Marcellus and Utica Shale Gas Supply Chain

1 Ohio Business Development Coalition © 2011

Marcellus and Utica Shale Gas Supply Chain

White Paper Ohio Business Development Coalition, 2011

The State of Perfect Balance


Energy companies in the United States and throughout the world are seeking alternatives as the cost of oil and coal production has risen because of civil unrest in the Middle East, natural disasters and climate change concerns.

One solution is to access the Marcellus and Utica Shale natural gas reserves, which have the potential to supplement the nation’s energy supply and to keep gas commodity costs in check. The Marcellus Shale formation stretches from the edge of Maryland to Pennsylvania, New York, West Virginia and the Appalachian Ohio region along the Ohio River. The boundaries of the deeper Utica Shale formation extend under the Marcellus Shale region and beyond. Experts estimate the Marcellus Shale formation may produce the energy equivalent of over 18 billion cubic feet of clean burning natural gas per day — enough to meet the total U.S. natural gas demand for generations.1

Proximity to the population centers of the United States and Canada, along with the expected longevity of the resource, establishes the Marcellus and Utica Shale formations as an important long-term and stable source of natural gas supply for the eastern United States. Energy companies that want to maximize their investment in establishing a supply operation to support drilling, processing or delivering the natural gas derived from shale formations must identify a central location that is proximate to all five states that occupy the formation. Ohio’s Appalachian Region provides supply chain companies with cost-effective and easy access to all states involved in the Marcellus and Utica Shale gas industry, while maximizing return on investment now and over the life of the shale gas reserves.

Costs associated with accessing markets, shipping products and supplies, and support services can be a considerable business expense for energy companies involved in the extraction, processing, transportation and distribution of shale gas. Having efficient access to an established energy supply chain and natural gas delivery system can advance a project and enhance investment returns.

Ohio is the ideal location choice for Tier I and II suppliers to efficiently and affordably supply the Marcellus and Utica Shale gas industry, offering a central location, logistics infrastructures, a skilled workforce and a favorable state tax structure. Shale gas supply chain companies are finding Ohio is optimally situated in the five-state Marcellus and Utica Shale region to provide the fastest return on their start-up investment and that they benefit from both the state’s manufacturing know-how and its world-class logistics infrastructure.

Marcellus and Utica Shale Gas Supply Chain

1 “The Nature of the Marcellus Shale Play.” The Economic Impacts of the Marcellus Shale: Implications for New York, Pennsylvania, and West Virginia. The American Petroleum Institute, 2010. PDF. 28 June 2011.


According to the Public Utilities Commission of Ohio, the state has over 54,000 miles of natural gas distribution pipeline.2 Ohio’s highway system provides easy access to customers involved in the extraction and distribution of shale gas in each of the five states. In addition, components and finished goods can be shipped quickly to supply chain operations based in Ohio from anywhere in the U.S. or around the globe via Ohio’s world-class logistics infrastructure. This supply chain capability helps minimize inventory out-of-stocks and maximize customer service levels.

To fully serve the commercialization of shale gas, supply chain companies need top talent including engineers, researchers and skilled manufacturing workers. All are available in Ohio. Ohio’s universities and colleges are ready to meet the need for new technologies and skilled green-collar workers through new research, degree programs and training specific to the advanced energy industry.

In addition, supply chain companies that establish operations in Ohio will benefit from the state’s favorable business climate. Supply chain companies can reduce operating costs and boost return on investment because there is no tax on inventory or corporate income tax and no tax on purchases of machinery and equipment.3 This means a supply chain operation can keep on hand everything that a drilling operation will need without bearing an incremental tax burden for doing so.

2 “Public Utilities Commission Natural Gas Consumer Information.” Ohio.gov. Public Utilities Commission of Ohio, 2011. Web. 29 April 2011. http://www.puco.ohio.gov/puco/index.cfm/information-by-industry/natural-gas-consumer-information/. 3 “Tax Climate: Maximize ROI on your next capital investment.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 6 May 2011. http://www.ohiomeansbusiness.com/incentives-and-tax-reform/tax-climate/index.php.

OHIO

PENNSYLVANIA

NEW YORK

MARYLAND

WEST VIRGINIA


But perhaps the most significant tax benefit supply chain companies will gain is that products or services sold to customers outside of Ohio are not taxed by the state.4

It is important to recognize that over the last 100 years Ohio has leveraged its proximity to Michigan to become a major supply chain state for the automobile industry. Everything that made Ohio the ideal location choice for suppliers to the automotive industry is in place for Tier I and II suppliers to leverage in order to efficiently and affordably supply the Marcellus and Utica Shale gas industry. This standing capability results in lower operating costs and maximum return on investment.

4 Ibid.


The Marcellus Shale formations are 400 million years in the making, stretching from western Maryland to New York, Pennsylvania and West Virginia and encompassing the Appalachian region of Ohio along the Ohio River. Experts estimate the Marcellus Shale could contain as much as 489 trillion cubic feet of natural gas, a level that would establish the Marcellus as the largest natural gas resource in North America and the second largest in the world. The estimated natural gas in the Marcellus formation could warm homes and power industry for an entire generation.

In 2002, the United States Geological Survey estimated the Marcellus Shale region contained an estimated resource of about 1.9 trillion cubic feet of natural gas.5 Within the last five years, the estimate of reserves has increased by 289 trillion cubic feet based on advancements in horizontal drilling technology and techniques, better-developed seismology and the use of hydraulic fracturing.6

The geologic boundaries of the Utica Shale formation extend beyond those of the Marcellus Shale. The Utica formation, which was deposited 40 to 60 million years before the Marcellus formation during the Paleozoic Era, is thousands of feet beneath the Marcellus formation.7 The depth of Utica Shale in the core Marcellus Shale production area creates a more expensive environment in which to develop the Utica Shale. However, in Ohio the Utica Shale formation is as little as 3,000 feet below the Marcellus Shale, whereas in sections of Pennsylvania the Utica formation is as deep as 7,000 feet below the Marcellus formation creating a better economic environment to achieve production from the Utica Shale in Ohio. Furthermore, the investments in the infrastructure to extract Marcellus Shale natural gas also increase the economic efficiency of extracting natural gas from the Utica Shale.8

Natural gas produced from the Marcellus and Utica Shale varies in its composition by area and is generally categorized as “dry” gas and “wet” gas.9

The Utica formation is much thicker, more geographically extensive, and has the potential for producing more natural gas than the Marcellus formation. In Ohio the relative proximity to the surface makes it more economical to extract natural gas from Utica Shale than in the other states. For supply chain companies in the shale gas industry, establishing an operation in Ohio, where they can access both the Marcellus and Utica Shale, offers the most potential to improve their investment.

History

5 “Super Giant Field in the Appalachians?” Marcellus Shale – Appalachian Basin Natural Gas Play. Geology.com, 2011. Web. 20 April 2011. http://geology.com/articles/marcellus-shale.shtml.6 “Super Giant Field in the Appalachians?”7 “What is Utica Shale?” Utica Shale - The Natural Gas Giant Below the Marcellus?. Geology.com, 2011. Web. 20 April 2011. http://geology.com/articles/utica-shale/.8 “Super Giant Field in the Appalachians?”9 See “Processing” section for more information, page 10.


KENT COUNTYESSEX COUNTY

WARREN MCKEANPOTTER

VINTON

TUCKER

GREENUPLAWRENCE

POCAHONTASROANESCIOTO

BRAXTON

ADAMS GALLIAMASON

CALHOUNPENDLETON

JACKSON

PIKE

GILMER

JACKSONMEIGS

UPSHUR

WIRT

RANDOLPH

LEWIS

HIGHLAND

HARDY

BARBOURWOOD

RITCHIE

ROSS

GRANT

LINTON

DODDRIDGE

PLEASANTSHARRISON

ATHENS TAYLOR

HOCKINGFAYETTE

TYLERWASHINGTONMARION

HAMPSHIRE

PICKAWAY MORGAN

ENE

WETZEL

MINERAL

MONONGALIA

PRESTONBERKELEY

MONROEFAIRFIELD PERRY

MORGAN

CLARK

NOBLEMADISON

MARSHALL

FRANKLIN

GREENE

MUSKINGUM

CHAMPAIGN

BELMONTGUERNSEYLICKING OHIO

FAYETTE

DELAWARE

FULTON

COSHOCTON

SOMERSET

UNIONLOGAN

BROOKE

HARRISON

BEDFORD

FRAN

WASHINGTON

KNOX

JEFFERSON

MARION HOLMESMORROW

TUSCARAWAS

HANCOCKHARDIN

CARROLL

ALLEGHENY

WESTMORELAND

CAMBRIA

WYANDOT

BEAVER

CRAWFORD

RICHLAND

BLAIR

COLUMBIANA

HUNTINGDON

WAYNE STARKASHLAND

INDIANA

HANCOCK MAHONING LAWRENCE

SENECA HURONMEDINA

ARMSTRONG

BUTLER

SUMMITPORTAGE

ERIESANDUSKY

CLEARFIELD

CENTRE

LORAIN

JEFFERSON

WOOD

TRUMBULL

OTTAWA

CLARION

MERCER

CUYAHOGA

LUCAS

CLINTO

VENANGO

GEAUGAFOREST

ELKCAMERON

LAKE CRAWFORDASHTABULA

ERIECHAUTAUQUA CATTARAUGUS ALLEGANY

MONROE

WAYNE

FREDERICK

CLAR

SHENANDOAHWARREN

FAUQ

RAPPAHANNOCROCKINGHAM

PAGE

AREAS OFUTICA and MARCELLUS

POTENTIAL IN OHIO

25 0 2512.5 Miles

25 0 2512.5 Kilometers

4/6/2011

EXPLANATIONPotential Marcellus in Ohio

Potential Utica in Ohio

Recommended bibliographic citation:Erenpreiss, M.S., Wickstrom, L.H., Perry C.J., Riley, R.A., Martin, D.R., and others,2011, Areas of Utica and Marcellus potential in Ohio: Ohio Department of NaturalResources, Division of Geological Survey, scale 1 inch equals 27 miles.


