively new frontier for exploration, compared to more developed and mature shale plays such as the Barnett in Texas. The Marcellus spans five states: Pennsylvania, Ohio, West Virginia, New York and Maryland, and is considered to be the second-largest natural gas field in the world.

Hundreds of requests for new well permits continue to be filed each month. In January 2012, in Pennsylvania alone, nearly 600 well permits were issued, and more than 400 of those targeted the Marcellus formation.

About 1,800 Marcellus wells were drilled in 2011. Yet, rig counts change frequently. According to Smith International, during the week of February 17, West Virginia lost 8 rigs (22.9%) and Pennsylvania lost 7 rigs (5.4%). In total, West Virginia had 27 rigs, Pennsylvania had 122 rigs and Ohio had 9 rigs. In February, the U.S. gas rig count fell to its lowest level in 28 months, to 720, according to the Baker Hughes rig count.

Jack Sordoni, president of Homeland Energy Ventures LP, believes that, while some opportunities exist in the Marcellus shale, low gas prices continue to be the big challenge in northeastern Pennsylvania. In the southwest, and in the northern part of West Virginia, the gas gets a little wetter, so it gets a little better, he says.

Formed in January 2004, Homeland Energy Ventures LP facilitates gathering for 259 shallow oil and gas wells that do not produce from the shale play, yet are located in the fairway, so the company is very familiar with the Marcellus. Homeland Energy is heavily involved in leasing land in the area and has been since the beginning of the play.

"We've been there long enough that many landowners turned to us for help with executing their lease agreements," says Sordoni. "When operators are selling dry gas for less than $3 per thousand cubic feet, and next door in Ohio there is a liquids-rich and oil play, the economics are better in the short term for companies to be placing their capital in those areas. It's about the same amount of expense, but with up to five times more value." As a local, Sordoni says it is clear that many wells are being drilled to hold leases, and not necessarily for short-term economics.

Also, more midstream infrastructure is needed, including gathering in the dry-gas areas and processing in the rich-gas areas, he says. While processing facilities are keeping pace with production for now, capacity could become constrained when the play is fully developed.

Meanwhile, the change in the Pennsylvania's governor office, with the election of Tom Corbett, has been a "net-positive" for the Marcellus development, he says. "We see a lot of growth opportunities, but we have to re-invent ourselves on an as-needed basis like everyone else. More of our attention is being spent in the areas of greater leasing activity, which is currently in Ohio in the Utica shale."

The Point Pleasant section of that play goes as far north as Trumbull and Portage counties in Ohio, but not many horizontal wells have been drilled north of that, he says. "Any farther north than that is to be determined, and any farther west, such as in Guernsey or Harrison counties, is also to be determined." In general, Sordoni believes that everything that "can be done, should be done" to facilitate the industry's delivery of the resource.

Production

Pennsylvannian Marcellus production grew from 533 million cubic feet (MMcf) per day in a one-year period ending June 2010, to 1.49 billion cubic feet (Bcf) per day at the end of 2010, and 2.4 Bcf per day at the end of June 2011, according to the latest numbers available from the Pennsylvania Department of Environmental Protection. The play produced about 435.2 Bcf of gas from January to June in 2011.

Yet, producers are shifting spending from pure dry-gas wells to oil and gas-liquids wells. However, oil and rich-gas wells also produce associated gas, so no significant drop in gas production is expected in the near term.

In fact, barring any significant change, this year could finish with a record high for national marketed gas production, near 67.64 Bcf per day, making it the second record year in a row. The steep rise in Marcellus gas production accounts for about 40% of the more than 5 Bcf per day year-over-year growth plaguing U.S. gas markets.

The top 10 Marcellus production companies, in descending order, are Chesapeake Appalachia LLC, Talisman Energy USA Inc., Cabot Production Co., Range Resources Appalachia LLC, EQT Production Co., Shell Western Exploration and Production LP, Seneca Resources Corp., Anadarko E&P Co. LP, Chevron Appalachia LLC and EOG Resources Inc.

Upstream M&A

From January to November 2011, about 15 mergers and acquisitions (M&A) took place in the upstream sector of the Marcellus shale play, according to GlobalData, an industry analysis specialist company. The total deal value was nearly $4 billion.

