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 Coalition
Economic Potential for the Utica Shale
Development in Ohio
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. Scope and Nature of Study
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.
Economic Potential for the Utica Shale 3
Development in Ohio
4. 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 4
Development in Ohio
6. 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 6
Development in Ohio
7. The Utica and Marcellus Shale Regions
of Ohio
Economic Potential for the Utica Shale 7
Development in Ohio
8. Utica Shale Economic Development
Areas Modeled
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
Economic Potential for the Utica Shale 8
Development in Ohio
9. Key Assumptions Made
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.
Economic Potential for the Utica Shale 9
Development in Ohio
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
12. Anticipated Production per Well
(at the well head)
Economic Potential for the Utica Shale 12
Development in Ohio
13. Anticipated Number of Wells Drilled
Economic Potential for the Utica Shale 13
Development in Ohio
14. Data Assumptions
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
Economic Potential for the Utica Shale 14
Development in Ohio
15. Projections for Drilling and Production
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
Economic Potential for the Utica Shale 15
Development in Ohio
16. Data Assumptions
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
Economic Potential for the Utica Shale 16
Development in Ohio
17. Processing Plants
Economic Potential for the Utica Shale 17
Development in Ohio
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 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
Economic Potential for the Utica Shale 18
Development in Ohio
19. Conservative Nature of Estimates
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 $3.60/mcf.
o Lease bonuses and royalty payments:
o 20% of owners live outside of Ohio.
o 10% is owned by municipalities and companies.
o 4% of windfall payments are spent in Ohio; bonuses one
time, royalties annually.
o Omit spending by outside workers.
Economic Potential for the Utica Shale 19
Development in Ohio
20. Projected Spending in Ohio – 2014
(model input data in 2012$)
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
Economic Potential for the Utica Shale 20
Development in Ohio
21. Model and Methodology
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.
Economic Potential for the Utica Shale 21
Development in Ohio
22. Modeling Results:
Impacts from 2011 to 2014
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
Economic Potential for the Utica Shale 22
Development in Ohio
23. Expected Path of Development
2011 to 2014
Returns from Increased Demand in Ohio Due to Utica Shale Development
in 2012 dollars
Economic Potential for the Utica Shale 23
Development in Ohio
24. What Industries Will Be Sustained in 2014?
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
Economic Potential for the Utica Shale 24
Development in Ohio
25. What Industries Will Be Sustained in
2014?
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
Economic Potential for the Utica Shale 25
Development in Ohio
26. Expected Average Labor Income in 2014:
$50,225 per year
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
Economic Potential for the Utica Shale 26
Development in Ohio
27. Opportunities for Ohio Industries
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
Economic Potential for the Utica Shale 27
Development in Ohio
29. Selected Firms: Areal & Gorman Rupp
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.
Economic Potential for the Utica Shale 29
Development in Ohio
30. Selected Firms: Pioneer Pipe & V&M Star
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.
Economic Potential for the Utica Shale 30
Development in Ohio
31. Impact of the Utica Shale Development
on Ohio’s Economy
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%).
Economic Potential for the Utica Shale 31
Development in Ohio
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.edu
Economic Potential for the Utica Shale 32
Development in Ohio
