In Milton Friedman’s classic TV series “Free to Choose”, the reoccurring theme was that economies thrive and grow when individuals are free to choose how to satisfy their wants, needs and desires. A great example of this phenomenon is occurring right now in the US, especially in states like Texas, North Dakota, Pennsylvania, West Virginia and eastern Ohio.
No government agency is controlling the price of hydrocarbons, and there is no direct subsidy for hydrocarbons. But companies are, nonetheless, figuring how to produce the right amount of the right product for the market while generating positive rates of return on investment. In fact, the rate of return on investment for drilling in the liquid-rich parts of the Marcellus Shale can be quite large (>100%/yr.) Note that this calculation can be found at the following site. Though, it should also be noted that, if you drill in an area low in higher hydrocarbons, you are likely to obtain a negative rate of return on investment because of the near historically low price of natural gas in inflation-adjusted dollars.
Given that it’s the natural gas liquids that determine the economic viability of drilling in the Marcellus and Utica shales, it’s important to give an overview of the technology behind separating natural gas liquids from the raw natural gas so that those people who are not familiar with the oil&gas industry can learn more about midstream operation, i.e. the steps taken after the gas has left the ground and before it’s in a condition to sell on the market.