Ohio shale coalition presentation 02 28_12
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Economic Potential for the Utica Shale Development in Ohio The Economic Potential for The Utica Shale Development in Ohio Cleveland State University The Ohio State University Marietta College Sponsored by: The Ohio Shale Coalition
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Transcript of Ohio shale coalition presentation 02 28_12
Economic Potential for the Utica Shale
Development in Ohio
The Economic Potential
for The Utica Shale
Development in Ohio
Cleveland State University
The Ohio State University
Marietta College
Sponsored by:
The Ohio Shale Coalition
The Study Team
Economic Potential for the Utica Shale
Development in Ohio
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Iryna Lendel, Ph.D. Center for Economic Development, College of Urban Affairs,
Cleveland State University
Andrew R. Thomas, Esq. Energy Policy Center, College of Urban Affairs, Cleveland
State University
Edward W. Hill, Ph.D. Dean, College of Urban Affairs, Cleveland State University
Robert Chase, Ph.D. Department Chair – Petroleum Engineering and Geology,
Marietta College
Doug Southgate, Ph.D. Professor Department of Agricultural, Environmental and
Development Economics, The Ohio State University
Scope and Nature of Study
Economic Potential for the Utica Shale
Development in Ohio
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o Scope of Study
o Utica Shale only
o Upstream and Midstream
o 2011-2014
o Data Limitations
o No production data was available
o Relied on industry projections
o Used conservative estimates
o Designed for later iterations as data becomes
available.
The Shale Gale
o World-wide shale development:
o Surge in NG, NGL supplies
o Transformation from coal to natural gas
o Transformation from oil to natural gas
o Geopolitical shift of wealth
o Away from Middle East, OPEC, Russia
o Toward N. America, Western Europe, China
Economic Potential for the Utica Shale
Development in Ohio
4
World Shale Formations
Economic Potential for the Utica Shale
Development in Ohio
5
Utica Shale Reserve Projections
o 5 Billion barrels of oil recoverable o Light, sweet crude – API index of 41 – highest quality
o 15 Trillion cubic feet of gas recoverable
o Source: Larry Wickstrom, Chief Geologist, Ohio
Geological Survey
Economic Potential for the Utica Shale
Development in Ohio
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The Utica and Marcellus Shale Regions
of Ohio
Economic Potential for the Utica Shale
Development in Ohio
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Utica Shale Economic Development
Areas Modeled
Economic Potential for the Utica Shale
Development in Ohio
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o Leasing of Mineral Rights
o Road Construction/Site Preparation
o Drilling and Completion Services
o Post Production Infrastructure Build Out
Not Modeled:
o Downstream opportunities
o Midstream oil infrastructure
o Effects Utica Shale may have on natural gas prices,
and resulting impact on manufacturing
Key Assumptions Made
Economic Potential for the Utica Shale
Development in Ohio
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o Production and drilling projections.
o Spending on lease bonuses and royalties, and
percent entering Ohio economy.
o Spending on road improvements, and percent
staying in Ohio.
o Spending on drilling and completion service
related work, and percent staying in Ohio.
o Spending on post-production infrastructure, and
percent staying in Ohio.
Important Considerations
Economic Potential for the Utica Shale
Development in Ohio
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(1) Hydrocarbons produced from Utica Shale will be
very different from that produced from the
Marcellus Shale;
(2) Operations in Ohio will be undertaken by major oil
and gas production companies for near term;
(3) The proximity of a skilled workforce from the
Marcellus Shale development in Pennsylvania and
in West Virginia may affect job development in
Ohio; and
(4) The current post-production infrastructure in Ohio
is insufficient to handle the anticipated
hydrocarbon throughput likely to be generated from
the Utica Shale development.
Economic Potential for the Utica Shale
Development in Ohio
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Anticipated Production per Well
(at the well head)
Economic Potential for the Utica Shale
Development in Ohio
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Anticipated Number of Wells Drilled
Economic Potential for the Utica Shale
Development in Ohio
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Data Assumptions
Economic Potential for the Utica Shale
Development in Ohio
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o Number of wells for projecting the cost of drilling
o Number of pads for pre-drilling roads
improvements and gathering lines
o Throughput of product for royalties
o Expected throughput by 2014 for midstream
infrastructure
For each type of expenditure an estimate was
made of the share of expenditures likely to be
made in Ohio
Projections for Drilling and Production
Economic Potential for the Utica Shale
Development in Ohio
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o The Study Team considered several scenarios
of production and drilling
o The modeling was based on the average
scenario both for number of wells and
production per well
o We used a projected decline curve for gas and
liquids
o We assumed a 98% “success rate” for shale
drilling
Data Assumptions
Economic Potential for the Utica Shale
Development in Ohio
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o Drilling and Completion
o $5.75 million per well
o 58% of labor and material from Ohio, improving to 70%
in 2014
o Post production infrastructure build out
o Gathering pipelines – over $1 mm/mile
o Compressors – over $300,000 each
o Processing plants – $400,000/mmcfd
o Fractionation plants – 36 Mbbl/d – $100 mm
o Storage facilities – 1BCFD – $120 mm
o Railroad terminals – 1 BDFD – $40 mm
Processing Plants
Economic Potential for the Utica Shale
Development in Ohio
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Data Assumptions Made (Continued)
Economic Potential for the Utica Shale
Development in Ohio
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o Road Improvements: $1.1 million per well site.
o Wells per pad ratio growing from 1.52 to 2.5
o 90% Ohio labor and materials
o Lease Bonuses: $2500/acre
o 1 million acres in 2012; 500,000 acres in 2014
o 70% leases owned by Ohio private citizens
o 4% of money goes into Ohio economy once
o Royalties: 15%
o $65/bbl; $3.60/mcf
o 70% leases owned by Ohio private citizens
o 4% of money goes into Ohio economy annually
Conservative Nature of Estimates
Economic Potential for the Utica Shale
Development in Ohio
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o Projected engagement of Ohio-based services in
drilling and completion: 30% will go outside of Ohio
in 2014.
o Price of hydrocarbons: $65/bbl and $3.60/mcf.
o Lease bonuses and royalty payments: o 20% of owners live outside of Ohio.
o 10% is owned by municipalities and companies.
o 4% of windfall payments are spent in Ohio; bonuses one
time, royalties annually.
o Omit spending by outside workers.