There are a number of other shale formations from which natural gas is being extracted throughout the United States, starting with the development of the Barnett Shale in Texas in 1980 and now including Antrim Shale in Michigan, New Albany Shale in Illinois and Indiana, Woodford Shale in Oklahoma, Fayetteville Shale in Arkansas, and Haynesville Shale in Louisiana.10

But the Marcellus and Utica Shale formations in the Appalachian region have the largest areal extent and potentially the biggest resource potential compared to previous discoveries.11 For example, the total area of the Marcellus Shale formation is roughly 95,000 square miles; in contrast, the Barnett field is about 5,000 square miles.12 New advancements in the technology to identify the location of the natural gas resource and to extract it have made drilling in the Marcellus and Utica Shale regions more economically feasible.

Modern methods employ traditional vertical wells to reach a certain depth and begin to utilize horizontal and deviated wellbore drilling methods to reach total depth. Hydraulic fracturing techniques are then employed to stimulate the well, thus liberating the natural gas from the shale to enable economic recovery of the resource.13 Originally developed for offshore oil drilling, horizontal and deviated drilling processes allow for the development of multiple wells from a single platform. These processes applied to natural gas bearing shale formations provide access to thousands of feet of shale from a single wellbore. This process is a highly effective means of drilling for shale natural gas, because a large number of wells can be drilled from fewer surface locations enabling economic access to the resource, disturbing less of the ground surface while expanding the area that can be tapped.14

The vertical sections of the wells range from 5,000 to 9,000 feet below ground depending upon the depth and thickness of the shale. Once the vertical section reaches the “kick off” point above the Marcellus Shale or Utica Shale formation, the well is “turned” to bore horizontally for another 3,000 to 5,000 feet or more.

Drilling

10 “Super Giant Field in the Appalachians?” 11 “The Economic Impacts of the Pennsylvania Marcellus Shale Natural Gas Play: An Update.” MarcellusCoalition.org. The Pennsylvania State University College of Earth and Mineral Sciences Department of Energy and Mineral Engineering, 24 May 2010. Web. 8 May 2011. http://marcelluscoalition.org/wp-content/uploads/2010/05/PA-Marcellus-Updated-Economic-Impacts-5.24.10.3.pdf.12 “The Nature of the Marcellus Shale Play.”13 “Shale Shock: Hydraulic Fracturing.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 20 April 2011. http://www.naturalgas.org/shale/shaleshock.asp.14 “Modern Shale Gas Development in the United States: A Primer.” Ground Water Protection Council. April 2009: 50-54. Print.


To protect surface water, groundwater and water supply wells during the drilling, completion and production of the wells, multiple lengths of steel casing are cemented in place. When these casings are properly installed, they prevent completion and production fluids from leaking and adversely impacting water resources.15

Once the Marcellus or Utica Shale formation is reached and environmental casing protections are put in place, a process called hydraulic fracturing, or “fracing,” is used. Fracing employs the use of a mixture of water, sand and other fluids which is pumped into the well at very high pressure. As the fluid enters the shale formation at these high pressures it fractures the formation creating small cracks. The sand carried by the frac fluids flows into the fractures to keep the fractures open. The fracture created by the fracing process then becomes a conduit for natural gas to flow out of the shale formation into the well to the surface.16

These efficient wells work 365 days a year, produce decades of energy supplies, and are not subject to adverse weather conditions or foreign intervention.17

15 Ibid. 16 “Modern Shale Gas Development.”17 “Ohio Natural Gas and Crude Oil: Environmental Benefits.” Ohio Oil and Gas Energy Education Program, 2011. PDF. 28 June 2011.


After the natural gas is produced to the surface, a gathering system collects and transports the raw natural gas from the wellhead to the processing plant.18 Ohio has extensive experience in developing natural gas gathering systems.

Dominion East Ohio, Dominion’s local distribution company in Ohio, is a regulated utility with 1,196 miles of transmission and storage pipelines, 1,413 miles of gathering pipelines, and 19,667 miles of distribution pipeline. Dominion East gathers approximately 80 percent of all Ohio natural gas production, equivalent to supplying the energy needs of 650,000 homes.19

Work is underway to ensure gathering pipeline readiness. For example, Dominion is converting some Dominion East Ohio natural gas transmission lines into gathering lines in anticipation of Utica Shale production.20

“Dominion East Ohio is in a unique position as 400 miles of existing pipeline infrastructure overlays the Utica Shale formation, so we can quickly gather natural gas from the Utica play and bring the natural gas to processing facilities,” says Tim McNutt, director of Dominion East Ohio.

NiSource Gas Transmission & Storage has advanced or completed more than $150 million in strategic growth projects serving the Marcellus Shale production area, capable of providing market access to more than 500,000 dekatherms per day of natural gas. The projects included the Majorsville complex in northern West Virginia, the first integrated gathering and processing system serving the Marcellus production region. NGT&S also owns significant natural gas transmission and storage assets that overlay the Utica Shale formation.

Columbia Gas of Ohio is NiSource’s natural gas distribution organization in Ohio. Columbia Gas of Ohio is Ohio’s largest local gas distribution company serving approximately 1.4 million customers in 60 of Ohio’s 88 counties including several overlying the Utica Shale formation.21

Gathering

18 “The Transportation of Natural Gas.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 28 June 2011. http://www.naturalgas.org/naturalgas/transport.asp.19 Remarks of Tim McNutt, Director, Dominion East Ohio, North Canton, Ohio 20, July 2011.20 “Dominion works to place pipe for Utica growth.” gasbb.com. Gas Business Briefing, 2011. Print. 24 June 2011.21 “Our Accomplishments.” nisource.com. NiSource, 2011. Web. 28 June 2011. http://www.nisource.com/en/about-us/accomplishments.aspx.


Another company involved in the gathering of natural gas from wells drilled in Ohio is Gatherco, Inc., based in Orrville, Ohio. Gatherco currently owns and operates over 2,000 miles of pipelines in 37 Ohio counties. The company also sells gas to several local distribution companies and natural gas cooperatives providing gas for approximately 25,000 customers.22

22 “Gatherco, Inc.” woosterchamber.com. Wooster Chamber of Commerce, 2011. Web. 28 June 2011. http://www.woosterchamber.com/MEMBERSHIP/MembershipDirectory/tabid/71/uc/info/ItemID/3264/Default.aspx.


Extracting the natural gas is just the first step in the process of delivering reliable natural gas supplies to consumers. In areas of wet gas production a large amount of the investment opportunity and development work occurs at gas processing facilities.

The composition of natural gas produced from shale formations can vary widely. One means of classifying this variability is to identify production as “dry” gas or “wet” gas.23 Dry gas is primarily methane with small amounts of other naturally occurring gases. Dry gas closely resembles the natural gas product that is delivered to consumers. Dry gas is more “thermally mature” due to the extremes of pressure and temperature exerted underground over time.24

Wet gas, which is primarily comprised of methane, has a higher concentration of other hydrocarbon gases such as ethane, propane and butane. Wet gas is less thermally mature, meaning it received less extreme temperature and geological pressure exerted underground over time. These other hydrocarbon gases must be removed from the gas stream prior to delivery to natural gas consumers.25

These “byproducts,” however, are valuable commodities, making wet gas production and processing a very attractive economic endeavor.

Andrew Thomas, executive in residence at the Center for Energy Policy at Cleveland State University in Cleveland, Ohio, says the hydrocarbons that are auxiliary to the methane delivered to homes are extremely valuable and are used in other industries for products such as plastics.26

“If Ohio is going to become a real oil and gas province, it will change how we look at the definition of a good producing well by including the commercial value hydrocarbons which were previously considered a waste material,” Thomas says. “There is a real opportunity to utilize both the propane and butane to develop spin-off industries in Ohio.”27

Processing

23 “What is Natural Gas?” naturalgas.org. Natural Gas Supply Association, 2010. Web. 20 April 2011. http://www.naturalgas.org/overview/background.asp.24 “Depth of Marcellus Shale Base.” Marcellus Center for Outreach & Research. Penn State University, 20 April 2011. Web. 29 April 2011. http://www.marcellus.psu.edu/images/Wet-Dry_Line_with_Depth.gif.25 Ibid.26 Remarks of Andrew Thomas, Executive in Residence, Center for Energy Policy, Maxine Levin Goodman College of Urban Affairs, Cleveland State University, Cleveland, Ohio, 5 May 2011.27 Remarks of Andrew Thomas.


