North America’s Shale Energy Stockpiles: Ohio Enters The Game—But Is it too Late, and Will State Politics Get in the Way?

by Keith Edmund White, Editor-in-Chief

With all the chattering over Canada’s oil sands, it’s important not to forget what natural resource literally ties Canada and the United States: shale gas. This resource, while perhaps not as pronounced on the public mind as black-gold brother, has gained prominence over the last decade. For most readers, T. Boone Pickens—and the numerous commercials he generated extolling naturally gas—may have been your first brush with shale.. But now even CNN’s Fareed Zakaria has seemingly blessed this energy shift: noting not only can shale gas production be done responsibly, but could serve as a geo-political stabilizer: with energy-hungry nations like the United States and China not having to be as dependent on keeping oil on the market from more volatile regions on the globe. And, as Canada’s showing, shale brings with it job and GDP growth (refer to page 27). While Canada’s oil sands grab the headlines, it’s clear the natural gas—promising less environmental impact—is trying to give it a run for its dominant role on the global energy stage.

And now Ohio is in on the game. And it’s bringing about its own interesting energy-state politics. First, the geology. Ohio sits—along with about 7 other U.S. states and Ontario—on the Utica shale gas reserves. How much is there? Apparently a lot. And in Ohio is pushing to up its 7-wells, and try to get in on the shale boom.

But this is where the state politics come in. Ohio Gov. John Kasich, not known as a moderate in his former Congressional career and now still-short tenure, has used the issue to show off his inner populist. His plan: finance a across-the-board income tax cut with increased taxes on drilling, which—it should be noted—admittedly Ohio already accessing this ‘severance tax scheme’ at a lower rate than other States. But, alas, Kasich finds himself fighting his own party over the tax proposal, with others calling the tax-proposal a possible killer of shale’s potential for spurring Ohio economic growth.  Whether Kasich populist pivot results from conviction or political necessity is debatable, but in the result is the same:  Kasich is pushing shale gas in a way that presumably will be supported by most Ohio voters.

Now there are two things to consider when assessing the virtues of natural gas. On the macro-scale, its undoubtedly true that natural gas is clean than oil—but, is using natural gas as a crush keeping the American economy from entering its green phase? On the ground in Ohio, there are two far less abstract questions. First, is the market to awash in natural gas?  As pointed out in John Funk's The Plain Dealer Nov. 2011 piece, Ohio might be too late to the party to enjoy a true shale boom:

The problem for Ohio is that the gas industry has been too successful over the last three years at developing shale gas in other parts of the nation, using technologies to drill horizontal wells and then fracturing, or "fracking," the rock to release the gas. 

Now there is too much of the stuff. The glut is growing and prices are falling. Those are the facts. Additionally, no one knows for sure how much gas -- or more valuable oil and other hydrocarbons -- lies trapped beneath Ohio. "The issue for the Ohio economy is whether there is enough demand for natural gas to permit development. It's not a question of whether it will create 150,000 jobs or 170,000 jobs but a question of whether it will happen at all," said Andrew Weissman, executive director of Energy Business Watch, a national private analytical service for energy investors. 

"It will happen on some scale," he added. "But the question is whether it moves quickly or whether it moves slowly so that it has only a modest impact on Ohio's economy."

And second, are Ohioans being over-sold on the economic benefits? Yes, with gas comes drilling operations, leasing and royalties, and pipeline infrastructure (all of which equal more jobs—especially for lawyers!). But, as this OSU report makes clear, while a short-term of income burst is to be expected in drilling areas, shale gas development’s ability to create long-term job-creation is dubious at best (and still comes with some not-fully understood environmental impacts) (refer to pages 15 and 27).  One fascinating statistic: Pennsylvania counties with drilling actually had less job growth than non-drilling countries, though both saw roughly equal income growths over 2000-2010.  Assuming this is trend  continues in Ohio, Governor Kasich’s plan makes sense: use the short-term income boast to simulate growth (income taxes) or some smart government-spending that can actually lead to sustainable job creation.

In any case, shale is here to stay. And with it, at a minimum, will come even more links between Canada and the United States.