Projected Spending in Ohio – 2014 (model input data in 2012$)
Economic Potential for the Utica Shale
Development in Ohio
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o Lease Bonuses
o $34,992,551
o Royalties
o $45,278,948
o Road & Bridge Construction
o $426,915,817
o Drilling and Completing Wells
o $4,722,240,422
o Midstream Infrastructure
o $1,138,004,105
o Total: $6,367,431,844
Model and Methodology
Economic Potential for the Utica Shale
Development in Ohio
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o Used “Input-Output” methodology
o IMPLAN software
o Calculates economic impact from:
o Direct Spending – purchase of goods and services
o Indirect Spending – spending of suppliers
o Induced Spending – consumer spending of labor
income
o “Regional multipliers” and “Leakages” are
determined from the model.
Modeling Results:
Impacts from 2011 to 2014
Economic Potential for the Utica Shale
Development in Ohio
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o Total Output: $17.4 billion (2012 dollars)
o Value Added in Ohio: $8.9 billion
o Drilling related: $6.7 billion
o Midstream related: $1.9 billion
o Payments to Ohio labor: $6.0 billion
Associated with:
o Drilling: $4.3 billion
o Midstream development: $1.0 billion
o Public works (Roads & bridges): $490 million
o Lease bonuses & Royalty payments: $119.5 million
Expected Path of Development
2011 to 2014
Economic Potential for the Utica Shale
Development in Ohio
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Returns from Increased Demand in Ohio Due to Utica Shale Development
in 2012 dollars
What Industries Will Be Sustained in 2014?
Economic Potential for the Utica Shale
Development in Ohio
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Total employment supported: 65,680
Associated with field development 28,100
o Support activities oil & gas operations: 10,800
o Construction oil & gas infrastructure: 18,400
o Wholesale trade: 2,200
o Transportation by truck: 1,600
Professional services 5,700
o Architecture, engineering & related: 1,500
o Environmental & other technical consulting: 1,000
o Management of companies: 700
o Legal service: 800
What Industries Will Be Sustained in
2014?
Economic Potential for the Utica Shale
Development in Ohio
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Mixed services 6,300
o Real estate 2,100
o Employment services (temp staffing) 1,100
o Investment & related activities 800
Personal services 16,100
o Retail stores 5,800
o Health care 4,500
o Food service & drinking place 3,900
Expected Average Labor Income in 2014:
$50,225 per year
Economic Potential for the Utica Shale
Development in Ohio
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Associated with field development $59,451
o Support activities oil & gas operations $69,319
o Construction oil & gas infrastructure $48,213
o Equipment rental: $81,131
o Cement manufacturing: $77,404
Professional services $69,177
o Architecture, engineering & related $67,382
o Environmental & other technical consulting $68,263
o Management of companies $109,280
o Legal services $63,828
Opportunities for Ohio Industries
Economic Potential for the Utica Shale
Development in Ohio
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o Pad construction – location liners, limestone, pits, dikes, roads, etc.
o Water – for drilling and fracturing
o Mud – bentonite and barite clay
o Steel pipe (casing)
o Cement (conventional cements not acceptable)
o Sand – clean, well-sorted 20-40 mesh in particular
o Steel tanks, separators, metering equipment, production equipment, etc.
o Compressors
o Pipelines
o Treatment facilities for NGL’s, water, and impurity removal
Other Opportunities: Downstream
Industries
Economic Potential for the Utica Shale
Development in Ohio
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o Oil Refining
o Nitrogen Fertilizer
o Chemical and Polymer Sector
Selected Firms: Areal & Gorman Rupp
Economic Potential for the Utica Shale
Development in Ohio
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o Ariel Corporation (Mount Vernon), a leading
manufacturer of reciprocating (piston-driven)
compressors. Employment has grown from
500 in 2001 to 1,350 today.
o Gorman Rupp (Mansfield), which
manufacturers pumps. Recent factory
expansions have increased manufacturing
capacity by 30 to 50 percent.
Selected Firms: Pioneer Pipe & V&M Star
Economic Potential for the Utica Shale
Development in Ohio
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o Pioneer Pipe (Marietta), which undertakes
projects in construction, fabrication, etc. Work
for the oil and gas sector has grown from little
more than 5 percent of the firm’s total business
a couple years ago to about 20 percent today.
o V&M STAR (Youngstown), a leading
manufacturer of tubular steel products.
Currently constructing a new pipe mill, costing
$650 million.
Impact of the Utica Shale Development
on Ohio’s Economy
Economic Potential for the Utica Shale
Development in Ohio
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o Gross State (or Domestic) Product is expected
to increase by $4.9 billion in 2014 due to the
development of the Utica formation as an
energy resource.
o This is equal to a 1% increase in the real value
of Ohio’s Gross State Product – greater than
the average annual growth rate in Ohio for the
past 13 years (0.6%).
Questions
Economic Potential for the Utica Shale
Development in Ohio
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o Andrew R. Thomas or
Iryna Lendel, College of
Urban Affairs, Cleveland
State University.
o Linda Woggon, Executive
Director, Ohio Shale
Coalition.
o Study Available at:
www.ohioshalecoalition.com
www.urban.csuohio.edu
