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Ohio's oil and gas industry is ready to boom once prices improve, analyst says

January 26, 2018

 

COLUMBUS, Ohio--While slumping energy prices are devastating Pennsylvania's once-booming shale drilling industry, Ohio's nascent fracking industry could be primed to take off once the market improves, according to a prominent industry analyst.

Oil and gas drilling activity this year has fallen off across the Marcellus and Utica shale formations that lie underneath eastern Ohio and much of Pennsylvania, according to DrillingInfo, a Texas-based energy analytics firm.

That has led to economic problems in Pennsylvania. But in Ohio, which last year produced about one-eighth as much natural gas as the Keystone State, there haven't been nearly as many jobs to lose.

As of June - the most recent time that statistics are available - Ohio's oil and gas industry directly employed 2,085 people, down from 2,367 at the same time last year, according to the U.S. Bureau of Labor Statistics.

In Pennsylvania, oil and gas employment nudged up slightly from 6,422 in June 2014 to 6,486 last June, though Pennsylvania Department of Labor and Industry spokeswoman Sara Goulet said there's been a dropoff in jobs to set up new drilling sites. Local businesses that cater to drillers have also seen sales drop off recently.

But when prices inevitably rebound, Ohio will be in an enviable position, said DrillingInfo CEO Allen Gilmer. It's already been proven that Ohio sits atop a world-class reservoir of oil and gas, he said, but unlike Pennsylvania, it still hasn't been heavily exploited.

"I'd say it's about different expectations," Gilmer said. "In a recovery, Ohio's actually in a position to benefit better than anybody else."

Right now, Gilmer said, energy companies in Ohio - like elsewhere in the U.S. - are in a sort of economic hibernation, only doing as much drilling as they need to maintain a minimum cash flow and meet the requirements of their drilling leases.

But those who have money to invest right now, he said, are "giddily excited" because they can pick up assets for pennies or dimes on the dollar.

"Fortunes are built on the busts - they're only realized during the booms," Gilmer said.

Drilling started later in Ohio than Pennsylvania because it took longer to recognize the potential of the Utica Formation, Gilmer said.

As a result, he said, drillers in the Buckeye State have so far relied on crews and equipment from other states. But as Ohio's energy industry grows, he said, companies will increasingly build rig construction yards in the state and hire locals to work for them.

Shale drilling can yield three products: oil, "dry" natural gas (the gas used in stoves and furnaces), and natural gas liquids such as propane and butane.

For a couple years, Ohio benefited because its Utica Shale wells brought up a comparatively large amount of natural gas liquids along with dry gas, said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association.

But natural gas liquids are now a liability, Bennett said, because the price has fallen below the cost of separating them from dry gas.

As a result, Bennett said, drilling in eastern Ohio has moved from liquids-rich areas such as Guernsey and Noble counties to over-pressurized dry gas areas such as Harrison, Monroe and Belmont counties.

"They're really focusing on their best wells right now because they have to try to make it in this difficult commodity price environment," he said.

There's crude oil down there, too, but Bennett said it's hard to access, because it's so shallow that there's not enough pressure to force it up to the surface without help. The industry has been working on technology to make shale oil drilling profitable in Ohio, Bennett said, but such work has largely stopped until oil prices are once again high enough to make it worthwhile.

The "big hope" in the long term, Gilmer said, is that heavy industries such as steel plants will build facilities in Ohio to take advantage of the huge amounts of oil and gas being pulled out of the ground.

"You guys are sitting on the Saudi Arabia of natural gas there," Gilmer said. "There's not a better place on the planet to situate today for a big manufacturer that uses a lot of energy."

Chris Zeigler, executive director of API Ohio, an oil and gas group, said billions already have been invested in pipelines and processing facilities for Marcellus and Utica gas.

Zeigler said he's optimistic that Ohio's energy industry will emerge from this low period in even better shape than before.

"I think the industry is resilient," he said. "I think we've been through these periods before."

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