Researchers at Cleveland State University (CSU) have released their latest study assessing the rate of growth in the Utica Shale play, showing that its impact on the state's economy is truly beginning to show itself, while stressing that much of the play's economics hinge on natural gas liquids (NGL) production.
Started in February 2012 after the Ohio Shale Coalition -- a partnership of energy interests formed by the Ohio Chamber of Commerce -- commissioned the study, the Ohio Utica Shale Gas Monitor offers a look at how shale gas development is affecting counties throughout the state by analyzing sales tax receipts, employment rates, well activity and gas prices.
The latest study, funded by CSU and released on Friday, shows that sales tax receipts in eight of the state's leading shale gas counties saw year-over-year growth. Employment gains were offset by job losses in other industries in the same areas.
"If you look at the growth in sales taxes in some parts of the state, shale development is clearly having an impact with the indirect spending from royalties and out-of-state workers," said Ned Hill, an economics professor and dean of the college of urban affairs at CSU, who leads the study.
"Employment is a little bit harder to track because the numbers are based on where a person lives, not works. Ohio in particular has a terribly irrational exuberance and outrageous expectations, thinking that the economics of this play will somehow wave a wand and billions of dollars worth of infrastructure and investment will appear overnight."
But growth in sales tax receipts and well activity during 2012, and more specifically from April through August of last year, can't be discounted as incremental, Hill said, with the study repeatedly demonstrating continued growth throughout the state, and mainly in eastern Ohio, where Utica Shale drilling is occurring.
The study's authors said investments in the Utica are being driven by the price of NGLs, oil and methane. Not surprisingly, considering the play lacks the kind of crude oil production that has driven other basins across the country, and prices for dry gas continue to sag, NGL production remains paramount to the economics of the Utica. Hill said operators continue to target NGLs in the formation, despite the state's choice to exclude them in production data, which Hill called a "terrible mistake" given their importance.
That targeting, Hill added, is evident in the companies aggressively shifting their exploration and production to the southeastern part of the state. CSU's study tracks the play's economic impact by monitoring four regions of the state based on their geology and well activity, grouping counties into the categories of strong, moderate, weak and non-shale activity. The number of strong shale counties in the latest study has gone from 15 to eight, as operators focus on a wet gas window in Belmont, Carroll, Columbiana, Guernsey, Harrison, Jefferson, Monroe and Noble counties. Moderate counties -- mostly in the northeast -- have gone from 15 to five in an area where operators are testing the science and composition of the play.
Critical to the Utica's development and its bearing on economic benefits in Ohio is how NGLs are transported and processed.
"What we've done is to take a very close look at the investment strategies being made for cracking and processing advancement," Hill said. "The state's long-term employment gains, and even the tri-state area's gains, depend on NGLs and how they're processed and refined for the building-blocks of a robust plastics and manufacturing industry."
Hill said the race among some major midstream companies, such as Williams, Dominion and Enterprise Products Partners to carry NGLs south, and farther to the Gulf Coast, doesn't bode as well for the region as do some of the foreign investments announced for West Virginia and Ohio. He said the Brazilian company Odebrecht's plans for a cracker and polyethylene plant in West Virginia (see Shale Daily, Nov. 14, 2013) and Velocys plc’s' announcement to construct a natural gas-to-liquids plant in Ashtabula County, OH (see Shale Daily, Sept. 24, 2013) signify a willingness to process and transform NGLs where they're produced in the basin.
"There's a little more certainty from overseas, and it represents a different capital source," Hill said. "Shell's plans for a cracker in Pennsylvania are questionable. They're an oil major and they're more capital constrained. I believe they're reconsidering their entire commitment to the North American market."
Sales tax receipts grew at an annual rate of 15.5% in strong shale counties during 2012 and rapid growth continued through 2013. From August to January of last year, tax receipts grew by 7.9% to 12.5% year-over-year, while they grew by 4.6% to 10.7% in moderate counties.
By the end of 2012, the number of horizontal wells drilled in strong shale counties had increased by 758%, according to the study, while the number of wells permitted had climbed by 482%. During 2013, well permitting continued to ramp-up, with an additional 164 wells permitted during the second quarter of 2013 alone, an increase of 321%. The number of wells producing oil and gas through 2Q2013, however, dropped compared to the first half of 2012 with infrastructure constraints and well shut-ins.
As of Friday, state records showed 1,037 horizontal permits issued and 688 wells drilled.
Employment remained relatively flat in strong shale counties between the first and second quarters of 2013, dropping marginally by 0.8%. Moderate counties added jobs during that period, with employment increasing 0.4%. A major aluminum smelter closed in Monroe County, which is classified by the study as a strong shale region, resulting in the loss of 1,200 jobs during the study period. In moderate shale counties, jobs have been created steadily in the oil and gas supply chain.
The natural resources and mining sector in Ohio has shown some wild year-over-year swings over the years, in terms of its gross domestic product. According to data from the U.S. Bureau of Economic Analysis, Ohio has seen a 20%-plus year-over-year change in economic output in this sector three times since 1997, the latest being a 20.9% increase in 2011 that was likely driven by increased interest in the Utica/Pt. Pleasant formations. However, each one of those 20%+ increases has been followed by a sharp decrease the next year, and 2012 was no exception, with an 8.6% decline for the year; 2013 data are not yet available.