"With the increase in drilling activities, coupled with the rise in M&A activities in the Marcellus shale, production from the shale has been increasing rapidly. The strong economic situation of the Marcellus shale, alongside many oil and gas companies' aggressive development plans, is expected to raise the production level of this shale," states the firm in its February 2012 report.

M&A in the midstream space is also heating up. One example is Delphi Midstream Partners LLC's recent announcement that it will sell its Laser Northeast Gathering Co. LLC assets to Williams Partners LP for $750 million. The assets include 33 miles of 16-inch diameter high-pressure gathering pipelines in Susquehanna County, Pennsylvania and Broom County, New York. When the system is fully built, it will include 75 miles of line with some 1.3 Bcf per day of capacity.

Gathering

Much of the new gathering-pipeline projects are in the rural areas, with some 25,000 miles being built or on the drawing boards.

Recently, Penn Virginia Resource Partners LP (PVR), a company with a heritage of 130 years and which consistently paid dividends through the twentieth century, including the Great Depression, acquired an option to purchase a pipeline easement in Susquehanna County along a 28.8 mile right-of-way corridor in the Pennsylvania Marcellus shale.

The company is a long-time Appalachian coal-royalty player, with gas processing, gathering and other midstream services in Oklahoma, Texas and Pennsylvania. The company owns some 900 million tons of proven coal reserves in northern and central Appalachia and in the Illinois and San Juan Basins. Its midstream natural gas assets are principally found in Texas, Oklahoma and Pennsylvania and include more than 4,200 miles of gathering pipelines and seven processing systems, with an aggregated 420 MMcf per day of capacity.

After its start as a coal-royalty company, it entered the oil and gas exploration and production business in the mid-1980s by virtue of its land holdings. The coal-royalty business was spun off into a master limited partnership, and in 2005, it entered the midstream business.

"I was hired to put us in this business, and we made an acquisition in the Texas Panhandle and in central Oklahoma to kick it off," says Ron Page, co-president and chief operating officer of the company's midstream business unit. "We didn't have any assets in Pennsylvania until we started working on our initial deal with Range Resources Corp. in 2010."

PVR's largest Marcellus system to date is the Lycoming County system, which primarily serves Range Resources, and consists of a 30-inch diamter trunk line beginning in Southern Lycoming County where it connects to the Transco Leidy Pipeline and runs north. It will eventually connect it to the Tennessee Gas 300 Line. The system capacity without compression on the trunk line is More than 700 MMcf per day.

"We expect 2012 volumes to average 200 Mcf per day," says Page. The second phase of three contemplated phases is complete, with the last phase scheduled to commence later this year. In addition to trunk line services, PVR gathers gas from well pads to central compression and dehydration facilities, which it also operates. Currently 84 miles of gathering and trunk line have been installed, and 4,500 horsepower of compression.

Also, PVR operates a gathering system in Wyoming County, which is connected to a Proctor & Gamble facility and to a local utility. That system is currently delivering 130 MMcf per day and will be expanded in the future to connect to Tennessee Gas' 300 line to the north.

PVR is evaluating the construction of a new natural gas gathering pipeline. The optioned easement was acquired from the Rail-Trail Council of Northeastern Pennsylvania, and extends north from the Tennessee pipeline right-of-way near the town of Union Dale and will be routed through the towns of Thompson and Lanesboro to the New York state line.

"In addition to the gas pipeline, we are building a 12-inch diameter water pipeline along our trunkline route. That new line will deliver fresh water to producers for use in their fracking operations," thereby removing some trucks from the roads, he says.

The fully subscribed water line will be built in a 50-50 partnership with Aqua America Inc., a water and wastewater utility that serves about 3 million customers in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, New York, Indiana, Florida, Virginia, Maine and Georgia.

"I believe they are the second-largest publicly traded water utility in the country, and they happen to be headquartered almost down the street from us," says Page. "We are in Radnor, Pennsylvania, and they are in Bryn Mawr.

"We have assets in the dry-gas area of the Marcellus," explains Page. "So we are not burdened by the ethane problem. But we are burdened by very low gas prices. Several producers have indicated that they will slow down in the dry Marcellus until we see a rebound in pricing."

In fact, companies such as Chesapeake Energy Corp., Range Resources and Talisman Energy Inc. have recently indicated their desire to move westward, away from the dry-gas areas and into the more liquids-rich formations such as the Utica and Point Pleasant. Moving into the rich-gas areas can reward production operators with as much as a $2 uplift when the liquids are processed out of the gas stream and sold, effectively obtaining a $5 per thousand cubic feet gas price.

