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

By Amanda Weinstein

Swank Program in Rural-Urban Policyhttp://aede.osu.edu/programs/swank Weinstein.74@osu.edu

Ohio Fracking 101: Technology, Regulation, and LeasingDecember 7, 2012Sharonville, OH

What is Fracking?

Swank Program meeting community members seeing growing interest in shale development in Ohio asked do some research. 2 Policy Briefs The Economic Value of Shale Natural Gas in Ohio. and Making Shale Development Work for Ohio. Working on the 3rd examining the impact on housing.

Dissertation Paper Local Labor Market Restructuring in Shale Booms

1OutlineIntroductionShale ResourcesHydraulic FracturingLocal ImpactEconomic ImpactEnvironmental ImpactConclusionsIntroductionInnovations in extracting oil and natural gas trapped below the surface in shale have led to oil and gas booms across the country and more recently to OhioInnovations include microseismic technology, horizontal drilling, and hydraulic fracturingIt has also brought concerns about the various impacts of the boom on the local community

3Shale Oil and GasShale is a sedimentary rock generally high in organic content specifically oil and gasConventional oil and gas reserves occur when some of the oil and gas has migrated upwards, to layers of sandstone and porous limestone where it becomes trapped. In some cases, a significant quantity of oil and gas remain in the shale rock. These reserves are called unconventionalHydraulic fracturing is the process by which oil and gas is extracted from unconventional reserves.http://eaglefordshaleblog.com/2010/03/03/what-is-a-shale-gas-play/

4Unconventional Oil and Gas

Capable of extracting the oil and gas from shale ut was previously uneconommicalHorizontal drilling not actually a 90 degree angleSource: US EIA http://www.eia.gov/todayinenergy/detail.cfm?id=110

5

Shale plays - An area comes into play when it is generally recognized that there is an economic quantity of oil or gas to be found.The largest shale plays in terms of recoverable gas are the Marcellus (410.3 trillion cubic feet, 55% of the total), Haynesville, and Barnett.

6Shale Gas Production

Ohio production didnt start until 2012.U.S. EIA (June, 2012) http://www.eia.gov/pressroom/presentations/staub_06272012.pdf7Actual and Projected Production (EIA)

U.S. EIA http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm

8Ohio Marcellus and Utica Shale

Source: Ohio Department of Natural Resources http://www.dnr.state.oh.us/LinkClick.aspx?fileticket=c070Q7UtUyo%3d&tabid=23014

9Horizontal Marcellus Shale Wells

ODNR10Horizontal Utica Shale Wells

ODNR11Hydraulic FracturingCommercial hydraulic fracturing began in 1949, though it took several decades for it to become cost effectivePractical application of horizontal drilling to oil production began in the early 1980s in the Barnett Shale in Texas

By 2005 the Barnett Shale was producing approximately 0.5 tcf of natural gas per year1-2 months to prepare the siteAbout 1 month of rig work (casing, cementing, etc.)

Drilling tower in LycomingCounty, PAhttp://www.marcellusfacts.com/pdf/homegrownenergy.pdfhttp://www.museumoftheearth.org/files/marcellus/Marcellus_issue6.pdf 12Hydraulic Fracturing: DrillingAn initial wellbore is drilled and thick steel pipe is placed in the hole and sealed with cement on the outside of the pipe. Drilling recommences to the deeper zones of interest and when this depth is reached, a second string of steel pipe is run inside the first and additional cement is used to provide a permanent seal.

Approximate Drilling Depths

Hydraulic Fracturing: Land UseSpacing is variableMarcellus wells can be spaced in 40-acre units or 16 wells per square mile. An average town could contain up to 1,500 wells.

http://shaleshock.org/drilling-101/http://www.3legsresources.com/media/A%20guide%20to%20shale%20gas.pdf15Hydraulic Fracturing: FrackingOnce the well is drilled, it takes 2-5 days for the fracturing process Fracking involves injecting between 1-8 million gallons of water, sand, and chemicals down the well.Chemicals can vary by well. They are often described as soap and oil by the industry. Chlorine is often used as an antibacterial agent.

The pressurized mixture causes the shale to crack or fracture.The fissures are held open by the sand to allow gas to flow up the well

This water, anywhere from 1 to 8 million gallons per well, is the equivalent of two to twelve Olympic-sized swimming pools and must be brought into the site by truck or drawn from a local waterway or the pub-lic water supply 16Hydraulic Fracturing

ProPublica http://www.propublica.org/special/hydraulic-fracturing-national17Hydraulic Fracturing: WastewaterAbout the water will stay in the groundThe rest will come back up as flowback or produced water or wastewater (containing fracking chemicals as well as other minerals occurring naturally below the surface)In some cases the water can be reused for fracturingThe wastewater will often be stored in a lined pit onsite until it can be transported to an injection well or containment vessel

http://articles.philly.com/2012-10-02/business/34219187_1_gas-production-shale-gas-pennsylvania-marcellus