American Electric Power is advancing the construction of the Dresden Plant, a new 580-megawatt natural gas-fired combined-cycle plant located near Dresden, Ohio, with planned commercial operation in February 2012. “The completion of the Dresden Plant will help meet the growth in demand in our eastern states and continue to improve our environmental profile while adding job growth to the region,” said Michael G. Morris, AEP’s chairman and chief executive officer.28

In Ohio, the Utica Shale is expected to yield “wet” gas or crude oil as its primary production. This represents an opportunity to create a market for the hydrocarbon byproducts of wet gas with a resulting dry gas suitable for residential and commercial consumption. Ohio’s world-class polymer, manufacturing and agricultural industries have the expertise and established customer bases to quickly bring the hydrocarbon byproducts to market.

Today, the rising cost of petroleum and the desire to reduce our nation’s greenhouse gas emissions, along with developments in technology, provide commercial incentive to develop these resources.

28 “AEP To Complete Construction Of Dresden Natural Gas Plant.” aep.com. American Electric Power, 20 January 2011. http://www.aep.com/environmental/news/?id=1664.


Once the shale natural gas is extracted and processed, it is critical to have a well-planned and engineered delivery system in place to get this emerging resource to natural gas consumers. Ohio boasts an extensive, interconnected natural gas delivery system that can quickly transport natural gas supplies across the state and eastward to all states within the Marcellus and Utica Shale formation footprint and along the eastern seaboard.

A convergence of thousands of miles of interstate natural gas pipelines meet in Ohio from the Rockies, Gulf of Mexico and Canada, including:

• ANR Pipeline operates one of the largest interstate natural gas pipeline systems in the United States. Through its approximately 10,600 miles of pipeline, ANR delivers more than 1 trillion cubic feet of natural gas annually, with a peak-day delivery capacity of more than 6 billion cubic feet.29

• Columbia Gas Transmission, LLC, a subsidiary of NiSource, operates a 12,000-mile long natural gas pipeline network. The company moves, on average, about 3 billion cubic feet of natural gas per day to customers and has 600 billion cubic feet of natural gas storage capacity, including 37 underground storage fields in West Virginia, Ohio, Pennsylvania and New York.30

• Dominion Transmission, Inc. is the interstate gas transmission subsidiary of Dominion. The company is primarily a provider of gas transportation and storage services. Dominion operates one of the largest underground natural gas storage systems in the United States with links to other major pipelines and to markets in the Midwest, Mid-Atlantic and Northeast regions of the United States.31

• Panhandle Eastern Pipe Line Company operates a 6,500-mile pipeline system with access to diverse supply sources and can deliver 2.8 Bcf/d of natural gas to Midwest and East Coast markets. Tie-ins to Chicago, Dayton and Cincinnati have added to a Midwest customer base that includes some of the nation’s largest utility and industrial natural gas users.32

Delivery and Storage

29 “ANR Pipeline.” anrpl.com. ANR Pipeline Company, 2011. Web. 28 June 2011. http://www.anrpl.com/company_info/.30 “Columbia Gas Transmission, LLC.” hoovers.com. Hoovers, 2011. Web. 28 June 2011. http://www.hoovers.com/company/Columbia_Gas_Transmission_LLC/ryskfti-1.html.31 “Dominion Transmission, Inc.” dom.com. Dominion, 2011. Web. 28 June 2011. http://www.dom.com/business/gas-transmission/index.jsp.32 “Panhandle Eastern Pipe Line Company, LP.” panhandleenergy.com. Panhandle Energy, 2011. Web. 28 June 2011. http://www.panhandleenergy.com/comp_pep.asp.


• Rockies Express Pipeline (REX), one of the largest pipelines ever constructed in the United States, is a 1,679-mile pipeline stretching from northwestern Colorado to eastern Ohio and boasts 1.8 billion cubic feet per day of capacity. REX became fully operational in November 2009.33

• Tennessee Gas Pipeline is comprised of approximately 14,000 miles of pipeline stretching from the Mexican border to Canada, with supply regions in the Gulf of Mexico, Texas, Appalachia and Canada.34

• Texas Eastern Transmission connects Texas and the Gulf Coast with high demand markets in the northeastern United States, supplying fuel for electric generation facilities and helping to meet peak-day demands with 9,200 miles of pipeline. Texas Eastern can transport 6.7 billion cubic feet per day and offers 75.1 billion cubic feet of gas storage.35

There are many companies involved in the delivery and distribution of natural gas to homes and businesses in Ohio, such as Columbia Gas of Ohio, Dominion East Ohio, Duke Energy of Ohio, Vectren Energy Delivery of Ohio and others.

“We are very excited about potential power generation opportunities,” says Jack Partridge, president of Columbia Gas of Ohio, a NiSource Inc. distribution company located in Ohio. “I believe it could be a key part of a renaissance in Ohio.”36

Ohio has an established delivery system in place to cost-effectively and efficiently deliver natural gas to end-use customers in Ohio, across the five-state region involved in the extraction and commercial development of Marcellus and Utica Shale gas and beyond to the eastern seaboard.

In addition, natural gas storage plays a vital role in maintaining the reliability of supply needed to meet the demands of consumers. When natural gas delivered to local distribution companies is not needed right away, it is injected into underground storage facilities. Ohio is blessed with an abundance of natural gas storage. Columbia Gas of Ohio, Dominion East Ohio, Duke Energy of Ohio and others are involved in natural gas storage in Ohio.37

33 “Rockies Express Pipeline.” kindermorgan.com. Kinder Morgan, 2011. Web. 28 June 2011. http://www.kindermorgan.com/business/gas_pipelines/rockies_express/.34 “Welcome to Tennessee Gas Pipeline.” tennesseeadvantage.com. Tennessee Gas Pipeline, 2011. Web. 7 July 2011. http://www.tennesseeadvantage.com/default.asp.35 “Texas Eastern Transmission.” spectraenergy.com. Spectra Energy Corp., 2011. Web. 28 June 2011. http://www.spectraenergy.com/Operations/US-Transmission/Pipeline-Assets/Texas-Eastern-Transmission/.36 Celaschi, Robert. “Gauging drilling potential difficult, but early indications point to jackpot.” Columbus Business First, 20 May 2011. Print. 37 “Storage of Natural Gas.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 28 June 2011. http://www.naturalgas.org/naturalgas/storage.asp.


Most people know natural gas is used to heat homes and cook, and its popularity is rising: 52 percent of all American homes are heated and/or cooled by natural gas.38 Overall, Americans rely on natural gas to supply 24 percent of their energy needs. This ranks natural gas second in use only to crude oil. Natural gas serves about 175 million American consumers, with 43 percent used by industries and another 16 percent used for commercial purposes.39

Nearly 7 out of every 10 Ohio homes utilize natural gas as their primary source of heating. It is also used for cooking, drying clothes and heating water. Businesses and industries use natural gas in many ways, from cooking in restaurants to fueling high temperature furnaces for manufacturing steel, as well as providing heat and electricity in hospitals, hotels, schools, churches, shopping centers and office buildings.40

Because natural gas burns cleaner than gasoline or diesel, many companies and municipalities are deploying fleets of natural gas-powered cars, trucks and buses to reduce emissions. There are over 120,000 natural gas vehicles operating on American roads.41

Natural gas can also be used to fuel traditionally coal-powered electric generation facilities and is used as a feedstock for advanced forms of energy such as fuel cells. In addition, natural gas can also be further processed to yield products such as helium, butane, propane and other useful gases.42

Natural gas is a key component for solid-oxide fuel cells, an industry in which Ohio already has a distinct competitive advantage, according to Pat Valente, executive director of the Ohio Fuel Cell Coalition.43

“If natural gas becomes as abundant as we predict based on the Marcellus and Utica Shale gas projections, this will drive down the cost of natural gas, which will in turn make fuel cells more affordable,” Valente says. “This will benefit companies like Rolls-Royce Fuel Cells, NexTech and TMI, all of which are developing solid-oxide fuel cells in Ohio already.”44

Uses for Natural Gas

38 “Residential Uses.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 1 May 2011. http://www.naturalgas.org/overview/uses_residential.asp.39 “Ohio Natural Gas and Crude Oil: Lifestyle Benefits.” Ohio Oil and Gas Energy Education Program, 2011. PDF. 28 June 2011.40 Ibid. 41 “How is Natural Gas Used?” api.org. American Petroleum Institute, 2009. Web. 28 June 2011. http://www.api.org/aboutoilgas/natgas/uses.cfm.42 “Ohio Natural Gas and Crude Oil: Lifestyle Benefits.”43 Remarks of Pat Valente, Executive Director, Ohio Fuel Cell Coalition, Cleveland, Ohio, 6 May 2011.44 Ibid.