Conversely, Page has not seen any slowdown of drilling in the rich-gas areas of the Marcellus. "I suppose if gas prices fell to $2.50 or $3 per thousand cubic feet and stayed there, it might have a dampening effect on the rich Marcellus, but most of the producers that I have asked tell me that as long as prices are above $3.50, they will be drilling."

When the price reaches $4, operators will be more comfortable drilling in the dry Marcellus, says Page. "I have heard from about four to six Marcellus producers that they are squeamish at $3.50, but are okay at $4, and are comfortable at $4.50."

In some areas, the Marcellus shale is found in mountainous terrain, so construction can be difficult. Also, the Marcellus can be a very expensive place to do business, but when the company looks into new projects, it takes cost increases into account and builds them into its business strategies. Having worked the area for years, the company has experience on its side.

"We know what the challenges are. We know what the time frames are. We know what the costs are, and we can demonstrate that we do."

With the exceptional growth Marcellus production, it can be difficult to find and attract a sufficient labor force. PVR solves that problem by keeping an eye on the available workforce and finding workers with similar experience to what is needed.

"Buckeye Pipeline Partners LP is relocating its headquarters to Houston from just north of Philadelphia. We've been lucky in that we hired a number of professionals from Buckeye who didn't want to make the trip south. We've also hired people who were in peripheral industries, like construction and utilities, and we cross-trained them into our business."

Although the development of the Marcellus is several years old now, there is much more work to be done, says Page. "I think there will be new construction going on here for years to come. This is a huge blanket of gas-bearing shale, about three times the extent of the Barnett shale, so I would expect that companies will be building pipelines, compression and other midstream work for 20 years or more."

Despite the fact that Pennsylvania has a long history of oil and gas production, much of the existing infrastructure is not useful for today's shale play, Page explains. "The historical infrastructure is old and in disrepair, and it was built for low volumes and pressure. About the only part of it that is useful are the rights-of way."

Regulation

The regulatory environment, charged with guarding the pristine hills and waterways on top of the Marcellus shale, continues to be developed. Early in the play's exploration phase, state and government regulators of all agencies were caught unaware as sleepy towns and tranquil rural areas (with high unemployment rates) suddenly became hotbeds of activity.

In the beginning, state and local agencies were understaffed, inexperienced and overwhelmed with the influx of Texas- and Oklahoma-based companied arriving in droves and expecting to jump into action. Since then, much has been accomplished, but there is much more work to be done.

As an example, in December 2011, Pennsylvania Governor Tom Corbett signed a law to allow the state's Public Utility Commission (PUC) to enforce federal laws governing large-diameter, high-pressure gathering lines, which are crucial to the shale play. The pipeline companies will pay for the increase in fees per mile of pipe.

The PUC is looking to hire at least seven inspectors and two supervisors to handle the work. Yet, according to recent reports, the Oklahoma-based training academy has a waiting list for trainees, so it will be some time before the new enforcement measures are put into practical use.

The lack of experience can cause problems, according to Randy Stout, president of Allegheny Enterprises Inc. While Allegheny has been successfully operating in the area for decades, Stout admits there are challenges for the oil and gas industry in the northeast, and getting well permits can be at the top of the list.

The company has been working in the northeast since 1987, and holds nearly 200 oil and gas wells, including interests in Marcellus and Utica acreage in Warren County near the wet-gas area and about 60,000 leasehold acres, 50 miles of gathering lines and significant coal-mining operations in the Appalachian Basin in Pennsylvania and West Virginia. Allegheny Enterprises holds another 20,000 acres in Alabama.

Stout explains that, recently, the Pennsylvania Department of Environmental Protection (DEP) covered by Meadville offices was split into two regions, east and west, with the new Williamsport office covering eastern counties. The new bureaucracy has created confusion for operators trying to comply with current regulations that seem to be understood from two different perspectives.

"During the past two years, we have been one of the few companies drilling shallow wells in eastern Pennsylvania," explains Stout. "I believe we had only been cited for two violations during the past 10 years, by the Meadville office, both of which had been caused by poor judgment of contractors."

After the Williamsport office opened, and in the middle of drilling 27 wells in Potter County, the DEP personnel, who were new to the job, issued 19 violations to Allegheny Enterprises during a three-month period. As a result, all of Allegheny's permits in process including pipelines and drilling permits were put on hold by the DEP. The company was working to connect 15 miles of pipeline for a high-pressure compressor facility.

