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Sunday, March 18,2012

Study projects eventual economic benefits from shale drilling boom

But says many of the initial benefits will flow out of state

By Jim Phillips
Photo Credits: Source: The Ohio Shale Coalition.
Photo Caption: These charts are drawn from a recent economic impact study on oil-and-gas fracking.

A new study has concluded that, as many people have long suspected, the state of Ohio is poised on the brink of a huge expansion in its oil-and-gas drilling industry, based on exploitation of shale beds beneath the state.

While much of the economic benefit from this expansion may initially go to other states, the study suggests, over the next couple of years Ohio will see more and more of this positive impact, which will probably peak around 2014, after which some aspects of the economic impact could start to decline.

The study, "An Analysis of the Economic Potential for Shale Formations in Ohio," was sponsored by the Ohio Shale Coalition, a decidedly pro-oil and gas development group, and conducted by researchers from Cleveland State University, Ohio State University and Marietta College. It predicts that by 2014, Ohio will see over $4.8 billion in value added to its economy, more than 65,000 new, generally good-paying jobs, and more than $430 million in additional state and local taxes collected.

Economic impact estimates for the predicted drilling boom vary widely. The Ohio Oil and Gas Energy Education Program, for example – an industry group – issued a report last September predicting the creation of some 200,000 new jobs. In response, two Ohio State University researchers issued a study in December, which predicted one-tenth that number.

One Ohio labor union has complained that many of the jobs being created by the nascent drilling boom seem to be going to workers coming from places like Oklahoma, Texas and Pennsylvania, which have established oil-and-gas industries.

"The bottom line is, if this industry's going to be here, we feel they ought to be using Ohio employees to do the work," argued Premo Panzarello, a business representative for Local 18 of the International Union of Operating Engineers. "We've talked to every energy company that's involved."

Panzarello and fellow union organizer Scott Stevenson said they have provided the energy companies working in Ohio with a list of qualified Ohio-based contractors who can do work such as road and drill-pad construction, but believe that most workers on shale-drilling sites are still being brought in from out-of-state. The union is planning a billboard campaign to protest this, and has already put up one billboard in the Toledo area.

Panzarello added that his union doesn't even mind if the jobs go to non-unionized employees, as long as they're Ohioans. He said he understands that Ohio has few workers qualified to operate drill rigs, and that these workers will have to be imported. However, he said, Ohio does have companies and workers qualified to do construction work associated with drilling operations.

"I don't think Ohians are getting a fair shake," he said. "It's not a union, non-union thing. I'm talking about, why aren't the people in Ohio getting a chance to work for these companies?"

THE RECENT ECONOMIC IMPACT STUDYsuggests this will change over time. It notes that a well typically costs about $5.75 million to drill and complete, and that drilling into the Utica shale is just getting started in Ohio, with only four Utica wells placed into production in 2011. Many others are in the process of being drilled, a fact the economic impact report alluded to.

"However, drilling is expected to ramp up quickly, with over 1,000 wells a year being drilled by 2014," the study says. "This means that by 2014, over $6 billion will be spent on drilling and completing wells in Ohio. Ohio's service industry will need time to catch up with Pennsylvania and other oil-and-gas-producing states, so Ohio will likely see no more than 50 percent of this investment stay in Ohio during the early stages of the Utica shale development."

One of the authors of the study said he believes that as the boom matures, more and more Ohio workers will find employment from it.

"It depends on the type of work that is going to be done," said Andrew R. Thomas, executive in residence of the Cleveland-based Energy Policy Center. "In the early portions of (the boom), it will be a lot of out-of-state workers." Over time, however, he said, the percentage of Ohio workers will rise, hitting different levels depending on the type of job. If the boom is as big as expected, Thomas added, demand for labor eventually will reach a level at which companies will have no choice but to hire within the state, especially for jobs such as road upgrades.

"Construction jobs for road upgrades are expected to go predominantly to Ohio suppliers and laborers," the study predicts.

This backs up assertions made by a land manager for Cunningham Energy, the main company locking up oil and gas leases in Athens County, in an interview with The Athens NEWS last November.

At the time, Joe Blackhurst of Cunningham cited a number of areas where oil and gas drilling would spin off jobs, either directly or indirectly. He listed surveyors, construction and heavy equipment jobs, truck drivers, landscapers, pipeline builders, gravel yards, well tenders, and more, along with the all the spin-off jobs at restaurants and other local service industries.

In the larger region, supporters of oil and gas development point to a number of bigger industrial facilities either proposed or under development that are related to the Utica shale boom. For example, Chesapeake Energy announced recently that it's partnering in a $900 million natural-gas processing plant in Columbiana County, Ohio. A big natural gas "cracking" plan has also been proposed for western Pennsylvania not far from the Ohio line.

