Ohio shale coalition presentation 02 28_12

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Ohio shale coalition presentation 02 28_12

  1. 1. The Economic Potential for The Utica Shale Development in Ohio Cleveland State University The Ohio State University Marietta College Sponsored by: The Ohio Shale CoalitionEconomic Potential for the Utica Shale Development in Ohio
  2. 2. The Study Team 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 Economic Potential for the Utica Shale 2 Development in Ohio
  3. 3. Scope and Nature of Studyo Scope of Study o Utica Shale only o Upstream and Midstream o 2011-2014o 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. Economic Potential for the Utica Shale 3 Development in Ohio
  4. 4. The Shale Galeo World-wide shale development: o Surge in NG, NGL supplies o Transformation from coal to natural gas o Transformation from oil to natural gaso Geopolitical shift of wealth o Away from Middle East, OPEC, Russia o Toward N. America, Western Europe, China Economic Potential for the Utica Shale 4 Development in Ohio
  5. 5. World Shale Formations Economic Potential for the Utica Shale 5 Development in Ohio
  6. 6. Utica Shale Reserve Projectionso 5 Billion barrels of oil recoverable o Light, sweet crude – API index of 41 – highest qualityo 15 Trillion cubic feet of gas recoverable o Source: Larry Wickstrom, Chief Geologist, Ohio Geological Survey Economic Potential for the Utica Shale 6 Development in Ohio
  7. 7. The Utica and Marcellus Shale Regionsof Ohio Economic Potential for the Utica Shale 7 Development in Ohio
  8. 8. Utica Shale Economic DevelopmentAreas Modeledo Leasing of Mineral Rightso Road Construction/Site Preparationo Drilling and Completion Serviceso Post Production Infrastructure Build OutNot Modeled: o Downstream opportunities o Midstream oil infrastructure o Effects Utica Shale may have on natural gas prices, and resulting impact on manufacturing Economic Potential for the Utica Shale 8 Development in Ohio
  9. 9. Key Assumptions Madeo 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. Economic Potential for the Utica Shale 9 Development in Ohio
  10. 10. Important Considerations(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 10 Development in Ohio
  11. 11. Economic Potential for the Utica Shale 11 Development in Ohio
  12. 12. Anticipated Production per Well(at the well head) Economic Potential for the Utica Shale 12 Development in Ohio
  13. 13. Anticipated Number of Wells Drilled Economic Potential for the Utica Shale 13 Development in Ohio
  14. 14. Data Assumptionso Number of wells for projecting the cost of drillingo Number of pads for pre-drilling roads improvements and gathering lineso Throughput of product for royaltieso Expected throughput by 2014 for midstream infrastructureFor each type of expenditure an estimate wasmade of the share of expenditures likely to bemade in Ohio Economic Potential for the Utica Shale 14 Development in Ohio
  15. 15. Projections for Drilling and Productiono The Study Team considered several scenarios of production and drillingo The modeling was based on the average scenario both for number of wells and production per wello We used a projected decline curve for gas and liquidso We assumed a 98% “success rate” for shale drilling Economic Potential for the Utica Shale 15 Development in Ohio
  16. 16. Data Assumptionso Drilling and Completion o $5.75 million per well o 58% of labor and material from Ohio, improving to 70% in 2014o 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 Economic Potential for the Utica Shale 16 Development in Ohio
  17. 17. Processing Plants Economic Potential for the Utica Shale 17 Development in Ohio
  18. 18. Data Assumptions Made (Continued)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 materialso 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 onceo 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 Economic Potential for the Utica Shale 18 Development in Ohio
  19. 19. Conservative Nature of Estimateso 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 $3.60/mcf.o Lease bonuses and royalty payments: o 20% of owners live outside of Ohio. o 10% is owned by municipalities and companies. o 4% of windfall payments are spent in Ohio; bonuses one time, royalties annually.o Omit spending by outside workers. Economic Potential for the Utica Shale 19 Development in Ohio
  20. 20. Projected Spending in Ohio – 2014(model input data in 2012$)o Lease Bonuses o $34,992,551o Royalties o $45,278,948o Road & Bridge Construction o $426,915,817o Drilling and Completing Wells o $4,722,240,422o Midstream Infrastructure o $1,138,004,105o Total: $6,367,431,844 Economic Potential for the Utica Shale 20 Development in Ohio
  21. 21. Model and Methodologyo Used “Input-Output” methodologyo IMPLAN softwareo 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 incomeo “Regional multipliers” and “Leakages” are determined from the model. Economic Potential for the Utica Shale 21 Development in Ohio
  22. 22. Modeling Results:Impacts from 2011 to 2014o 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 billiono 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 Economic Potential for the Utica Shale 22 Development in Ohio
  23. 23. Expected Path of Development 2011 to 2014Returns from Increased Demand in Ohio Due to Utica Shale Development in 2012 dollars Economic Potential for the Utica Shale 23 Development in Ohio
  24. 24. What Industries Will Be Sustained in 2014?Total employment supported: 65,680Associated with field development 28,100o Support activities oil & gas operations: 10,800o Construction oil & gas infrastructure: 18,400o Wholesale trade: 2,200o Transportation by truck: 1,600Professional services 5,700o Architecture, engineering & related: 1,500o Environmental & other technical consulting: 1,000o Management of companies: 700o Legal service: 800 Economic Potential for the Utica Shale 24 Development in Ohio
  25. 25. What Industries Will Be Sustained in2014?Mixed services 6,300 o Real estate 2,100 o Employment services (temp staffing) 1,100 o Investment & related activities 800Personal services 16,100 o Retail stores 5,800 o Health care 4,500 o Food service & drinking place 3,900 Economic Potential for the Utica Shale 25 Development in Ohio
  26. 26. Expected Average Labor Income in 2014:$50,225 per yearAssociated with field development $59,451o Support activities oil & gas operations $69,319o Construction oil & gas infrastructure $48,213o Equipment rental: $81,131o Cement manufacturing: $77,404Professional services $69,177o Architecture, engineering & related $67,382o Environmental & other technical consulting $68,263o Management of companies $109,280o Legal services $63,828 Economic Potential for the Utica Shale 26 Development in Ohio
  27. 27. Opportunities for Ohio Industrieso Pad construction – location liners, limestone, pits, dikes, roads, etc.o Water – for drilling and fracturingo Mud – bentonite and barite clayo Steel pipe (casing)o Cement (conventional cements not acceptable)o Sand – clean, well-sorted 20-40 mesh in particularo Steel tanks, separators, metering equipment, production equipment, etc.o Compressorso Pipelineso Treatment facilities for NGL’s, water, and impurity removal Economic Potential for the Utica Shale 27 Development in Ohio
  28. 28. Other Opportunities: DownstreamIndustrieso Oil Refiningo Nitrogen Fertilizero Chemical and Polymer Sector Economic Potential for the Utica Shale 28 Development in Ohio
  29. 29. Selected Firms: Areal & Gorman Ruppo 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. Economic Potential for the Utica Shale 29 Development in Ohio
  30. 30. Selected Firms: Pioneer Pipe & V&M Staro 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. Economic Potential for the Utica Shale 30 Development in Ohio
  31. 31. Impact of the Utica Shale Developmenton Ohio’s Economyo 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%). Economic Potential for the Utica Shale 31 Development in Ohio
  32. 32. Questions 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.eduEconomic Potential for the Utica Shale 32 Development in Ohio
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