Global competition for resources, the expense of limiting greenhouse gases, and the growing supply of natural gas in the United States are all contributing factors in making natural gas a more economical power source in today’s market.

Ethan Bellamy, senior research analyst for Robert W. Baird & Co. in Milwaukee, Wisconsin, told The Wall Street Transcript in April 2011 that as major investments materialize, Ohio could become a key producer of crude oil and natural gas.45

“I think that oil production in Ohio could be the savior of the rust belt,” Bellamy said.

Ohio is, in fact, already a powerhouse in the energy market.

• AEP Ohio, a subsidiary of American Electric Power and the largest of its regional utility divisions, serves nearly 1.5 million customers in Ohio and the northern panhandle of West Virginia. In Ohio, they provide power to more than 920 communities located in 61 of the state’s 88 counties.46

• Columbia Gas of Ohio serves approximately 1.4 million residential, commercial and industrial customers and is the largest natural gas utility in the state. Columbia Gas of Ohio is one of seven NiSource Inc. local gas distribution companies that in total serve more than 3.2 million natural gas consumers.47

• Dominion East Ohio, Dominion’s local distribution company in Ohio, is a regulated utility with 1,196 miles of transmission and storage pipelines, 1,413 miles of gathering pipelines, and 19,667 miles of distribution pipeline. Dominion East gathers approximately 80 percent of all Ohio natural gas production, equivalent to supplying the energy needs of 650,000 homes.48

• Duke Energy of Ohio supplies and delivers electricity to 4 million customers throughout the United States, and is also a major natural gas distributor in Ohio and Kentucky.49

Ohio’s Energy Market

45 “Baird Expert MLP Analyst Ethan Bellamy Forecasts Market and Picks Most Stable Investment Offerings In This Current Income Asset Class.” twst.com. The Wall Street Transcript, 21 April 2011. Web. 5 May 2011. http://www.twst.com/yagoo/ethanbellamy2.html.46 “About AEP Ohio.” aepohio.com. American Electric Power Co., Inc., 2011. Web. 28 June 2011. http://www.aepohio.com/info/facts.47 “About Us.” Columbiagasohio.com. Columbia Gas of Ohio, 2011. Web. 28 June 2011. http://www.columbiagasohio.com/en/about-us.aspx.48 Remarks of Tim McNutt.49 “About Us.” duke-energy.com. Duke Energy, 2011. Web. 6 May 2011. http://www.duke-energy.com/about-us/default.asp.


• FirstEnergy, headquartered in Akron, Ohio, is the nation’s largest investor-owned utility, serving over 6 million customers in the Midwest and Mid-Atlantic regions.50

The commercial development of Marcellus and Utica Shale natural gas provides an energy source that will help keep energy costs low in Ohio and help America edge closer to energy independence.51

50 “About Us.” FirstEnergyCorp.com. FirstEnergy Corporation, 26 February 2011. Web. 6 May 2011. http://www.firstenergycorp.com/about.html.51 “The Economic Impacts.”


The economic impact of shale gas in the five-state region will be huge. A 2009 Penn State University study indicated companies involved in the Marcellus Shale development plan to increase their investment to more than $11 billion in 2011, up from $4.5 billion in 2009 and $8.8 billion in 2010.52 These initial investments were mainly focused on land leases and exploration, and the study reported the next wave of investment will focus on the development of the energy-industry supply chain around Marcellus Shale.

A new study by the Ohio Shale Coalition, backed by the Ohio Chamber of Commerce, will be completed in December 2011 exploring the economic impact of Marcellus and Utica Shale in Ohio.

“The study will delve into the downstream impacts which are key to Ohio’s strengths in manufacturing, plastics and key supply chain industries,” said Jim Samuel, a fellow at Cleveland State University, a consultant to the natural gas industry and one who pushed for the Chamber-backed study now under way. “The upstream impacts will be significant to Ohio, but the downstream impacts will help to revive and grow areas and industries across the state and outside the shale fields. Ohio’s business and regulatory climate is conducive to these investments and only getting better.”53

According to the American Petroleum Institute, natural gas development stimulates the economy through business-to-business spending and via payments to land owners. The process involves exploration, drilling, building gas processing plants, and pipeline construction. These activities require goods and services from many sectors of the economy, including construction, transportation, iron and steel, and engineering services. Natural gas companies also pay lease and royalty payments to land owners, who in turn pay taxes and spend income on goods and services.54

Ohio’s crude oil and gas producing companies distributed over $200 million in royalty payments to local landowners, schools, businesses and communities, and provided an additional $84 million in free natural gas to those mineral interest owners with wells on their properties. These royalty payments significantly boost local economies.55

Ohio is Ideal Location to Maximize ROI

52 “The Economic Impacts.”53 Remarks of Jim Samuel, Fellow, Cleveland State University, Natural Gas Industry Consultant, Columbus, Ohio, 19 September 2011. 54 Executive Summary.” The Economic Impacts of the Marcellus Shale: Implications for New York, Pennsylvania, and West Virginia. The American Petroleum Institute, 2010. PDF. 28 June 2011.55 “Ohio Natural Gas and Crude Oil: Economic Benefits.” Ohio Oil and Gas Energy Education Program, 2011. PDF. 28 June 2011.


Ohio keeps $1 billion per year in the state when buying locally-produced natural gas and crude oil, saving consumers $60 million per year in avoided interstate pipeline transportation costs, and another $5 million per year due to the price reducing impact of having local natural gas supplies, compared to other parts of the country.

The state’s natural gas and crude oil industry reinvested approximately $281 million on exploration and development in Ohio and generates approximately $1.5 billion in gross state product and statewide output.

From an economic viewpoint, hundreds of jobs will be created to identify, drill, gather, process and transport the natural gas resource for consumption. Development will also allow the nation to utilize a “homegrown” source of energy, reducing dependence on energy sources imported from other countries.

From an environmental point of view, distribution of natural gas will help lower greenhouse gas emissions. According to the Penn State study, natural gas has about 60 percent lower carbon emissions than coal and 30 percent lower emissions than oil.56

Energy companies and supply chain manufacturers have all made major investments in Ohio to gear up for large-scale commercial and natural gas development. The Houston-based firm, EnerVest, owns more than 7,700 wells in Ohio that produce 1.2 million barrels of crude oil and 18 billion cubic feet of natural gas a year.57 Chesapeake Energy has invested $1 billion in purchasing leases in Ohio,58 anticipating future drilling developments of the Utica Shale formation. V&M Star announced a $650 million investment in 2010 as a direct result of providing material to the Marcellus and Utica Shale industry.59

56 “The Economic Impacts.”57 Gearino, Dan. “Texas firm bulks up with Ohio acquisitions.” Dispatch.com. The Columbus Dispatch, 6 June 2010. Web. 28 June 2011. http://www.dispatch.com/live/content/business/stories/2010/06/06/texas-firm-bulks-up-with-ohio-acquisitions.html.58 Dezember, Ryan. “Shale Lifts Prospects in Ohio.” online.wsj.com. The Wall Street Journal, 7 March 2011. Web. 5 May 2011. http://online.wsj.com/article/SB10001424052748703752404576178740650203046.html?KEYWORDS=Chesapeake+Energy.59 V&M to Officially Expand, Create 350 Jobs.” wytv.com. WYTV, 16 February 2010. Web. 5 May 2011. http://www.wytv.com/mostpopular/story/V-M-Star-to-Officially-Expand-Create-350-Jobs/jZTtmsTHLEmXAGqn1uvZtA.cspx.


“Ohio has a vibrant oil and gas industry, and it has for over 100 years,” says John B. Walker, president and chief executive officer of EnerVest.

These companies are capitalizing on the cost-efficient market access that Ohio provides to all five states in the Marcellus and Utica Shale footprint. Ohio has a well-developed supply chain and logistics infrastructure that grew up around the automotive industry and has transitioned rapidly to meet the demands of the natural gas industry. Its well-trained workforce outnumbers the entire population of other states.

Ohio’s tax structure also provides companies in the Marcellus and Utica Shale natural gas industry with far more competitive benefits, including no tax on products sold outside the State of Ohio.60

60 “Tax Climate.”


Though it took several millennia for Marcellus and Utica Shale to form and years for technology to develop in order to harvest natural gas, companies are positioned to increase the return on their investment. Easy access to the market and a well-developed logistics infrastructure in Ohio will benefit companies extracting natural gas from the Marcellus and Utica Shale formation.

Leveraging its legacy as a strong supply chain and manufacturing state, Ohio is opening its doors to natural gas exploration and building jobs to support companies involved in natural gas extraction. As Ohio capitalized on its cost-effective location and market access to become the top automotive supply chain state in the country, Ohio is fast becoming the preferred supply chain location for companies involved in the commercial development of Marcellus and Utica Shale.