Fracking opponents, however, have expressed skepticism about the number and types of jobs that will result from the shale oil boom. And in Athens County, they've pointed out that the net impact of a fracking boom will be a loss of jobs and economic development, both in tourism and the burgeoning local food movement.

In a Reader's Forum that appeared in The Athens NEWS on Jan. 26, Christine Hughes, owner of several restaurants in Athens (including the Village Bakery), repeated comments she made at the Ohio Statehouse on Jan. 10.

"No one has done a study to find out the economic impact of taking away the livelihood of these 70 to 100 people my business relies on, and the hundreds more people in this food web, this local food economy," she wrote. "Shale drilling and the disposal of its waste products – which we have now in southeast Ohio – are an imminent threat to my livelihood and others who make a living from using our environment responsibly to feed ourselves."

THE OHIO SHALE COALITION-SPONSORED study notes that as recently as a year ago, "expectations of shale development in Ohio focused largely on the Marcellus (shale formation)," which is closer to the surface than the Utica, but does not extend as far west into Ohio (it apparently does not reach into Athens County, for example). Last year, the report says, "it became clear... that Marcellus-related drilling is unlikely to happen very far west of the state's borders with Pennsylvania and West Virginia. In contrast, drilling in the Utica is happening in a much larger area, including around Canton, in northeast Ohio, and even approaching Columbus's easternmost suburbs, among other places."

So far, the closest Utica shale horizontal drilling to Athens is being done in Monroe and Noble counties, two counties to the northeast of Athens County.

In late July, the report said, energy giant Chesapeake Energy, the biggest leaseholder of Utica shale land in the state, announced that its then-1.25 million acres contained shale deposits worth an estimated $20 billion.

Though the Utica drilling got a later start than the Marcellus here, the report notes, state permitting data indicate it is now more frequent and widespread. At the time of the report, seven new wells had been drilled into the Utica in Ohio, though only four had been put into production. The report predicts this number will rise quickly, to nearly 200 wells put into production this year, and over 1,900 by 2014.

In September, however, Chesapeake announced production numbers for three Utica wells suggesting the shale bed will prove a good source of oil and/or dry natural gas and "wet gases."

"Peak daily production was reported at 3.1 million cubic feet of gas and 1,105 barrels of liquids (oil and natural gas liquids) at one of two wells in Carroll County, and 3.8 MCF of gas and 980 barrels (of liquids) at the other," the report states. "Peak daily output at another well, in Harrison County, is appreciably higher at 9.5 MCF of gas and 1.425 barrels of liquid per day."

Production numbers for oil and gas wells producing in 2011 are due at the Ohio Department of Natural Resources' Division of Oil and Gas Resources Management by March 31.

THOMAS OF THE ENERGY POLICY CENTER acknowledged that while there seems to be confidence in the industry that the resource will be rich, actual technical data like that provided by Chesapeake was still hard for the researchers to come by.

"We got no response from the producers, who are very tight-lipped about all this," he recalled. Thomas predicted that ultimately, "we just don't have any idea until they start drilling and producing those wells" how much the Utica will produce.

The report is generally optimistic, however. While it notes that well production, especially in shale beds, tends to peak initially and then drop, "sometimes very quickly," and that producers usually over-estimate first-year production rates, "the initial results appear to demonstrate that Ohio's gas and oil industry has embarked on a major expansion."

In addition to jobs and business opportunities created by the boom, another source of economic impact could come from landowners getting big payouts for their mineral rights and putting a lot of new money into the economy. (The study suggested that bonuses of $2,500 per acre and 15 percent royalties are typical in Ohio, though terms are much higher in some high-drilling areas.)

The report notes that past research doesn't make clear just how big an impact this will have; some studies suggest that households getting a big "windfall" payment don't tend to alter their spending patterns much, while others suggest a bigger impact. "All the data collected for this study contain some degree of speculation," the report admits.

As of the report's release date, it noted, producing companies had leased at least 3.8 million acres in Ohio's Utica shale, a process that probably started in 2009. It predicts that this will continue to increase this year, and then start to decline, with 800,000 new acres leased next year, and 400,000 in 2014.

The study sponsors, the Ohio Shale Coalition, on its website describes itself as "a broad-based, statewide partnership for affordable energy and jobs. Its membership includes local chambers of commerce, business, development organizations and individuals who seek to maximize the jobs and economic potential of shale gas and affordable energy production in Ohio."

The study can be downloaded or inspected at the coalition's website.


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