18Map of Injection Wells

In December 2011, a number of small earthquakes near Youngstown, Ohio were attributed to an injection well accepting flowback water from Pennsylvania. ODNR www.dnr.state.oh.us/Portals/10/pdf/ClassIIWellsMap.pdfEarthquakes19Hydraulic Fracturing: Gas ProductionWells are then shut in, or capped, while awaiting completion of pipelines to transport the natural gas to marketGathering lines feed gas to compressor stations and metering sites which are connected to larger pipelinesEstimated that a well can continue to produce for up to 30 yearsHighest flow rates of natural gas in the first weeks declines over time

20Environmental Impact: The NegativeConcerns have been raised over the potential for hydraulic fracturing to cause water contamination (wastewater or methane)Duke University study found elevated levels of methane in water near drilling sites (Osborn et al., 2011) In December 2011, the EPA found hydraulic fracturing fluids were responsible for drinking water contamination in Wyoming

Casing failures and spillsImportance of baseline testingEarthquakes from drilling and injection wells Youngstown, OH Dec. 2011

http://www.nytimes.com/http://tech.fortune.cnn.com/2012/04/16/exxon-shale-gas-fracking/Okhams razor2011/12/09/us/epa-says-hydraulic-fracturing-likely-marred-wyoming-water.html?_r=021Environmental Impact: The PositiveA bridge to more environmentally friendly energy production Carbon benefits may be slightly less due to the trucking requirements, but carbon emissions remain significantly less than coal

Impact on the Local CommunityNoise associated with construction, drilling, and compressor stationsTrucking If one well requires 2 million gallons of water for one fracking, thats 366 tanker trucks hauling fresh water and 183 tanker trucks hauling wastewater, for a total of 549 tanker truck tripsIncreases road use increases traffic (and traffic accidents) and road deteriorationLarge shale booms like Williston, ND also have population booms putting a strain on housing, utilities, local schools, and other public servicesStresses the importance of agreements with the industry on road maintenance and ensuring severence taxes are appropriate to account for all of these costsFor the average fracking, which may take 3.5 million gallons, that is 960 tanker truck trips. In Pensylvania, the DEP estimates that one horizontal Marcellus well requires 1,000 truck trips during drilling and fracking.23Severance Taxes

Effective Natural Gas Tax Burden

Kasich has proposed raising severence taxes which will be disbursed to taxpayers in the form of a rebate or lower taxeshttp://online.wsj.com/article/SB10000872396390443437504577545081209344456.htmlThe proposal would raise the severance tax to about 2.7% of the market value of oil or gas, depending on the type of well. As the industry matures and production peaks, the tax would on present price trends raise between $459 million and $547 million each year, equivalent to a 5% across-the-board tax cut for each of Ohio's nine brackets.25Economic ImpactCommenting on shale energy development, Aubrey McClendon CEO of Chesapeake Energy of Oklahoma was quoted in the Columbus Dispatch saying, This will be the biggest thing in the state of Ohio since the plow.Industry funded estimates range from 65,000 to 200,000 jobs created by shale development in OhioWe are concerned that job numbers may be overinflated by an industry (any industry).Examining the trends in employment data we find the jobs impact of shale development will be approximately 20,000 after accounting for the multiplier effect. Expect modest employment effects (capital intensive, displacement, and small share) but more significant income effects

Energy Price Comparison

Lower prices mean lower energy costs for consumers

ConclusionsShale natural gas is associated with significant income effects but modest employment effectsHowever, the real question of shale investment is not job creation, but net benefits vs. costs (including environmental costs)In this question, natural gas should be compared to coal, the true alternative.Shale natural gas is lower cost, less carbon, and like coal has local pollution impacts. Shale natural gas will also reduce natural gas importsOhio should consider higher severance tax to counteract some of these costs and pay for long-term benefitsSchools, infrastructure, environmentInvest in assets to account for the lost extracted assets

28Amanda WeinsteinResearch Associate for the Swank Program in Rural-Urban PolicyDept. Agricultural, Environmental & Development EconomicsThe Ohio State University(weinstein.74@osu.edu)Thank You29OSU Policy & Outlook Program29Extra SlidesMajor Holders of Utica Shale Right in Ohio (April 2012)Major Holders of Utica Shale Right in Ohio (April 2012)

Source: Ohio Department of Natural Resources http://www.ohiodnr.com/oil/shale/tabid/23174/Default.aspx , Ohio Shale Coalition (2012), and Utica Shale Ohio http://oilshalegas.com/uticashale.html*Includes all wells classified as drilling, drilled, producing, and completed

31Prices - Booms and Busts

U.S. EIA http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm32Perspective on Environmental ImpactCoal ash spill In 2008, the New York Times reported that experts called the Tennessee ash flood that dumped over 1.1 billion gallons of coal ash waste one of the largest environmental disasters of its kind2011 Coal ash spill in Lake Michigan

Dewan, Shaila. Tennessee Ash Flood Larger than Initial Estimate. The New York Times (Dec. 26, 2008). http://www.nytimes.com/2008/12/27/us/27sludge.html 33