The same advantages that allowed suppliers for the automotive industry to grow and flourish are in place to efficiently and affordably supply the Marcellus and Utica Shale gas industry: central location, transportation infrastructure, workforce and talent, and favorable tax structure. Supply companies that want to be accessible to the Marcellus and Utica Shale natural gas reserves will find Ohio is the ideal location choice to achieve the fastest return on their start-up investment and will benefit from the state’s manufacturing know-how and world-class logistics infrastructure.

Ohio’s Shale Gas Supply Chain:

• Close proximity to all five primary states spanned by the Marcellus and Utica Shale formations

• Established supply chain industry which lowers costs and maximizes investment

• More than 54,000 miles of natural gas distribution pipeline

• Multi-modal and inter-modal networks that guarantee “just-in-time” delivery to suppliers of natural gas drill sites

Ohio’s Legacy of Supply Chain Excellence


Ohio’s transportation infrastructure provides businesses access to regional, national and global markets. Two interstate highways and nine four-lane highways serve the Appalachian Ohio region impacted by Marcellus and Utica Shale. Commercial air service is available from airports surrounding the region at Port Columbus, the Cincinnati-Northern Kentucky Airport, Akron-Canton Regional Airport, Pittsburgh Airport and the Wood County and Huntington airports in West Virginia. CSX, Norfolk Southern and the Ohio Central Railroad provide rail service throughout the region. The Ohio River and Lake Erie are major freight arteries and water sources handling more freight tonnage than the Panama Canal.61

Ohio has not relied on geography alone to drive business location and expansion. The state has invested in world-class systems that create synergy between transportation, data, and domestic and international export.

Ohio cities bordering Pennsylvania and West Virginia have made strategic investments in maintaining their infrastructure. As a result, supply chain companies can capitalize on under-utilized utilities and infrastructure, such as interstate highways and local roadways and water treatment facilities, to accommodate rapid growth.

Historic steel towns from Steubenville to Youngstown and Canton to Warren can fabricate the steel for the miles of pipeline traversing the five-state region.

In 2010, V&M Star’s parent company, Vallourec, invested $650 million in a new pipeline mill, directly linked to pipeline expansion for the Marcellus and Utica Shale natural gas. Joel Mastervich, president and chief operating officer of V&M Star in Youngstown, Ohio, attributes the company’s location in Ohio’s Enterprise Appalachia as a key factor in the investment.

“Our proximity to the Marcellus Shale Formation was a key factor in our decision for the new pipe mill,” says Mastervich. “And, since construction began, we’ve come to appreciate the emerging potential of the Utica Shale, which is even closer to our operations.”62

Existing World-Class Transportation Infrastructure

61 “Transportation Network.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 5 May 2011. http://www.ohiomeansbusiness.com/why-ohio/easy-market-access/transportation-network.php. 62 Remarks of Joel Mastervich, President and Chief Operating Officer, V&M Star, Youngstown, Ohio, 8 April 2011.


From K-12 schools that challenge and inspire students to be imaginative and analytical in their thinking, to post secondary institutions that develop hard-working, highly skilled graduates, Ohio is continually ensuring that employers have a competitive advantage in the 21st century global marketplace.63

Each natural gas well itself involves about 75 jobs ranging from highly skilled positions such as seismologists, engineers and geophysicists to construction positions and others to check meters and tend the wells. There are also a number of indirect jobs associated with the production of natural gas.64 According to Tom Stewart, executive vice president of the Ohio Oil and Gas Association, shale gas development could trigger work in many trades, from environmental consultants, to lawyers, to truck drivers, to those who train for jobs at well sites.65

The Ohio Oil and Gas Energy Education Program (OOGEEP), a nonprofit statewide education and public outreach program, offers K-12 education curriculum and training workshops to help fill the void for oil and gas education in science classrooms. This free program meets national science standards and is available for schools in Ohio.

“There is an aging workforce in the oil and gas industry,” said Rhonda Reda, executive director of OOGEEP. “It’s important for us as an industry to be able to provide solid science education in the classrooms and give young scientists the opportunity to pursue careers in the oil and gas industry.”66

Since 1998, OOGEEP has trained more than 2,500 Ohio teachers and reached over 100,000 students with factual information about the crude oil and natural gas industry.

In addition to helping teachers meet science needs in the classroom, OOGEEP has also made Ohio the first state to have an emergency response program for fire departments to respond to oilfield emergencies. The curriculum created by industry leaders, firefighters and the Ohio Department of Natural Resources meets state and national fire standards and provides intense workshops to train firefighters with classroom and hands-on training for how to handle live burns of crude and natural gas emergencies.

Affordable Skilled Labor Pool

63 University System of Ohio, 2011. Web. 29 April 2011. http://uso.edu.64 Remarks of Rhonda Reda, Executive Director, Ohio Oil and Gas Education Program, Granville, Ohio, 24 June 201165 Bell, Jeff. “Ohio Shale Coalition to tout drilling as boon to economy.” bizjournals.com. Columbus Business First, 24 June 2011. Print.66 Remarks of Rhonda Reda.


To date, more than 650 fire departments from 33 Ohio counties and seven other states have participated in the unique training program. Those involved in the program are also helping other states set up similar programs. OOGEEP also supports students with a passion for science by providing awards and scholarships.

Ohio’s workforce offers quality and quantity — and unparalleled work ethic. Per capita statistics are often provided to sell a location’s labor market, showing the population percentage with advanced degrees. However, when a company is looking to hire new employees, it isn’t the percentage that matters. Instead, it is the number of available people with the right knowledge and skills that really counts. In addition to the state’s pool of skilled workers across nine key industries, Ohio’s higher education institutions graduate more potential employees than many states combined.67

“We have a skilled and productive workforce in our existing mill and we knew we could find high quality employees for the new mill here,” says Joel Mastervich, president and chief operating officer of V&M Star in Youngstown, Ohio. “There is an established center of pipemaking expertise in Youngstown. Also, the project received — and continues to receive — a high level of cooperation from local, county, state and federal governments.”68

Employers in Ohio find hard-working, loyal employees, some of the best workers in the United States. In addition, a lower cost of living and less competition for workers reduce labor costs in Appalachian Ohio. Average weekly manufacturing wages in the region are 20 percent lower than the statewide average.69

Ohio’s natural gas and crude oil industry employs 4,000 direct jobs and 10,400 indirect jobs - a total of 14,400 Ohio jobs.70

Supply chain companies have a growing need for engineers, researchers and skilled manufacturing workers, who are readily available in Ohio. Ohio’s universities and colleges are ready to meet the need for new technologies and skilled green-collar workers through programs such as The University Clean Energy Alliance of Ohio (UCEAO)71 and investments through Ohio Third Frontier.72

A number of universities throughout the state, such as Kent State University, The Ohio State University and Zane State University, offer world-class natural gas industry training programs.73

67 “Robust Workforce and Education.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 6 May 2011. http://www.ohiomeansbusiness.com/why-ohio/robust-workforce-and-education.php.68 Remarks of Joel Mastervich. 69 Bureau of Labor Market Info, Ohio Department of Jobs and Family Services, 2003.70 “Ohio Natural Gas and Crude Oil: Economic Benefits.”71 University Clean Energy Alliance of Ohio, 2011. Web. 29 April 2011. http://www.uceao.org.72 “Ohio Third Frontier.” Ohio.gov. Ohio Department of Development, 2010. Web. 29 April 2011. http://www.development.ohio.gov/ohiothirdfrontier/ThirdFrontierCalendar/default.aspx.73 Remarks of Rhonda Reda.


Appalachian Ohio offers a strong mix of educational opportunities. The region is home to 25 institutions of higher education, including seven four-year universities and colleges and 18 two-year colleges. Not only do these institutions provide knowledge and expertise to entrepreneurs, but they also contribute to a bright, intelligent work force, ready to help companies grow.74

Marietta College, a small liberal arts college on the Ohio River, is making a huge impact in the Marcellus and Utica Shale industry. Marietta College has the ninth largest petroleum engineering program in the country and the only such program at a liberal arts college. The college starts preparing its students for careers in the oil and gas industry as soon as they step foot on campus, according to Dr. Robert Chase, chair of the Department of Petroleum Engineering and Geology at Marietta College in Marietta, Ohio.75

“What separates our program from other larger programs outside of Ohio is our students take seminars during their freshman year to start preparing them for jobs in the industry, including engineering ethics,” Chase says. “We have our students prepare their résumés within two weeks on campus and encourage them to intern in the petroleum engineering field as early as the summer after their freshman year. We have a strong emphasis in preparing our students for work in the industry.”76

Marietta’s petroleum engineering program is advised by a board of industry professionals, who ensure that the curriculum the students study is current with industry advancements. Faculty members all have industry experience, and the small class size provides for more individual attention for students.

