The promised "shale gas boom" in Ohio is closer than ever, but it will more likely occur in refineries and factories, not rural well fields, says Cleveland State University economists.
CLEVELAND, Ohio -- The enormous productivity of Ohio's shale gas industry has done more than drive down gas prices and create jobs on drilling rigs in rural Ohio.
Shale gas well development over the last four years, though now at a crawl because of low prices, has already set the stage for a petrochemical and plastics manufacturing boom.
And that boom ought to occur over the next five years, a comprehensive report and analysis released this week by Cleveland State University argues. The three-part, nearly 300-page study is the work of the Center for Economic Development's Energy Policy Center at CSU's Maxine Goodman Levin College of Urban Affairs.
The analysis goes well beyond typical economic forecasts commissioned by the industry which typically count jobs, wages and taxes that for whatever reason often don't materialize.
The study looks at the extraordinary productivity of the wells developed so far, the capacity of the processing plants and pipelines, both those in service and those on the drawing boards, and the most likely rate of additional wells being drilled and gas production over the next five years.
And its conclusion hinges on a lucky fact that a good portion of the shale play under Ohio, West Virginia, and to a lesser extent Pennsylvania, produces not just methane but propane, butane and ethane, a trio of hydrocarbons called "natural gas liquids" or NGLs.
Ethane is the NGL that will fuel the boom, the analysis argues, because it is a valuable petrochemical. And because there will be so much of it.
The study projects that by 2020, the region -- Ohio, Pennsylvania and West Virginia -- will have such a surplus of ethane, which must be separated from methane before natural gas can be used as a fuel, that it will only make economic sense to build ethane refineries here rather than try to ship the volatile ethane to crackers on the Gulf Coast.
Called "crackers," the ethane refineries convert, or crack and reconfigure, the ethane molecules into the building blocks used by the entire plastics and polymer and chemical industries.
"The region is capable of extracting enough ... (NGLs) to supply multiple crackers," said economist Iryna Lendel in an interview. "Not just one, or two, or even three, but multiple."
Lendel is the assistant director of the Center for Economic Development at the Maxine Goodman Levin College of Urban Affairs and a co-author of the massive report.
"Everybody has been concentrating on production," she said. "They forgot that we should be focusing on downstream development -- on manufacturing, because manufacturing creates permanent jobs that requires skills and pay well."
Lendel said three companies are proposing to build the multi-billion-dollar plants, Shell Chemical, on the Pennsylvania-Ohio border, a Brazilian consortium, in Parkersburg, West Virginia, and a Japanese-Thai consortium in Belmont County, Ohio.
With a total estimated cost of at least $14 billion, the three refineries alone would create more than 10,000 construction jobs and nearly 1,000 highly paid permanent jobs, the study estimates.
The three projects are not under construction or even permitted, but the developers have not walked away either, said Lendel. "I think we are in pretty good shape," she said. "The commitment is still there."
And the crackers are just the beginning.
The ethylene and other engineered molecules that they produce are the feed stock for the petrochemical industry, which already employs nearly 74,000 people in Ohio, another 50,000 in Pennsylvania and nearly 11,000 in West Virginia, or more than two-thirds of the entire U.S. petrochemical workforce.
Local ethane crackers would give regional petrochemical plants a cost advantage because they would not have to order ethylene from distant crackers, the report argues.
Andrew Thomas, executive-in-residence at CSU's Energy Policy Center, and co-author, said the point of the analysis is that Ohio can, and ought to, build manufacturing on its mineral wealth rather than allow the enormous gas production to create an "extraction economy in which minerals are taken out of the ground and shipped elsewhere to create wealth."
So what happened to the promised jobs in the well fields?
A previous CSU analysis predicted about 55,000 so-called "upstream" jobs would be created drilling and fracturing the shale and supplying the operations.
"We projected about 50,000 to 55,000 jobs altogether, including supply chain jobs," said Lendel. "We are there. The jobs were created because work had to be done.
"Were they all filled by Ohioans? I doubt it. They could not find workers with the skills, who were drug-free and willing to work more than 40 hours a week."
The study and analysis were commissioned by the Regional Economic Competitiveness Strategy (RECS) Shale Committee with support from the Economic Growth Foundation and Jobs Ohio. Click here to download a copy of the report.