Slated as the third and final instalment in a series of episodes following Half Life 2, Episode Three is currently in development, but Valve have stated that it won't be released this year, or the next.
The project has been labelled 'highly ambitious' by Doug Lombardi, and release is still a while off.

From what is known about the episode, it is going to be set in the northern reaches of the world of Half-Life; these will be cold places filled with ice and snow, and of course a Borealis.

The Borealis is the ship that disappeared during some experimentation by the same scientists that caused the Resonance Cascade from the original Half-Life. From what we have seen from Portal and the previous Episodes, the Borealis is a scientific ship that was involved in teleportation tests at the Aperture Science labs. Something went horribly wrong which led to the ship disappearing completely from its original location. It is only during the events of Episode 2 that we find out that it has returned, this time in the coldest reaches of the world.

The question that will be answered (hopefully!) in Episode 3 is what happened to the ship. Did it appear instantly after the experiment in the north? Is it simply down to the fact that the resistance couldn’t detect it?

We also know the scientists on the Borealis performed their experiments and the ship was transported elsewhere; perhaps even Xen?
We know that during the course of Half-Life 2, Gordon takes seven days to travel from Nova Prospekt back to City 17 - a 'slow teleport' according to Dr Kleiner.

The Borealis contains something that Eli wishes Gordon to destroy for fear of a repeat of the events at Black Mesa; while Dr Kleiner feels it is destined to be a useful asset in the future. The differing views between these two eminent scientists are intriguing. Is caution the best bet, or should Gordon use whatever he can find on the ship to aid in the destruction of the Combine once and for all?

The fact that pisode 3 will be set in an area of snow and ice, should pose some new game play challenges and maybe even some new aliens. Who knows whether Ant-lions can survive in the cold? Headcrabs and Zombies are a given, but many other creatures may be different.

How will the death of such a key character as Eli impact on the story, and more importantly for some, on the relationship between Gordon and Alyx? What role is the G-Man going to play; he seems to be getting a bit impatient with things not progressing as he wants them to. His message that he gives to Alyx - the same message he gave to Eli back in Black Mesa - may be a sign that he foresees grave peril in the future.

When we find out about the Borealis in Episode 2, it is from the transmission Alyx intercepted from the Combine. Therefore, we know the Combine have located the vessel. They were extremely aggressive and put a lot of resources into attempting to prevent this transmission getting back to the resistance and have hunted Alyx desperately since the interception. We can assume the combine want to use the Borealis and Aperture Science's possible developments in teleportation / portal technology to bring extra troops to Earth to recapture it or evacuate.

We have already seen some early concept art for the game. The image from the ‘Into The Pixel’ exhibition shows Gordon challenging a Combine Advisor in a heavily industrialised environment and earlier concept art from PC Gamer US shows further Advisors around the Borealis.

Hopefully, we should expect a hugely exciting episode with the same fantastic Half-life formula with a mighty cold twist!

Some information from: halflife2.net.