Utica and Marcellus Shale Natural Gas

For years, West Virginia has been the butt of jokes on the East Coast.

It was so bad that MTV filmed a “reality documentary” in 2009 called The Wild and Wonderful Whites of West Virginia.

Today those jokes stop.

And as you read this, a conga line of Wall Street bankers, lawyers, and oil and gas executives wearing Armani suits and each carrying three Blackberry 9930s are flying into an obscure airport in West Virginia called the Wheeling-Ohio County Airport.

Luckily, I don’t have to take a bumpy ride in a puddle jumper over the Appalachians to get to Wheeling, West Virginia.

I can take a direct shot from my home on I-70.

A lot of people don’t know this, but Interstate 70 — which starts in Baltimore, Maryland, and ends in Utah — really started out as the “Old National Road.”

I’ve driven on I-70 hundreds of times without knowing its historic significance in the growth of the United States.

You see, the Old National Road was the very first major highway built by the federal government. Construction started in 1811 in Cumberland, Maryland.

By 1818, it had reached Wheeling, West Virginia, which sits on the banks of the Ohio River, a major shipping port.

By 1824, the “Bank Road” was constructed, connecting Baltimore’s large shipping port on the Chesapeake Bay to the National Road in Cumberland. Eventually, the B&O Railroad built a rail line to Wheeling to handle the growing commerce.

For the next century, Wheeling was a thriving shipping and manufacturing hub. The city saw its population grow from 7,885 in 1840 to 38,878 in 1900… and peak in the 1940s and 1950s at around 61,000, the height of the steel market in that region.

Now, the steel market in America has been dead for decades.

In 2010, the census reported Wheeling’s population had sunk to 29,000. Worse yet, the city had started off the year with a gut-wrenching 11% unemployment rate.

But a lot has changed — even in just two years…

Wheeling is experiencing a bona fide employment boom.

Take a look at this chart of Wheeling’s unemployment rate:

Wheeling, West Virginia, now has an unemployment rate lower than the national average.

The reason?

You guessed it: A natural gas drilling bonanza, thanks to the Marcellus.

According to yesterday’s edition of the Wheeling News-Register:

With local wells producing enough Marcellus and Utica shale natural gas to support an ethane cracker, industry leaders believe the city lies in the “dead center” of an economic boom.

“Right here in Wheeling, you are at the dead center of all the activity,” said Rayola Dougher, senior economic advisor for the Washington, D.C.-based American Petroleum Institute.

“Wheeling is becoming a very important hub in the oil and gas industry because of the nearby ‘wet’ gas,” added Gastar Exploration (GST – AMEX) Rotruck Vice President-Northeast Michael McCown.

McCown continued: “In West Virginia, we have been drilling through the Marcellus for 80 years, but we didn’t have the technology to get much gas out of it,” he said. “The new (horizontal) drilling technology allows us to drill into it to retrieve the gas.”

A small company with a market cap of $192 million, Gastar holds approximately 79,700 net acres in northern West Virginia and southwestern Pennsylvania.

For 2012, the company is planning to drill 24 to 29 operated horizontal Marcellus wells — and expects 20 to 23 additional wells to be brought online by year-end.

The natural gas drilling boom is in its beginning stages. In the years to come, there will be hundreds upon hundreds of producing wells in and around Wheeling.

“This region [Wheeling] should be able to rock and roll,” said Scott Rotruck, vice president of corporate development and state government relations for Chesapeake Energy.

West Virginia has a unique and important part of the Marcellus Shale because it has the wet gas slice of the pie.

Wet gas (or natural gas liquids) consists of ethane, propane, butane, and pentanes, in addition to the dry methane natural gas. This is also known as NGL, which you commonly see it referred to.

In fact, you come in contact with these liquids almost every day. They’re used in:

• Vehicle fuels
• Commercial and residential heating
• Camping stoves and grills
• Lighter fluid
• Refrigerants
• Aerosol cosmetics, aerosol paints
• Agents for developing foam insulation

And that’s not all. The other major use for NGLs — and perhaps the most significant — is as a feedstock for petrochemical cracking.

Petrochemical cracking furnaces, which operate at 2000°F/1150°C, turn complex hydrocarbons into less complex materials like ethylene and propylene. 

This method is used at oil refineries to produce the raw material to make various solvents, detergents, adhesives, plastics, resins, fibers, lubricants, and gels.

So it’s significant. And it’s why a cracking facility in Wheeling would be a game-changer.

But there’s more.

Dominion Resources wants to ship the dry gas from this region to its LNG terminal in Cove Point, Maryland, which sits on the shores of the Chesapeake Bay. From there, it’ll export LNG overseas to gas-hungry markets… 

Dear reader, the Old National Road is open for business again. 

The original bull on America,

Brian Hicks

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Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy & Capital. For more on Brian, take a look at his editor’s page.