Thanks to fracking, Ohio could soon become the sixth largest oil producing state in the country. But can they get the rules surrounding the controversial technology right?
NEW YORK (CNNMoney) — Ohio hasn’t been an oil powerhouse for nearly 100 years.
But thanks to controversial new drilling technology, the state that once produced a third of the nation’s crude and was the birthplace of John D. Rockefeller’s mighty Standard Oil could once again be a significant source of domestic supply.
It’s already attracting billions in investment from such big-name firms as ExxonMobil (XOM, Fortune 500), Chevron (CVX, Fortune 500), Hess (HES, Fortune 500) and Chesapeake (CHK, Fortune 500), Devon (DVN, Fortune 500) and Anadarko (APC, Fortune 500).
“It’s one of the most significant economic events to occur in Ohio in decades,” said Thomas Stewart of the Ohio Oil and Gas Association.
But the new production, which is coming from a layer of previously untapped shale rock deep beneath the state, relies on hydraulic fracturing and horizontal drilling.
Hydraulic fracturing, known as fracking for short, involves injecting water, sand and chemicals deep into the ground at high pressure to crack the shale and allow the oil or gas to flow.
The process, combined with horizontal drilling, has unleashed an energy boom in the United States but also raised fears of ground water contamination, earthquakes and other worries.
As production in Ohio ramps up the state finds itself at a critical juncture — coming up with the right mix of regulations that allows this oil to be tapped, yet avoids the contamination that has occurred in states where fracking is more widespread.
An oil bounty: If given the proper development, Ohio could be producing 200,000 barrels of crude a day by 2020.
That’s not going to rival Texas’ current output of 1.4 million barrels a day and is just a small part of the nation’s overall crude output of 5.6 million barrels per day, according to the U.S. Energy Information Administration.
But based on current production rates it would be enough to make Ohio the sixth-largest oil producing state in the country and put it ahead of such heavyweights as Louisiana and Wyoming.
Stewart says the industry is poised to create 200,000 jobs and half a billion dollars in tax revenue in Ohio over the next five years, and landowners are already getting $3,000 to $5,000 per acre for leasing their land.
Nationwide wide the economy is is still sluggish, but in parts of Ohio “some car dealers are claiming to have had their best year ever,” he said.
If the oil materializes as hoped, Ohio offers a few advantages over other states where fracking is used to produce oil or gas, Nitzan Goldberger, an energy analyst at the political risk consultancy Eurasia Group, wrote in a recent research note.
The geology is such that much of the fracking wastewater can be injected deep into the ground, unlike in Pennsylvania where that can’t happen. Pennsylvania has to treat its wastewater so it can then discharge it into rivers. That has caused problems. In some cases the wastewater is trucked to Ohio so that it can be pumped deep below the earth.
And a solid infrastructure of pipelines and waterways means the oil can easily be transported to market, unlike oil from the Bakken Shale in North Dakota.
There are a number of compelling reasons for companies to bet on Ohio, said Goldberger.
Contaminated water: The fear is this pending boom will lead to problems with the water supply, as has occurred in places like Wyoming and Pennsylvania.
Recognizing this, the Ohio Department of Natural Resources is in the process of tightening the regulations around drilling.
In October the department issued a draft of new rules. A spokeswoman for the department said the new rules will result in the state having “some of the strongest regulations in the country.”
Environmentalists say the rules don’t go far enough.
“There is no evidence that Ohio is learning from its neighbors, or even from accidents in its own state,” said Amy Mall, a policy analyst for the Natural Resources Defense Council. “These are really insufficient.”
Last week NRDC and a host of other environmental organizations issued a 22-page letter in response to the proposed rules. In it they called for thicker concrete barriers that line the well holes, further setbacks from water supplies and more state regulators, among other things.
In the meantime, local environmental groups are fielding calls from residents concerned about their water and handing out “Frack Finding” kits that let homeowners do their own testing.
“What we’re worried about is getting calls from people who are no longer concerned but are instead saying ‘my well is bad,'” said Matt Trokan, conservation manager at the Sierra Club’s Ohio chapter.
Ohio regulators wouldn’t comment on the proposed new rules as they are still in the process of being drafted.
The Oil and Gas Association’s Stewart said they are adequate to protect the public health and encourage the development of shale oil but that they might be too burdensome on operators of traditional oil wells.
He said critics of the new regulations were either not familiar with what’s in the new laws or, in some cases, are proposing things that would actually make well construction more dangerous.
“You need regulation by experts,” he said. “I don’t think one signer on that letter has ever stood on a rig floor.”
Goldberger, the energy analyst, wouldn’t comment on the Ohio regulations in particular but said greater regulation on this industry is something that is both doable and perhaps ever desirable from a business standpoint, especially given the bans on fracking that places like New York, France and South Africa have put into place.
“We don’t buy into the notion that these regulations will kill the industry,” she told CNNMoney. “At the end of the day they mitigate even bigger risks, like moratoriums.”
Link to Article: http://money.cnn.com/2011/12/20/news/economy/ohio_oil/index.htm
First Published: December 20, 2011: 5:31 AM ET