The Hocking College Energy Institute, in Nelsonville, Ohio, is the only educational institution in the United States to offer natural gas vehicle and filling station training.77 In addition, there are nine natural gas wells on campus, and natural gas is used to heat the campus buildings. One of the wells is also providing natural gas for an operating fuel cell, which turns it into electricity for the security offices. The fuel cell provides about 25 percent of the electricity for the building, and also serves as a back-up energy source for police radios and communications equipment. The fuel cell is constantly working, and has battery packs to protect against any surges.78

The bottom line: Ohio’s abundant, skilled labor supply improves productivity, quality and profit.

74 “Knowledge & Labor Access.” OhioMeansBusiness.com/Enterprise_Appalachia. Ohio’s Enterprise Appalachia Region Delivers Access to Knowledge. Enterprise Appalachia, 2011. Web. 20 April 2011. http://www.ohiomeansbusiness.com/enterprise_appalachia/knowledge_labor_access/.75 Remarks of Robert Chase, Chair of the Department of Petroleum Engineering and Geology, Marietta College, Marietta, Ohio, 5 May 2011.76 Remarks of Robert Chase.77 “Energy Institute Partners with Logan.” hocking.edu. Hocking College, 2011. Web. 28 June 2011. http://www.hocking.edu/news/item/557.78 “Hocking College uses alternative fuels to teach, provide power.” athensnews.com. The Athens News, 2006. Web. 28 June 2011. http://www.athensnews.com/ohio/article-9043-hocking-college-uses-alternative-fuels-to-teach-provide-power.html.


Ohio’s competitive tax structure supports the growth of supply chain companies involved in the extraction of Marcellus and Utica Shale. The state’s broad-based, low-rate commercial activity tax rewards entrepreneurship by charging no tax on the first $1 million in gross receipts. Companies with sales between $150,000 and $1 million pay a flat fee of $150. In Ohio, the playing field is level for manufacturers because all companies are taxed at the same low rate.79

“The cost of running a business in Ohio today is significantly less than it was in 2005,” says Thomas M. Zaino, JD, CPA, member in charge of the Columbus office of the McDonald Hopkins LLC law firm and Ohio Tax Commissioner from 1999 to 2003.80

Supply chain companies that relocate to Ohio to support the Marcellus and Utica Shale natural gas industry can reduce their operating costs and boost the return on their investments because in Ohio there is no tax on inventory or corporate income and no tax on purchases of machinery and equipment.

Ohio businesses now pay no taxes on capital for new machinery, equipment, furniture or fixtures. Dr. Howard Fleeter, a partner in the economic analysis and public policy research firm of Driscoll & Fleeter, based in Columbus, estimates that the elimination of the corporation franchise tax and the tangible property tax has resulted in a reduction of $2.5 billion in taxes for Ohio businesses to date. This savings could be used to invest directly in equipment, inventory and personnel to drive future growth and boost businesses’ bottom lines.81

Favorable Corporate Tax Structure

Ohio’s new taxation system means businesses can:

• Reduce operating costs – No tax on inventory or corporate income

• Enhance productivity – No tax on investments in machinery and equipment

• Enjoy a level playing field – All companies taxed at the same low rate

• Boost return on investment – No tax on product sold to customers outside Ohio

• Reward entrepreneurship – First $1 million in gross receipts are tax-free; companies with sales between $150,000 and $1 million pay only a $150 flat fee

79 “Commercial Activity Tax (CAT) – General Information.” Ohio.gov. Ohio Department of Taxation, 2011. Web. 5 May 2011. http://www.tax.ohio.gov/divisions/commercial_activities/cat_general_information.stm.80 Remarks of Thomas M. Zaino, JD, CPA, McDonald Hopkins LLC, Columbus, Ohio, 26 April 2011.81 Remarks of Howard Fleeter, Ph.D., Partner, Driscoll & Fleeter, Columbus, Ohio, 26 April 2011.


The corporation franchise tax and tangible property tax were replaced by a new Commercial Activity Tax (CAT), which is a business privilege tax measured by gross receipts. While gross receipts taxes are often burdensome on businesses in general, the Ohio CAT, like other aspects of the state’s business tax reform, was designed with the needs of business in mind.82

Perhaps the most significant tax benefit supply chain companies that locate in Ohio can obtain is that products fabricated in Ohio — but sold to customers outside Ohio — are not taxed. In other words, suppliers who locate in Ohio and sell their products or services to customers located outside of the state pay no state tax on those sales.83

“The Ohio CAT has a uniquely low tax rate, just 0.26 percent, and it is not imposed on any sales exported out of Ohio,” Zaino explains. “As a result, new investments in Ohio are not penalized by the CAT. In fact, it generally makes it more cost-effective for businesses to relocate to Ohio rather than to other states. If a business were to ship 100 percent of its sales out of Ohio, it would pay zero CAT. As a result, Ohio is very attractive to companies that will export their goods out of Ohio or out of the country.”84

82 “Commercial Activity Tax (CAT) – General Information.” 83 “Fact Sheet: Tax Reform in Ohio.” ohio.gov. Ohio Department of Taxation, 2005. PDF. 26 April 2011. http://tax.ohio.gov/divisions/communications/news_releases/documents/Tax_reform_fact_sheet.pdf.84 Remarks of Thomas M. Zaino.


Ohio has redefined its business climate. Long recognized as an effective place to do business simply because of its location, Ohio’s strong incentive packages and its predictable and fair regulatory environment make it easier for companies to focus their resources toward business development—with minimal bureaucratic hurdles.85

“The Kasich administration is focused on economic development opportunities related to shale – upstream, midstream and downstream. We believe this industry has the potential to ‘move the needle’ in regards to Ohio’s economy,” says David Mustine, energy manager of JobsOhio.86

Public-private support eliminates obstacles, accelerates start-up and reduces risk to business growth. Ohio’s legislative history of working closely with industry is a leading indicator of the state’s pro-business climate. Businesses with emerging technologies and new product development are offered built-in advantages through Ohio’s network of research and development facilities. This keeps development close to home and lowers the cost of doing so through local partnership, including Columbus-headquartered global contract research leader Battelle Memorial Institute and a state-backed system of Wright Centers of Innovation.87 Additionally, Ohio’s seven Edison Technology Centers located around the state provide a variety of product and process innovation and commercialization services to both established and early-stage technology-based businesses.88

Ohio’s no-surprise regulations and impressive R&D sector provide a perfect mix to foster innovation.

Collaborative Business Climate

85 “Private-Public Support.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 29 April 2011. http://www.ohiomeansbusiness.com/why-ohio/public-private-support.php.86 Remarks of David Mustine, Energy Manager of JobsOhio, Columbus, Ohio, 12 September 2011.87 Ibid.88 Ibid.


Extracting and distributing shale gas requires a steady supply of drill bits, pipes and fixtures, machinery, sand, water, containers, measurement tools and safety equipment. There is typically not enough space to accommodate extra storage facilities on site to stow spare equipment or replacement materials. As a result, “just-in-time” delivery from suppliers to the companies active in the five states in the Marcellus and Utica Shale footprint is critical.

Though shale formation drilling is not a new phenomenon, conditions on the ground occasionally cause drillers to need to adapt to the specificities of each well. Drillers need their suppliers to be in close proximity to provide alterations and make modifications to products with limited interruption to the drilling process. When drilling is in progress, waiting for new supplies or modified products is not an option, so the need for suppliers to be in close proximity to the wells is imperative.

Given these challenges, original equipment manufacturers and suppliers to the shale natural gas industry must select the best location to profitably service the entire five-state region involved in shale gas commercialization.

Supply Chain is Key to Developing Marcellus and Utica Shale


Ohio’s cost-efficient access to all of the states containing the Marcellus and Utica Shale formations makes it an ideal location for just-in-time suppliers providing equipment and materials to natural gas extractors.

Companies in Ohio bordering Pennsylvania and West Virginia, such as V&M Star, TMK IPSCO and Dearing Compressor & Pump Company, have leveraged state investments and in turn have made strategic investments in maintaining their infrastructure. As a result, supply chain companies can capitalize on under-utilized utilities and infrastructure, such as interstate highways and local roadways and water treatment facilities, to accommodate rapid growth.

Energy companies expanding their business by investing in the Marcellus and Utica Shale natural gas reserves can build on Ohio’s successful supply chain and experience a significant return on investment.

The executives of these successful companies will be able to leave a legacy of prosperity for their shareholders, employees and customers. But they’ll also be able to tell a second story: how, like the Forty-Niners who came before them, these modern prospectors understood the value of a critical resource. But unlike their predecessors, they built an industry that created jobs for an entire generation and laid the groundwork for energy self-sufficiency for America.

Perspectives from supply chain companies located in Ohio:

In Solon, Ohio, Carlisle Brake and Friction, formerly known as Hawk Corp., makes friction materials used in brakes and clutches. It, too, is seeing sales fueled by natural gas exploration, says CEO Chris Koch.89

Carlisle says it is the preferred supplier of friction materials to three of the top four transmission makers serving the oil and gas industry. Customers are building 50 percent more transmissions than they did in 2010 and four times the number they were building in 2009, according to the company.

