By Amanda Weinstein Swank Program in Rural-Urban Policy Ohio Fracking 101: Technology, Regulation, and Leasing December 7, 2012 Sharonville, OH What is Fracking?

Outline Introduction Shale Resources Hydraulic Fracturing Local Impact Economic Impact Environmental Impact Conclusions

Introduction Innovations 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 Ohio Innovations include microseismic technology, horizontal drilling, and hydraulic fracturing It has also brought concerns about the various impacts of the boom on the local community

Shale Oil and Gas Shale is a sedimentary rock generally high in organic content specifically oil and gas “Conventional” 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 “unconventional” Hydraulic fracturing is the process by which oil and gas is extracted from unconventional reserves.

Unconventional Oil and Gas

Shale Gas Production

Actual and Projected Production (EIA)

Ohio Marcellus and Utica Shale

Horizontal Marcellus Shale Wells

Horizontal Utica Shale Wells

Hydraulic Fracturing Commercial hydraulic fracturing began in 1949, though it took several decades for it to become cost effective Practical 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 year 1-2 months to prepare the site About 1 month of rig work (casing, cementing, etc.) Drilling tower in LycomingCounty, PA

Hydraulic Fracturing: Drilling An 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 Use Spacing is variable Marcellus wells can be spaced in 40-acre units or 16 wells per square mile. An average town could contain up to 1,500 wells.

Hydraulic Fracturing: Fracking Once 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

Hydraulic Fracturing

Hydraulic Fracturing: Wastewater About ½ the water will stay in the ground The 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 fracturing The wastewater will often be stored in a lined pit onsite until it can be transported to an injection well or containment vessel

Map of Injection Wells

Hydraulic Fracturing: Gas Production Wells are then shut in, or capped, while awaiting completion of pipelines to transport the natural gas to market Gathering lines feed gas to compressor stations and metering sites which are connected to larger pipelines Estimated that a well can continue to produce for up to 30 years Highest flow rates of natural gas in the first weeks declines over time

Environmental Impact: The Negative Concerns 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 spills Importance of baseline testing Earthquakes from drilling and injection wells – Youngstown, OH Dec. 2011

Environmental Impact: The Positive A 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 Community Noise associated with construction, drilling, and compressor stations Trucking – If one well requires 2 million gallons of water for one fracking, that’s 366 tanker trucks hauling fresh water and 183 tanker trucks hauling wastewater, for a total of 549 tanker truck trips Increases road use increases traffic (and traffic accidents) and road deterioration Large shale booms like Williston, ND also have population booms putting a strain on housing, utilities, local schools, and other public services Stresses the importance of agreements with the industry on road maintenance and ensuring severence taxes are appropriate to account for all of these costs

Severance Taxes

Effective Natural Gas Tax Burden

Economic Impact Commenting 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 Ohio We 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

Conclusions Shale natural gas is associated with significant income effects but modest employment effects However, 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 imports Ohio should consider higher severance tax to counteract some of these costs and pay for long-term benefits Schools, infrastructure, environment Invest in assets to account for the lost extracted assets 28

Amanda Weinstein Research Associate for the Swank Program in Rural-Urban Policy Dept. Agricultural, Environmental & Development Economics The Ohio State University Thank You 29

Extra Slides

Major Holders of Utica Shale Right in Ohio (April 2012)

Prices - Booms and Busts

Perspective on Environmental Impact Coal 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 kind” 2011 Coal ash spill in Lake Michigan