Transcript Rising Inequality in an Era of Austerity: The Case of the USA

Shale Resources in Ohio
By Amanda Weinstein
Swank Program in Rural-Urban Policy
http://aede.osu.edu/programs/swank
[email protected]
NAIOP Conference
October 24, 2012
Cincinnati, OH
Outline
 Introduction
 Shale Resources
 Hydraulic Fracturing
 Local Impact
 Economic Impact
 Environmental Impact
 Conclusions
Introduction
 Innovations in extracting oil and natural gas trapped below
the surface in shale have led to oil and gas booms across the
country
 Innovations include microseismic technology, horizontal drilling,
hydraulic fracturing
 Brought oil and gas booms in new areas such as Pennsylvania
and more recently Ohio
 Brought concerns about the various impacts of the boom on
the local community
Shale Oil and Gas
 Shale is a sedimentary rock that is formed as particles of sediment
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settle in calm water.
Shale rock is generally high in organic content.
Once covered up by other sediments and buried over millions of
years, heat and pressure begin to work on these sediments and oil
and gas are formed.
Many of the shale formations in the U.S. were formed during the
Devonian period, around 390 million years ago.
“Conventional” oil and gas reserves occur when some of the oil
and gas has migrated upwards, to layers of sandstone and porous
limestone where it becomes trapped.
In some cases, a significant quantity of oil and gas remain in the
shale rock. These reserves are called “unconventional”
Unconventional Oil and Gas
The Marcellus and Utica Shale
Ohio Marcellus and Utica Shale
Shale Plays Across the U.S.
 According to the U.S. EIA (2011) there is approximately 750 trillion
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cubic feet of gas and 24 billion barrels of oil yet to be developed
The largest shale plays in terms recoverable oil are the Monterey,
Bakken, and Eagle Ford.
The largest shale plays in terms of recoverable gas are the Marcellus
(410.3 trillion cubic feet, 55% of the total), Haynesville, and Barnett.
Marcellus – mainly comprised of natural gas also called “dry gas” which
is mostly methane (heat our homes and power plant)
Utica – may have more “wet gas” with liquids such as ethane, propane,
and butane used as a chemical feedstock or additives in gasoline, with
low natural gas prices more valuable.
The market for ethane has gotten a lot of attention, as Shell weighs
building a petrochemical plant in Beaver County that would convert
“crack” ethane into ethylene, which is used to make plastics
Tight Oil production
Actual and Projected Production
Shale Gas Production
Actual and Projected Production (EIA)
Hydraulic Fracturing: Drilling
 Commercial hydraulic fracturing began in 1949,
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though it took several decades for it to become
cost effective
Practical application of horizontal drilling to oil
production began in the early 1980s in the
Barnett Shale in Texas
By 2005 the Barnett Shale was producing
approximately 0.5 tcf of natural gas per year
An initial wellbore is drilled and thick steel pipe
is placed in the hole and sealed with cement on
the outside of the pipe.
Drilling recommences to the deeper zones of
interest and when this depth is reached, a second
string of steel pipe is run inside the first and
additional cement is used to provide a permanent
seal.
Approximate Drilling Depths
Hydraulic Fracturing: Land Use
 Leasing and royalty payments
 Spacing is variable
 Marcellus wells can be spaced in 40-acre units or 16 wells per square
mile. An average town could contain up to 1,500 wells.
Hydraulic Fracturing: Fracking
 Once the well is drilled, hydraulic fracturing also called “fracing”
involves injecting between 1-8 million gallons of water, sand, and
chemicals down the well.
 Chemicals can vary by well. They are often described as soap and oil by the
industry. Chlorine is often used as an antibacterial agent.
 Frac tickets
 The pressurized mixture causes the shale to crack or fracture.
 The fissures are held open by the sand to allow gas to flow up the
well
Hydraulic Fracturing
Hydraulic Fracturing
 About ½ the water will stay in the ground and in some
cases the water has been reused
 The rest will come back up as “flowback” or “produced
water” or wastewater
 The wastewater will often be stored in a lined pit onsite
until it can be transported to an injection well or
containment vessel
 Wells are then shut in, or capped, while awaiting
completion of pipelines to transport the natural gas to
market.
Drilling Tower and Capped Well
Marcellus Shale horizontal drilling
tower in Lycoming County, PA.
Map of Injection Wells
Horizontal Marcellus Shale Wells
Horizontal Utica Shale Wells
Major Holders of Utica Shale Right in Ohio (April 2012)
 Major Holders of Utica Shale Right in Ohio (April 2012)
Impact on the Local Community
 Noise associated with construction and drilling (for about a month).
