The Marcellus Shale Saves a Refinery

Over the past few years, the U.S. energy scene has been completely turned on its head. Suddenly, there is energy gushing from regions that hadn't produced a thing in decades. As oil and gas flows up from our wells in mind-boggling quantities in non-traditional markets, it isn't unusual to read about pipelines switching directions or converting from oil to natural gas and vice versa.

The changes mean a shift away from East Coast refining, which historically has relied on crude imports for processing. Those imports are now more expensive than domestically produced oil, and the shrinking margins have closed many an East Coast refinery. Now there is an unexpected solution to the problem: Make like a pipeline and trade commodities.

Switching teams
Sunoco's (NYSE: SUN  ) Marcus Hook refinery is doing just that. The company announced on Wednesday that its closed oil refinery is getting a second life. The refinery will be born again as a natural gas processing facility focused specifically on propane and ethane.

Sunoco's pipeline subsidiary, Sunoco Logistics (NYSE: SXL  ) is already moving forward on converting a petroleum products pipeline to natural gas.

Who wins and why
The Marcellus Shale isn't just producing a lot of gas; right now it's producing too much gas. There are at least 1,000 wells waiting for pipelines to be built in the region before they come online. Experts expect production there to increase 78% over the next three years. Keep in mind that up to this past May production in the Marcellus had already doubled year over year.

Really, SXL's refurbished pipeline is doing the whole industry a favor.

Sunoco Logistics and its partner in the pipeline project, MarkWest Energy (NYSE: MWE  ) , are the obvious winners here, but not the only winners. Range Resources (NYSE: RRC  ) for example, finally has a way to get ethane from its Marcellus wells transported and processed. It has signed a 15-year agreement to ship on the pipeline, selling its ethane to a Swiss petrochemical company that will take delivery at Marcus Hook.

Another point to consider, is that Energy Transfer Partners' (NYSE: ETP  ) pending acquisition of Sunoco, will include the general partner stake, and 32.4% limited partner interests in SXL.

Foolish takeaway
Natural gas production is changing our energy world, and will continue to do so for some time. Savvy investors will make note of all the different industries the commodity can disrupt and invest accordingly. The future is natural gas, and Fools intrigued by that prospect should also take a look at the special report, "The One Energy Stock You Must Own Before 2014."

Fool contributor Aimee Duffy holds no position in any company mentioned. Click here to see her holdings and a short bio. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.

Motley Fool newsletter services have recommended buying shares of Range Resources. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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