"That took more than two years to get all permits approved, because the DEP office kept increasing the number of requirements, to get pipeline approvals and stream-crossing permits, among numerous other issues presented by the DEP," he says.

In one particular instance that Stout recalls, one DEP representative came to a well site and verbally approved the site with all contractor and company personnel there, but sent four violations per week afterwards.

The DEP coordination and cooperation has improved somewhat since that time, says Stout, but he had to go to the level of state senators and representatives to get help to straighten out the problems. "We know we have to do things correctly, but there weren't any infractions that were willful violations. I ended up with $4.5 million in the ground, with wells drilled and pipelines ready, and I am losing money every day when operations are delayed like that."

While Allegheny has persevered, other operators might not be so lucky. "When the wet-gas in the Western counties begins development by the big companies in Pennsylvania's traditional shallow oil fields, many of the small operators will suffer from over-regulation to the point of being put out of business."

Stout has been involved in the coal business for over 30 years and the oil and gas business since the early 1980s, and has never seen the amount of over-regulations as present. "We are pleased with our Marcellus reserves and other non-conventional energy resources. We will be happier when the political arenas, from the national on down through the state level, gets sorted out to allow for a better business environment to safely and economically operate."

Despite the frustrations, Allegheny plans to drill 15 to 20 oil wells in 2012. The company's production is moved by trucks from tank batteries on various locations. From there, the oil is sold to American Refining Group in Bradford and to United Refining Co. in Warren Pennsylvania.

Processing

A look at the number of natural gas processing plants in Pennsylvania shows that even with several large-scale pipeline projects in development to transport production from the Northeast to the Gulf Coast, more processing plants and expansions to existing plants will be necessary.

“I have heard from about four to six Marcellus producers that they are squeamish at $3.50, but are okay at $4, and are comfortable at $4.50.” — Ron Page, co-president and chief operating officer of Penn Virginia Resource Partners LP’s midstream business unit

According to Sulpetro Inc.'s 2011 NGL Supply Yearbook, some 3.4 million barrels (bbl.) of NGLs were extracted at processing plants in Pennsylvania in 2010. While this was a 122% increase over the 1.5 million bbl. extracted from the plants in 2009, it was still a large way behind the 302 million bbl. extracted from Texas plants in 2010.

The effects of increased production from the Marcellus shale are most clearly seen when reviewing the amounts of individual NGLs produced from the state's plants between 2009 and 2010. In 2009, less than 1,000 bbl. of ethane were produced, but in 2010 this figure had shot up to 200,000 bbl., attributed to the ethane-rich gas and the increased production of that year.

In addition, propane production from Pennsylvania processing plants increased nearly 500%, from 345,000 bbl. in 2009 to 2.1 million bbl. in 2010. Also, production of butane and isobutane experienced a very sizable increase between 2009 and 2010 as the amount of processed butanes (butane and isobutane combined) rose 218%, from 246,000 bbl. in 2009 to 783,000 bbl. in 2010. However, the amount of pentanes-plus processed in Pennsylvania dipped 60% in 2010 to 382,000 bbl. from 946,000 bbl. in 2009.

In 2010, Pennsylvania was home to nine natural gas processing plants. The most utilized of these facilities was MarkWest Energy Partners LP's plant in Houston. The facility, which has a capacity of 355 MMcf per day, processed 2.5 million bbl. of NGLs in 2010. This was up from 820,000 bbl. in 2009. The next most utilized plant was Tembec Co.'s plant in Waynesburg, which processed 313,000 bbl. of NGLs in 2010, up from 120,000 bbl. in 2009.

These figures will continue to grow throughout the next few years as more production is brought online along with new facilities. The new facilities will include processing plants and fractionators, and petrochemical plants are expected to further increase demand in the region.

A look at the processing plants in West Virginia shows the number of NGL bbl. extracted from processing plants in the state in 2010 increased 2% to 8.9 million bbl. from 8.8 million bbl. in 2009. This increase was only the 16th largest out of the 21 states with active processing plants in 2010, but the state had more than 5 million bbl. of NGL volumes processed that year than in Pennsylvania.

