Natural gas and oil drilling in Ohio could create 65,000 jobs and add nearly $5 billion to state coffers by 2014, according to an academic study.
Findings from the eight-month study, “The Economic Potential for Shale Formations in Ohio,” were released Tuesday. Energy, economics and geology experts from Cleveland State University, Ohio State University and Marietta College’s Department of Petroleum emphasized that they were asked by the Ohio Shale Coalition, led by the Ohio Chamber of Commerce, to investigate the nature and amount of economic activity likely to be spurred by unconventional energy development.
On Utica Shale development alone, Ohio’s gross domestic product (GDP) by 2014 was predicted to jump by $4.9 billion, “equal to a 1% increase in the real value of Ohio’s GDP — greater than the average annual growth rate in Ohio for the past 13 years (0.6%).”
The study team said for the first time in more than a century, “Ohio finds itself on the threshold of not only being self-sufficient in the production of oil and gas, but it may even become an exporter. This is because thousands of feet below the eastern half of the state lies a shale formation, commonly called the Utica Shale, that promises to be a major source of hydrocarbon production for the next 30 plus years.
“This formation contains reserves of as much as 5 billion bbl of oil and 15 Tcf of natural gas. Moreover, another shale layer beneath the Utica — the Lower Huron formation — may also be capable of producing fossil fuels in commercial quantities.”
The team launched its study just as Utica development drilling began in earnest last year, the researchers emphasized that their findings are “conservative.” They compiled their data using a combination of interviews with industry experts and executives, prior studies in other shale plays and government information to build a model of development scenarios for economic impacts from 2011 to 2014.
In the analysis of the economic impacts resulting from developing the Utica Shale, the study team focused on:
Even using conservative estimates, the impact from drilling in Ohio indicates astonishing growth across a multitude of employment sectors.
“Mineral leases are currently being acquired with bonus and royalty rates never before seen in Ohio,” said the researchers. “Notwithstanding these very high rates, leasing has been robust, with some three million plus acres of mineral rights acquired in the last several years, and ongoing land operations show no immediate sign of abatement…”
Drilling operators also will be putting down money on road and bridge infrastructure to support well drilling, the researchers found.
“The heavy equipment needed to bring in drilling equipment and to haul water and other materials requires heavy-duty roads to be built and maintained. An estimated $1.1 million dollars is likely to be expended, on average, by producing companies in road and bridge upgrades for each drilling location,” said the report.”
The “most significant” expenditures are, of course, to drill and complete wells, and with those investments will come additional spending.
“Wells are expected to cost between $5 million and $6 million each to drill and complete. Drilling started off slowly in Ohio in 2011, with 33 total wells drilled, and only four placed into production. However, drilling is expected to ramp up quickly, with over 1,000 wells a year being drilled by 2014. This means that by 2014, over $6 billion dollars will be spent on drilling and completing wells in Ohio.”
Once the wells are drilled and completed, post-production spending to build midstream facilities would have to be “sufficient to handle a throughput of 1.5 Bcf/d of natural gas in Ohio from the Utica.”
The authors modeled production of both liquids and natural gas produced at the well for royalty and tax purposes using a combination of estimates for drilling and production rates for the Utica and relying on geological and petroleum engineering experts at Marietta College, and the Ohio Geological Survey.
“The models indicate that outputs are expected to amount to nearly $10 billion per year by 2014, with another $500 million in tax revenue generated. It is expected that these numbers are likely to continue in this range in the years following 2014, although leasing and midstream infrastructure activity will significantly slow down.”
In 2011 about $230 million was invested in Utica shale development, which resulted in the state’s gross domestic product (GDP) increasing by an about $162 million, according to the data.
“This translated into 2,275 jobs, and nearly $100 million in increased labor income,” said the researchers. “By 2014 the incremental economic activity in the state of Ohio from [2011’s] expected expenditure of $6.4 billion in oil and gas field development is expected to result in 65,680 jobs and $3.3 billion in labor income, or an average income of $50,225 per job. The model shows average labor income rising over time as the work shifts from leasing and road construction to drilling and infrastructure maintenance.”
Almost 17% of the new jobs would come from oilfield service companies, with employment expected to double between 2013 and 2014. “The average earnings for this group are $69,000 per year. The largest growth in employment will be in construction-related trades as wells are drilled and midstream facilities are constructed.
“Nearly 11,000 local construction jobs will be created as new manufacturing facilities and other nonresidential structures are constructed, which includes midstream infrastructure, as well as pipelines and roads and bridges. These will pay an average of $48,000 per position. Truck drivers will be in great demand as servicing companies, wholesalers, delivery services, and construction companies ramp up their employment to meet demand. Expected average labor income is nearly $53,000.”
By 2014 more than 1,500 jobs for engineers and architects will be created, along with an estimated 1,000 environmental compliance technicians. In addition, demand will soar for office workers, with about 1,800 needed, as well as 500 technical consultants. In addition, the “leasing and contracting work will help turn around a soft market for attorneys, with nearly 841 positions expected to open.”
Developing the Utica Shale also will result in increased land and property values throughout the region, said the study team. “This will not only be due to the direct economic activity triggered by drilling and building out supporting infrastructure, but will also be due to the increased value of housing and general commercial structures throughout the eastern half of the state as employment increases and wages and incomes rise.”
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