Region gains from interest in ‘wet’ gases

By DAN SHINGLER
4:30 am, March 12, 2012

Northeast Ohio’s economy is poised to get a shot in the arm from low natural gas prices, and it will happen faster than most observers thought just a few weeks ago, when optimism already was high.

Thanks to the drop in natural gas prices, industrial companies here will have access to cheaper energy and, in some cases, cheaper raw materials than their international competitors. Even your local McDonald’s stands to benefit as it cooks your fries.

“In general, the cat bird’s seat is a good place to put us right now — we have the potential for our industry in Ohio to be extremely globally competitive again,” said Jack Pounds, president of the Ohio Chemistry Technology Council in Columbus.

Thanks to natural gas found in shale formations in Ohio, Pennsylvania and other states, the cost of natural gas has dropped to wellhead prices of $2.50 or less per thousand cubic feet, or mcf. That’s the lowest price since 2002, and it marks a decline of more than 25% this year alone. As recently as 2005, natural gas was selling for more than $10 per mcf at the wellhead, according to the U.S. Energy Information Administration.

The decline is of importance to Ohio because of the economics of the shale gas drilling that is starting to take place in Ohio. Unlike the “dry” gas found in the Marcellus shale deposits beneath Pennsylvania and some of Ohio’s eastern counties, the “wet” gas that’s found under roughly half of Ohio, in the deeper Utica shale, is mixed with crude oil and other valuable liquids.

Now that the price of natural gas has collapsed, drillers are more interested than ever in those other liquids. That means they’ll step up drilling in Ohio and it also means the chemicals from those liquids — vital to the state’s plastic and chemical industries — will be more plentiful and less expensive.
They want a cracker
Andrew Thomas, a former geophysicist and lawyer for oil and gas companies in New Orleans and now a researcher at Cleveland State University, said low natural gas prices and lease clauses that require companies to drill within five years of leasing property from landowners will cause drilling here to speed up from a handful of wells dug in 2011 to more than 1,000 per year by 2014.

“Then, I think, (the Utica shale) will sustain that activity for 20 years,” Mr. Thomas predicts.

Down around New Philadelphia, attorney Brad Hillyer, a longtime expert on mineral rights, said he’s already seeing the first waves of activity as drillers come after the Utica shale’s precious liquids.

“That stuff is bringing in $85 a barrel now,” Mr. Hillyer said. “I get visits daily from pipeline companies that are trying to run pipelines across Guernsey County, trying to get pipe-lines to the refineries up in Canton.”

Three small “cracker” plants, which would refine industrial chemicals from shale gas liquids, are planned for the area, Mr. Hillyer said. They would be in addition to a multibillion-dollar cracker Shell Oil Co. wants to build in Ohio, Pennsylvania or West Virginia to process those chemicals in large quantities.

The smaller cracker plants he has heard of represent investments of about $50 million each, Mr. Hillyer said.
Into the fryer
Closer to Cleveland, the effects of this activity likely will be felt most dramatically by the chemical industry. Mr. Pounds of the Ohio Chemistry Technology Council said chemical companies use raw materials derived from natural gas and its associated liquids as well as use power from natural gas for their own production processes.

If Shell builds its cracker, Ohio’s chemical industry will increase its output by about 20% within three years, Mr. Pounds predicts. That increase would translate into nearly $5 billion a year of additional business for Ohio’s chemical industry, which currently makes about $28 billion of product annually, he said.

“With a cracker in the area producing about a million tons of ethylene a year, we would have the lowest raw material costs of any place in the world other than Saudi Arabia or Canada,” Mr. Pounds said.

Mike Brakey, an energy consultant in Shaker Heights, said he’s advising any client who can to switch from using electricity to using natural gas.

One businessman who took Mr. Brakey’s advice was Dave Stiles, owner of Mimax One in Broadview Heights, which is the operating company for Mr. Stiles’ five McDonald’s restaurants in the area.

Mr. Stiles is converting his electric fryers over to gas-powered versions, he said, because the savings are too great to ignore — even though a new natural gas fryer costs more than $15,000.

They use a lot of energy, though, so the conversion is still worth it, Mr. Stiles said.

“It’s a big investment, but it takes three times the cost to run an electric fryer versus a gas fryer now,” Mr. Stiles said. “I’ll be able to pay for the thing in a year or two” from the savings.