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Natural gas drilling excites — and worries — Ohio

Thirty-four years after Black Monday, the day Youngstown Sheet & Tube announced shutdowns marking the end of the Ohio city's steel era, a $650 million mill is coming to life, thanks to the natural gas drilling boom.

Vallourec SA's V&M Star factory will have 350 workers and produce seamless pipes used in hydraulic fracturing, a process used to extract natural gas from shale formations in the ground. The process is commonly called fracking. It's part of a development that an oil and gas industry study calculates will mean more than 200,000 jobs and $22 billion in economic output in Ohio by 2015 — and which has neighboring states looking to get in on the action.

The new mill is rising about 2 miles from an injection well for disposing of wastewater from fracking that was closed after 11 earthquakes shook the Youngstown area last year. States that sit atop shale formations are cashing in on the drilling and the expanding businesses that support it, even as the Ohio Department of Natural Resources reviews the earthquake data and the U.S. Environmental Protection Agency studies the effects of fracking on drinking water with an eye on possible nationwide regulations.

"This will be the biggest thing to hit the state of Ohio economically since maybe the plow," Aubrey K. McClendon, chief executive officer of Chesapeake Energy Corp., the most active U.S. oil and natural gas driller, said during an energy summit that Gov. John Kasich convened in Columbus in September.

Drillers have turned fracking — a process that injects water, sand and chemicals into rock to free natural gas — into a production boom that helped cut prices 32 percent last year.

While some shale-gas development is anchored to the drilling sites, states are jockeying for spinoff investments, such as a "world-scale" natural gas processing plant that Royal Dutch Shell said it plans to build in Ohio, Pennsylvania or West Virginia.

All three states say they have offered incentives to Shell, and Kasich flew to Houston in November to hand-deliver letters of support for the project.

"States compete every day for every business they can find," Keith Burdette, West Virginia's secretary of commerce, said in a telephone interview from Charleston. "Suddenly, there's this vast new array of manufacturing opportunities that may be returning to this region of the country, and I think we'll all be aggressively looking for every opportunity."

Development of the shale-gas industry is one of Pennsylvania's top priorities, C. Alan Walker, secretary of community and economic development, said in a Jan. 4 interview in Harrisburg. Republican Gov. Tom Corbett has said he wants the state to be the "Texas of the natural gas boom."

Texas wants to be the Texas of the gas boom, too. Half of the eight most active U.S. oil- and gas-drilling regions are in the state, according to a December presentation by Pioneer Natural Resources Inc., a Dallas-based exploration and production company.

Oil and gas employment in the state increased by 18 percent to almost 238,000 during the year ended Oct. 31 and now exceeds the peak of the last energy boom in October 2008, according to the Texas Petro Index, a survey compiled by Amarillo economist Karr Ingham.

In Youngstown, which has lost more than half of the 168,330 residents it had in 1950, the V&M Star factory may help make the area the supply chain capital of the regional energy industry, said Eric Planey, a vice president at the Youngstown/Warren Regional Chamber.

"I look at it as being a bridge from our past to our future," Planey, whose father worked at Youngstown Sheet & Tube for 40 years, said in a Dec. 8 interview. "Our past was exclusively steel. It looks like our future is going to be significantly a part of the oil and gas and energy business."

Even so, an Ohio State University analysis concluded last month that the industry study, prepared for the Ohio Oil & Gas Energy Education Program, "greatly overestimates" the economic impact. Environmental groups, including the Natural Resources Defense Council, say that job-hungry states are moving too fast to capitalize before fracking's consequences are known.

Vanessa Pesec, president of the Network for Oil and Gas Accountability and Protection in Northeast Ohio, pointed to the earthquakes in the Youngstown area last year that she blames on the disposal well, including a 4.0-magnitude temblor on New Year's Eve.

"This is a short-term boom with long-term negative impacts," Pesec said in a telephone interview.

Recently, doctors at a conference on fracking in Arlington, Va., said the United States should declare a moratorium on the drilling process until the health effects are better understood.

David Mustine, general manager for energy of JobsOhio, the state's development arm, said Ohio has strong regulations and he doesn't think the complications from fracking will slow development.

Natural gas drilling excites — and worries — Ohio 01/14/12 [Last modified: Saturday, January 14, 2012 3:31am]
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