Natural gas production also is driving up revenues at Chart Industries in Garfield Heights, Ohio, which makes heat exchanges and other equipment used to compress industrial gases as well as natural gas.90

Ideal Location Choice for Shale Gas Supply Chain Companies

89 Shingler, Dan. “Manufacturers anticipate boost from natural gas.” crainscleveland.com. Crain’s Cleveland Business, 14 July 2011. Web. 14 July 2011. http://www.crainscleveland.com/article/20110620/SUB1/306209993.90 Ibid.


Chart is involved in the natural gas industry worldwide, not just in the big shale deposit here, but the potential of more work in this region was one reason the company recently revised its revenue estimates for 2011 upward, to about $750 million from $710 million.

“It’s a driver, absolutely, particularly as (the industry) is evolving — our equipment is used in a high percentage of natural gas processing plants,” says Chart CEO Sam Thomas.91

Dearing Compressor & Pump Co., a Boardman-based manufacturer of industrial pumps and compressors used in natural-gas drilling, recently announced an investment of about $3 million in a new assembly plant to expand its production capacity.

“We recognized the need for expansion about a year ago, and I would say 99 percent of it was driven by the Marcellus Shale,” notes Becky Wall, co-owner of Dearing Compressor & Pump Company, in an interview with the Youngstown Vindicator. “We were able to start reacting to the business potentials in the Marcellus Shale sooner than other companies.”92

Dearing’s business has always been in the Appalachian Basin, so the company is uniquely positioned to take advantage of Marcellus Shale development, because most of the company’s competition has been based in the Southwestern U.S., Wall says.

Ohio has laid the foundation for extractors and supply chain companies to achieve prosperity and success in the Marcellus and Utica Shale natural gas industry for generations to come.

Fairmount Minerals, in Chardon, Ohio, is a big player on the natural gas scene, because it mines and processes special sands used by drillers. It even coats individual grains of sand with special resins to provide drillers with a better tool to get more gas out of the ground.

“I honestly believe that the implications of it are just so significant — I think people aren’t even realizing it yet,” says Jenniffer Deckard, president of Fairmount Minerals. “It creates a lot of jobs. It’s such a win-win for our country, it’s almost like it can’t even be real.”93

TMK IPSCO has operated a steel facility and pipe rolling mill in the Youngstown region of Ohio for many years. The company recently announced a $10 million investment at their Brookfield, Ohio, facility to meet the demands of the growing shale industry.

91 Ibid.92 Wyler, Grace. “Buried Treasure.” Vindy.com. Youngstown Vindicator, 6 June 2010. Web. 6 May 2011. http://www.vindy.com/news/2010/jun/06/by-grace-wyler/.93 Ibid.


“The development of natural gas drilling in the shale region is an absolute game-changer for TMK IPSCO and for the industry,” says Vicki Avril, president and CEO of TMK IPSCO in Downers Grove, Illinois. “We believe natural gas holds the promise of energy security for the United States, and our pipe products and connections are the key to unlocking this resource.”94

Avril said the location of their existing Brookfield plant was a major factor in the decision to expand that facility.

“It is ideally located in the Marcellus Shale region, which gives us the ability to provide better, faster service to our customers in that area,” Avril says. “Secondly, its proximity to our other facilities in Western Pennsylvania allows us to produce and develop our product more efficiently. And lastly, we were looking for a location with an available pool of strong talent.”

Proximity to drilling sites and other companies in the natural gas supply chain was an added benefit to TMK IPSCO.

“The new horizontal drilling methods require advanced technology and, coupled with increased demand, it means we must produce a more innovative product quicker than ever before,” Avril says. “Having other companies in the supply chain in the shale region has helped us tremendously. We are able to produce our products more quickly and efficiently, and deliver the high level of service our customers expect.”

With an excellent location and suitable workforce in place, the support the company received from the State of Ohio when expanding their business was a major factor in their expansion.

“The State of Ohio was very supportive during our site search process and we received economic development support to locate here,” Avril says.

94 Remarks of Vicki Avril, President and CEO, TMK IPSCO, Downers Grove, Illinois, 1 April 2011.


Historical parallels have been drawn, describing the development of Marcellus and Utica Shale formations as the “21st Century’s Gold Rush.”

But the Marcellus and Utica Shale Formations are no get-rich-quick scheme, and shallow comparisons don’t describe the magnitude and potential of this valuable resource, from reducing carbon emissions by supplanting traditional coal power with natural gas to ratcheting down America’s dependence on foreign sources for its crude oil.

The lasting legacy of the 1849 Gold Rush was the development of the supply chain servicing those 19th century treasure-seekers.

Just like the suppliers that supported miners during the famous rush to California in the 1800s, companies that supply today’s rush — the extraction and distribution of natural gas from the Marcellus and Utica Shale formations — need to select a location that provides easy access to all the states involved, find skilled labor to staff their operation, and minimize their tax burden.

Exploring advanced energy sources has never been more urgent for America’s goal to reduce foreign energy dependence. As the development of Marcellus and Utica natural gas reserves grows, more and more supply chain companies will seek an accessible and affordable location for companies involved in shale gas commercialization.

Companies capitalizing on this emerging resource are already realizing that access to an established supply chain will maximize their return on investment in Marcellus and Utica Shale — but it takes a world-class supply chain network for energy companies to achieve the fastest return on their start-up investment.

In Ohio, companies can leverage the state’s strategic position as the number one automotive parts supplier into an advantage in the Marcellus and Utica Shale industry, building on the existing infrastructure, expanding supply chain companies, and reaping the benefits of a supportive State of Ohio.

Ohio – The Supply Chain State for the Marcellus and Utica Shale Gas Industry


“About AEP Ohio.” aepohio.com. American Electric Power Co., Inc., 2011. Web. 28 June 2011. https://www.aepohio.com/info/facts/.

“About Us.” Columbiagasohio.com. Columbia Gas of Ohio, 2011. Web. 28 June 2011. http://www.columbiagasohio.com/en/about-us.aspx.

“About Us.” duke-energy.com. Duke Energy, 2011. Web. 6 May 2011. http://www.duke-energy.com/about-us/default.asp.

“About Us.” FirstEnergyCorp.com. FirstEnergy Corporation, 26 February 2011. Web. 6 May 2011. http://www.firstenergycorp.com/about.html.

“AEP To Complete Construction Of Dresden Natural Gas Plant.” aep.com. American Electric Power, 20 January 2011. http://www.aep.com/environmental/news/?id=1664.

“ANR Pipeline.” anrpl.com. ANR Pipeline Company, 2011. Web. 28 June 2011. http://www.anrpl.com/company_info/.

“Baird Expert MLP Analyst Ethan Bellamy Forecasts Market and Picks Most Stable Investment Offerings In This Current Income Asset Class.” twst.com. The Wall Street Transcript, 21 April 2011. Web. 5 May 2011. http://www.twst.com/yagoo/ethanbellamy2.html.

Bell, Jeff. “Ohio Shale Coalition to tout drilling as boon to economy.” bizjournals.com. Columbus Business First, 24 June 2011. Print.

Bureau of Labor Market Info, Ohio Department of Jobs and Family Services, 2003.

Celaschi, Robert. “Gauging drilling potential difficult, but early indications point to jackpot.” Columbus Business First, 20 May 2011. Print.

“Columbia Gas Transmission, LLC.” hoovers.com. Hoovers, 2011. Web. 28 June 2011. http://www.hoovers.com/company/Columbia_Gas_Transmission_LLC/ryskfti-1.html.

“Commercial Activity Tax (CAT) – General Information.” Ohio.gov. Ohio Department of Taxation, 2011. Web. 5 May 2011. http://www.tax.ohio.gov/divisions/commercial_activities/cat_general_information.stm.

“Depth of Marcellus Shale Base.” Marcellus Center for Outreach & Research. Penn State University, 20 April 2011. Web. 29 April 2011. http://www.marcellus.psu.edu/images/Wet-Dry_Line_with_Depth.gif.

Bibliography


Dezember, Ryan. “Shale Lifts Prospects in Ohio.” online.wsj.com. The Wall Street Journal, 7 March 2011. Web. 5 May 2011. http://online.wsj.com/article/SB10001424052748703752404576178740650203046.html?KEYWORDS=Chesapeake+Energy.

“Dominion Transmission, Inc.” dom.com. Dominion, 2011. Web. 28 June 2011. http://www.dom.com/business/gas-transmission/index.jsp.

“Dominion works to place pipe for Utica growth.” gasbb.com. Gas Business Briefing, 2011. Print. 24 June 2011.

“Drilling for Natural Gas in the Marcellus and Utica Shales: Environmental Regulatory Basics.” ohiodnr.com. Ohio Environmental Protection Agency, December 2010. Web. 6 May 2011. http://www.ohiodnr.com/portals/11/publications/pdf/Marcellus_Shale_Fact_Sheet.pdf.

“Energy Institute Partners with Logan.” hocking.edu. Hocking College, 2011. Web. 28 June 2011. http://www.hocking.edu/news/item/557.