Processing volumes have been quite steady in West Virginia in the period in the previous decade as they have gone from the high of 8.9 million bbl. in 2010 to a low of 6.7 million bbl. in 2008. The year 2008 was the outlier for processing levels in the state during this period as ethane volumes processed dropped sharply from an average of 2 million bbl. to 194,000 bbl.

Although the Marcellus shale is known for having large amounts of ethane in reserve, ethane processed at West Virginia plants actually decreased 2% in 2010 from the previous year. Ethane extracted at the state's eight plants was 2.2 million bbl. in 2010 compared to 2.3 million bbl. in 2009. This was significantly greater than the 200,000 bbl. processed in Pennsylvania in 2010.

Pentanes-plus had the largest increase of any NGL processed in West Virginia in 2010, as it increased 9% to 1.1 million bbl. from 994,000 bbl. in 2009. Propane was the most processed NGL in West Virginia during this time period at 3.7 million bbl. in both years.

That processing level could prove to be a significant advantage in the state's efforts to draw more midstream infrastructure projects to the state. However, competition among the state of West Virginia, Pennsylvania and Ohio is fierce and Pennsylvania and Ohio have the advantage of being tied to more interstate pipelines along with having several large-scale infrastructure projects in their borders.

The largest processing plant in West Virginia is Dominion Transmission Inc.'s Hastings plant in Pine Grove. The facility on its own accounted for the difference in volumes extracted between Pennsylvania and West Virginia, as it had 5 million bbl. processed in both 2009 and 2010. The state's second largest plant is MarkWest Hydrocarbon's Kenova plant, which accounted for 2 million bbl. in 2010 and 2.5 million bbl. in 2009.

Environment

While the play is a boon to the region, it is not without its challenges. A significant number of people who live atop the Marcellus formation are concerned about water-supply safety, air quality and the disposal of fracking runoff.

The aspirations of the industry and the skepticism of the public are driving political opinion and regulatory action in Pennsylvania, New York and West Virginia. And with that divide comes a fundamental question: Are the two camps so hopelessly far apart that compromise is out of the question, or is coexistence possible?

According to panelists at Hart Energy's recently held Developing Unconventional Gas East conference in Pittsburgh, establishing a sense of harmony can be accomplished and will be a crucial part in moving gas development forward.

"What we've found is that this true renaissance in shale gas, that the industry has been through during the past five years or so, is truly amazing. Sometimes I worry that when we are trying to tell the story that it almost seems too good to be true. I think that's a challenge we face," says Ray Walker, Range Resources Corp.'s senior vice president of environment, safety and regulatory compliance. Range Resources is an independent oil and gas company based in Fort Worth, Texas, that operates in the southwestern, midcontinent and Appalachian regions of the U.S.

Referring to industry claims that shale gas can be a game-changer for the nation's energy supply, Walker says, "Our opponents, and rightfully so, say none of that's worth it if you're going to poison our water or pollute our air. But considering what the industry has done during the last couple of years, there can be a balance with best practices and technologies."

Ted Wurfel, vice president of environmental, safety and regulatory affairs for Texas-based Chief Gathering LLC, which has installed natural gas gathering pipeline and compressors in the Marcellus, thinks the industry and environmentalism can forge compromise because natural gas is the cleanest fuel we can use. "It's clean, it's available, it produces jobs and it's a domestic source of energy," he says.

Not only can the industry and environmentalism coexist, they can cohabit, says John Carroll, a partner in the Harrisburg, Pennsylvania, office of Pepper Hamilton LLP and chairman of the firm's environmental practice group.

"Industry can incorporate environmentalism not only as an ethic, but as a rising force for their profession. We've come a long way from 'get er done' to 'do it right,' and I think 'do it right' is what the industry is doing today," he says.

John Martin, founder of JP Martin Energy Strategy LLC, a consulting firm in Saratoga Springs, New York, has hope for a growing accord among industry and environmentalism, but he also points out that that shale gas development faces a major challenge in winning the public's confidence. He cites a joint Penn State-Cornell University study, released in April, that asked people in New York and Pennsylvania if they "greatly trust the industry." In Pennsylvania, 8% had that trust. In New York, it was 6%.

"It's extremely difficult for the industry to get the word out because there's a general distrust," he says. But earning public trust is just one of the challenges that operators in the Marcellus face.

One of the major regulatory hurdles that confront the industry is river commissions, according to Carroll. These commissions have the authority to regulate withdrawals and consumptive use of water.