Compressor stations can also be noisy
 Trucking – If one well requires 2 million gallons of water for one
fracking, that’s 366 tanker trucks hauling fresh water and 183 tanker
trucks hauling wastewater, for a total of 549 tanker truck trips per
well.
 Increases road use and deterioration
 Increased traffic for local residents which can also lead to increased traffic
accidents requiring a higher level of local services
 Large shale booms like Williston, ND also have population booms
putting a strain on housing, utilities, local schools, and other public
services
 Stresses the importance of agreements with the industry on road
maintenance and ensuring severence taxes are appropriate to account
for all of these costs
Severance Taxes
Effective Natural Gas Tax Burden
Environmental Impact
 A bridge to more environmentally friendly energy production
 Carbon benefits may be slightly less due to the trucking requirements,
but carbon emissions remain significantly less than coal
Environmental Impact
 Water use and wastewater
 Hydraulic fracturing was exempted from the Safe Drinking Water Act in
the Energy Policy Act of 2005
 Gasland – mainly focuses on Dimock, PA but also CO, WY, UT, TX
where residents experienced health problems related to contaminated
drinking water though it received heavy criticism about baseline testing
 Duke University study found elevated levels of methane in water near
drilling sites (Osborn et al., 2011)
 In December 2011, the EPA
found hydraulic fracturing fluids
were responsible for drinking
water contamination in
Wyoming.
Environmental Impact
 Energy industry focuses on a “few bad apples” (or complete denial
of risk, depending on source) and nothing new here – just drilling.
 Environmentalists focus on fracking when they should be focused
on drilling (casing failures and spills), but there’s nothing new
there
 Unknown chemicals
 In Ohio and PA now release chemicals – frac tickets
 Occam’s Razor
 Earthquakes from drilling and injection wells
 Arkansas, Oklahoma, Texas
 Injection well in Youngstown, OH Dec. 2011
Perspective on Environmental Impact
 Coal ash spill –
 In 2008, the New York Times reported that experts called the
Tennessee ash flood that dumped over 1.1 billion gallons of coal
ash waste “one of the largest environmental disasters of its kind”
 2011 Coal ash spill in Lake Michigan
Economic Impact
 We are concerned that job numbers may be overinflated by an
industry (any industry).
 Commenting on shale energy development, Aubrey McClendon
CEO of Chesapeake Energy of Oklahoma was quoted in the
Columbus Dispatch saying, “This will be the biggest thing in
the state of Ohio since the plow.”
 Industry funded estimates range from 65,000 to 200,000 jobs
created by shale development in Ohio
 Examining the trends in employment we find the jobs impact of
shale development will be approximately 20,000 after accounting
for the multiplier effect.
Why the Difference?
 We can draw upon the experiences and lessons learned from other
states like Pennsylvania to create counterfactuals.
 Compare drilling counties with similar non-drilling counties in PA.
 Statistical regressions on the entire state of Pennsylvania
 Trends in direct oil and gas employment
 ‘Impact studies’ that estimate direct and indirect effects are overestimates of new job creation and serious regional economists have not
viewed them as best practice for decades.
 At best, a well done impact study should tell you how many jobs are
‘supported’ by an industry, not how many jobs it ‘created.’
 At worst, the economic effects can be double counted and
unrealistic assumptions applied to the model to increase estimates.
 NOT COUNTERFACTUALS!
Economic Theory
 The modest impact on jobs is not surprising
 More capital intensive than labor intensive
 Displacement effects – coal industry, tourism, bid up wages,
‘Dutch Disease’
 Even with impressive growth rates, the energy sector is still a
small share of the total Ohio economy at 5.35 million in Feb.
2012 (U.S. BLS) at approximately 0.3%
 We do find a significant income effect (leasing and royalty
payments, higher wages)
 Housing – immediately increase demand for hotels and rental
units increasing housing costs
 Economists have 150 years of evidence on natural resource booms
and the evidence is often negative – “natural resource curse”
Prices - Booms and Busts
Energy Price Comparison
Conclusions
 Shale natural gas is associated with significant income effects
but modest employment effects.
 However, the real question of shale investment is not job
creation, but net benefits vs. costs (including environmental
costs).
 In this question, natural gas should be compared to coal, the true
alternative.
 Shale natural gas is lower cost, less carbon, and like coal has local
pollution impacts. Shale natural gas will also reduce natural gas
imports.
 Ohio should consider higher severance tax to counteract some
of these costs and pay for long-term benefits.
 Schools, infrastructure, environment.
 Invest in assets to account for the lost extracted assets
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Thank You
Amanda Weinstein
Research Associate for the Swank Program in Rural-Urban Policy
Dept. Agricultural, Environmental & Development Economics
The Ohio State University
([email protected])
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