When Drilling for Gas, Wetter Means More Cheddar

Methane and propane molecules. Do these two look alike? Cause their current prices don't. (image: propane.pro photo illustration)

We’ll start the week with a quick observation on domestic gas production.

Prices for natural gas are historically low. Prices for propane are historically high. But gas producers can’t just pull one fuel from the ground and leave the other: The two gases, which are chemical cousins, come as a package. Propane is a byproduct of distilling natural gas, and when natural gas is particularly rich with hydrocarbons like propane, the roughnecks call it “wet.” And that’s the way energy companies like it, because adding propane to the haul improves the economics of the dig.

It’s a reality that can be read in the headlines. Two gasfields with wet veins are seeing plenty of action: the Eagle Ford shale in Texas and the Marcellus Shale in West Virginia. Demand for drilling permits is up for the Eagle Ford shale, says Bloomberg. Last week, Chesapeake Energy and a subsidiary of MarkWest Energy struck a deal to strip propane from the yield in West Virginia, says the local Wheeling Intelligencer. The week before, the energy conglomerate Dominion announced a new processing plant along the Marcellus shale.

For now, the money is in propane (and butane and ethane). “Some companies could sell their liquids and give the gas away for free and still make money,” an analyst told the energy website Platts in the fall. But even so, drilling for natural gas continues, and production is expected to remain steady or even increase.

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