"The threshold for regulation is generally 100,000 gallons a day. When hydraulic fracturing in the conventional play came in, the need for water for the fracking obviously triggered the need to go to the commissions and receive approval for withdrawal. Also, because the flowback of frac water is less than 30%, there is considered to be a consumptive use of the 70%," Carroll explains.

River commissions, which are more prevalent in the northeast, are a "regulatory card" that producers cannot escape, he says. "These are not federal agencies, not state agencies. They are in between."

The clout of the commissions is further enhanced by their ability to restrict, and even halt, drilling operations. Such has been the case with the Delaware River Basin Commission, which since 2010 has revised regulations and at one point directed that no natural gas development take place in the basin.

The challenge specific to Pennsylvania is dealing with more than 2,800 municipal governments—about 1,800 of which are in the Marcellus—that have authority over land use, Walker says.

Ethane transmission

While most of the challenges of the Marcellus have been met, or are being met, one final problem remains—that of the overproduction of ethane. Even there, efforts are under way to put this final block into place.

Although the prolific production of ethane from the Marcellus can be said to be problematic for producers and pipeline operators who worry about sufficient demand for production, U.S. chemical companies are beneficiaries of the nation's natural gas drilling boom. Long focused on cheap gas sources elsewhere in the world, companies are now looking to expand their domestic consumption of feedstock to enhance their economics. A surplus of natural gas has pushed down prices, making it more attractive for chemical companies that use lots of gas to reopen shuttered plants and build new ones.

In Charleston, West Virginia, some local business leaders are lobbying for a new ethane cracker, which could bring jobs to the state. "It will take about 2,000 construction workers two years just to build the facility," said Matthew Ballard, president and chief executive of the Charleston Area Alliance, in a recent public statement. "Once up and running, there will be several hundred jobs at that cracking facility."

Kevin DiGregorio, executive director of the Chemical Alliance Zone in Charleston, points out that, "Everything that's not wood, or maybe brick, is made with chemicals, certainly. But probably 40% to 60% of it is made from ethylene. It's very, very important to our daily lives."

While the majority of natural gas production includes from 2% to 8% percent of ethane, Marcellus gas includes about 14% to 16%. As a result, the leaders of Ohio, Pennsylvania and West Virginia are competing to lure Shell Chemical Co. to build a new ethane cracker in their respective states.

In further competition, Enterprise Products Partners is generating interest for its recently announced Appalachia-to-Texas pipeline (ATEX Express). The 1,230-mile project will move up to 190,000 bbl. per day of ethane from the play to the Gulf Coast.

"For Enterprise, this is a home run," said Jim Teague, executive vice president and chief operating officer for Enterprise, during the company's recent conference call to discuss fourth-quarter 2011 earnings.

"It is a home run for the producers in the Marcellus and Utica, and it's a home run for the Gulf Coast petrochemical industry. It adds significant value to both Marcellus and Utica producers and to the Gulf Coast petrochemicals, as these volumes are key to both realizing their growth potential. The project integrates Marcellus-Utica volumes into our NGL infrastructure at Mont Belvieu and all along the Gulf Coast," he adds.

Teague said that the project is able to be competitive in cost and timing because it will use significant amounts of existing pipeline. Countering claims by some analysts that the ethane market risks being oversupplied in the coming years, Teague stated that Enterprise's internal model shows that ethane will likely remain balanced even after this project comes into service.

"In a market this big, there are always variables on both the supply and demand side of the equation, each with numerous possibilities and timelines. These include things such as how quickly the reserves can be developed and brought online, how quickly petrochemicals can do their conversions and builds. Turnarounds play a part, and then how quickly new pipe will be built. I can tell you, they won't be full on day one and they are not contracted this way," he said.

Teague said that the company doesn't envision Marcellus-Utica propane production to exceed local demand for the next five to seven years, but after that time the company could utilize a similar approach to solving the potential propane take-away issue as it did with the ethane take-away issue.

By all accounts, and all aspects considered, the Marcellus is inarguably a major asset to the U.S. energy, power and petrochemical industries, and greatly contributes to jobs growth, government revenue and energy security. While challenges still exist, many strategies and options are in play to solve the majority of them. What few remain, such as ethane take-away options and the creation of new gas-demand markets, surely will be surmounted during the next few years.

Frank Nieto, editor of Midstream Monitor, contributed to this article.