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Ohio Touts Fractionator, Doubts Cracker

Ohio is a "long shot" for a world class ethane cracker planned for Appalachia, but the state would still benefit if the facility lands anywhere in the region, Ohio Gov. John Kasich said Tuesday.

While in Cadiz, OH, to announce the first major midstream project in the Utica Shale, Kasich said Ohio most likely doesn't have the proven feedstock to support the 60,000 b/d facility proposed by Royal Dutch Shell plc, but he said Ohioans should still expect great things from the shale industry.

"I just think it's a long shot. Does that mean long shots never happen? No, sometimes they do, but I don't think that we should in any way, shape or form define our success on whether we get this or not," Kasich said. "We're going to have more processors, more fractionators, billions of dollars worth of investments. If we do this right...this is a couple generations worth of prosperity."

Although Kasich has recently met with top Shell officials in the hopes of wooing the cracker to his state, he said his conclusion is "my analysis, and Shell is tight-lipped about everything they do." Across the Ohio River, Pennsylvania and West Virginia both recently passed bills in the hope of getting Shell to put the cracker in their backyards (see Shale Daily, Feb. 6; Jan. 30).

With the limited drilling in the Utica to date, the industry is still mapping the outlines of the dry gas, wet gas and oil windows of the play, and assessing the resource potential in each, work that is much farther along in neighboring West Virginia and Pennsylvania, Kasich said. Additionally, he said, Shell is not a major leaseholder in Ohio the way that it is in other states in the region.

"I'm not convinced we'll get a cracker, let me just be clear about that, but I'm going to tell you this: If a cracker comes in the Midwest we will all benefit, regardless of where it's located," he said, noting that other industries in Ohio rely on the resins that would be created at the cracker.

While Kasich called on schools to tell children about the opportunities in oil and gas, and on community colleges to train workers, he said Ohio also doesn't see shale as a panecea.

"Relying on one industry? We did it before, didn't we? We were going to make steel for a thousand years. And then one day it ended. We're not going to make that mistake again," he said.

Additionally, Ohio will host infrastructure of its own, Kasich said, such as the "world class" fractionator that MarkWest Energy Partners LP plans to build in the tiny village of Cadiz, a town of about 3,500 people and the birthplace of Clark Gable. That facility will employ about 700 people during construction and 100 during operation, according to MarkWest CEO Frank Semple.

Through a joint venture with the Energy and Minerals Group, MarkWest plans to spend $500 million on two gas processing plants and a fractionator to support producers in southeast Ohio.

MarkWest announced that joint venture last December (see Shale Daily, Dec. 15, 2011) and recently signed its first major transaction for the region, a letter of intent with Gulfport Energy Corp. and other producers to provide processing, fractionation and marketing services for natural gas liquids through new facilities in Harrison County, home of Cadiz (see Shale Daily, March 8).

Kasich plans to roll out a "comprehensive energy policy" on Wednesday that includes changes to the tax code, to permitting and environmental regulations, and to the package of incentives the state offers to alternative energy programs. The plan remains hush-hush for now, but details have already emerged about plans to maintain what is essentially a severance tax rate of 20 cents/bbl for conventional oil production, but implement an unconventional oil tax of 1.5% on gross receipts during the first year, increasing to 4% in subsequent years (see Shale Daily, March 6).

"Currently we charge 20 cents on a $107 barrel of oil. I mean, I'd like to know who thinks we can charge 20 cents on a $107 barrel of oil," he said. The plan would extend the economic benefits of shale to residents in the western half of the state, where drilling will be scarce or absent, and also to small businesses that pay the income tax, he said.

But Kasich hinted that a battle could be on the horizon over impact fees.

"I would really ask of the local government officials to be patient. We know you're going to have issues with impact fees," he said. "Right now, everybody's happy. But the time's going to come when the trucks start coming... We're going to have infrastructure issues."

As for the rules and regulations, "They'll be strong, but they'll be clear," Kasich promised.

For proof, he pointed to an executive order he signed Monday that gives the state Division of Industrial Compliance, rather than local building authorities, jurisdiction over the construction of gas processing plants, saying it would streamline the permitting process for companies.

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