“Executive Summary.” The Economic Impacts of the Marcellus Shale: Implications for New York, Pennsylvania, and West Virginia. The American Petroleum Institute, 2010. PDF. 28 June 2011.

“Fact Sheet: Tax Reform in Ohio.” ohio.gov. Ohio Department of Taxation, 2005. PDF. 26 April 2011. http://tax.ohio.gov/divisions/communications/news_releases/documents/Tax_reform_fact_sheet.pdf.

“Gatherco, Inc.” woosterchamber.com. Wooster Chamber of Commerce, 2011. Web. 28 June 2011. http://www.woosterchamber.com/MEMBERSHIP/MembershipDirectory/tabid/71/uc/info/ItemID/3264/Default.aspx.

Gearino, Dan. “Columbia Gas to hire 125 for pipeline work.” Dispatch.com. The Columbus Dispatch, 30 March 2011. Web. 5 May 2011. http://www.dispatch.com/live/content/business/stories/2011/03/30/columbia-gas-to-add-jobs.html?sid=101.

Gearino, Dan. “Texas firm bulks up with Ohio acquisitions.” Dispatch.com. The Columbus Dispatch, 6 June 2010. Web. 28 June 2011. http://www.dispatch.com/live/content/business/stories/2010/06/06/texas-firm-bulks-up-with-ohio-acquisitions.html.

“Hocking College uses alternative fuels to teach, provide power.” athensnews.com. The Athens News, 2006. Web. 28 June 2011. http://www.athensnews.com/ohio/article-9043-hocking-college-uses-alternative-fuels-to-teach-provide-power.html.

“How is Natural Gas Used?” api.org. American Petroleum Institute, 2009. Web. 28 June 2011. http://www.api.org/aboutoilgas/natgas/uses.cfm.


“Knowledge & Labor Access.” OhioMeansBusiness.com/Enterprise_Appalachia. Ohio’s Enterprise Appalachia Region Delivers Access to Knowledge. Enterprise Appalachia, 2011. Web. 20 April 2011. http://www.ohiomeansbusiness.com/enterprise_appalachia/knowledge_labor_access/.

“Modern Shale Gas Development in the United States: A Primer.” Ground Water Protection Council. April 2009: 50-54. Print.

“Ohio Natural Gas and Crude Oil: Economic Benefits.” Ohio Oil and Gas Energy Education Program, 2011. PDF. 28 June 2011.

“Ohio Natural Gas and Crude Oil: Environmental Benefits.” Ohio Oil and Gas Energy Education Program, 2011. PDF. 28 June 2011.

“Ohio Natural Gas and Crude Oil: Lifestyle Benefits.” Ohio Oil and Gas Energy Education Program, 2011. PDF. 28 June 2011.

“Ohio Third Frontier.” Ohio.gov. Ohio Department of Development, 2010. Web. 29 April 2011. http://www.development.ohio.gov/ohiothirdfrontier/ThirdFrontierCalendar/default.aspx.

“Our Accomplishments.” nisource.com. NiSource, 2011. Web. 28 June 2011. http://www.nisource.com/en/about-us/accomplishments.aspx.

“Panhandle Eastern Pipe Line Company, LP.” panhandleenergy.com. Panhandle Energy, 2011. Web. 28 June 2011. http://www.panhandleenergy.com/comp_pep.asp.

“Private-Public Support.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 29 April 2011. http://www.ohiomeansbusiness.com/why-ohio/public-private-support.php.

“Public Utilities Commission Natural Gas Consumer Information.” Ohio.gov. Public Utilities Commission of Ohio, 2011. Web. 29 April 2011. http://www.puco.ohio.gov/puco/index.cfm/information-by-industry/natural-gas-consumer-information/.

Remarks of Andrew Thomas, Executive in Residence, Center for Energy Policy, Maxine Levin Goodman College of Urban Affairs, Cleveland State University, Cleveland, Ohio, 5 May 2011.

Remarks of Brent Breon, Manager, Dominion East Ohio, North Canton, Ohio, 20 July 2011.

Remarks of David Mustine, Energy Manager of JobsOhio, Columbus, Ohio, 12 September 2011.


Remarks of Howard Fleeter, Ph.D., Partner, Driscoll & Fleeter, Columbus, Ohio, 26 April 2011.

Remarks of Jim Samuel, Fellow, Cleveland State University, Natural Gas Industry Consultant, Columbus, Ohio, 19 September 2011.

Remarks of Joel Mastervich, President and Chief Operating Officer, V&M Star, Youngstown, Ohio, 8 April 2011.

Remarks of Pat Valente, Executive Director, Ohio Fuel Cell Coalition, 6 May 2011.

Remarks of Rhonda Reda, Executive Director, Ohio Oil and Gas Education Program, Granville, Ohio, 24 June 2011.

Remarks of Robert Chase, Chair of the Department of Petroleum Engineering and Geology, Marietta College, Marietta, Ohio, 5 May 2011.

Remarks of Thomas M. Zaino, JD, CPA, McDonald Hopkins LLC, Columbus, Ohio, 26 April 2011.

Remarks of Vicki Avril, President and CEO, TMK IPSCO, Downers Grove, Illinois, 1 April 2011.

“Residential Uses.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 1 May 2010. http://www.naturalgas.org/overview/uses_residential.asp.

“Robust Workforce and Education.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 6 May 2011. http://www.ohiomeansbusiness.com/why-ohio/robust-workforce-and-education.php.

“Rockies Express Pipeline.” kindermorgan.com. Kinder Morgan, 2011. Web. 28 June 2011. http://www.kindermorgan.com/business/gas_pipelines/rockies_express/.

“Shale Shock: Hydraulic Fracturing.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 20 April 2011. http://www.naturalgas.org/shale/shaleshock.asp.

Shingler, Dan. “Manufacturers anticipate boost from natural gas.” crainscleveland.com. Crain’s Cleveland Business, 14 July 2011. Web. 14 July 2011. http://www.crainscleveland.com/article/20110620/SUB1/306209993.

“Storage of Natural Gas.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 28 June 2011. http://www.naturalgas.org/naturalgas/storage.asp.

“Super Giant Field in the Appalachians?” Marcellus Shale – Appalachian Basin Natural Gas Play. Geology.com, 2011. Web. 20 April 2011. http://geology.com/articles/marcellus-shale.shtml.


“Tax Climate: Maximize ROI on your next capital investment.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 6 May 2011. http://www.ohiomeansbusiness.com/incentives-and-tax-reform/tax-climate/index.php.

“Texas Eastern Transmission.” spectraenergy.com. Spectra Energy Corp., 2011. Web. 28 June 2011. http://www.spectraenergy.com/Operations/US-Transmission/Pipeline-Assets/Texas-Eastern-Transmission/.

“The Economic Impacts of the Pennsylvania Marcellus Shale Natural Gas Play: An Update.” MarcellusCoalition.org. The Pennsylvania State University College of Earth and Mineral Sciences Department of Energy and Mineral Engineering, 24 May 2010. Web. 8 May 2011. http://marcelluscoalition.org/wp-content/uploads/2010/05/PA-Marcellus-Updated-Economic-Impacts-5.24.10.3.pdf.

“The Nature of the Marcellus Shale Play.” The Economic Impacts of the Marcellus Shale: Implications for New York, Pennsylvania, and West Virginia. The American Petroleum Institute, 2010. PDF. 28 June 2011.

“The Transportation of Natural Gas.” naturalgas.org. Natural Gas Supply Association, 2010. Web. 28 June 2011. http://www.naturalgas.org/naturalgas/transport.asp.

“Transportation Network.” OhioMeansBusiness.com. Ohio Business Development Coalition, 2011. Web. 5 May 2011. http://www.ohiomeansbusiness.com/why-ohio/easy-market-access/transportation-network.php.

University Clean Energy Alliance of Ohio, 2011. Web. 29 April 2011. http://www.uceao.org.

University System of Ohio, 2011. Web. 29 April 2011. http://uso.edu.

“V&M to Officially Expand, Create 350 Jobs.” wytv.com. WYTV, 16 February 2010. Web. 5 May 2011. http://www.wytv.com/mostpopular/story/V-M-Star-to-Officially-Expand-Create-350-Jobs/jZTtmsTHLEmXAGqn1uvZtA.cspx.

“Welcome to Tennessee Gas Pipeline.” tennesseeadvantage.com. Tennessee Gas Pipeline, 2011. Web. 7 July 2011. http://www.tennesseeadvantage.com/default.asp.

“What is Natural Gas?” naturalgas.org. Natural Gas Supply Association, 2010. Web. 20 April 2011. http://www.naturalgas.org/overview/background.asp.

“What is Utica Shale?” Utica Shale - The Natural Gas Giant Below the Marcellus?. Geology.com, 2011. Web. 20 April 2011. http://geology.com/articles/utica-shale/.

Wyler, Grace. “Buried Treasure.” Vindy.com. Youngstown Vindicator, 6 June 2010. Web. 6 May 2011. http://www.vindy.com/news/2010/jun/06/by-grace-wyler/.

Documents

Marcellus and Utica Shale Gas Supply Chain