Operators drilled 215 shale wells in Ohio in 2012, of which 87 wells are now producing oil and gas, according to data from the Ohio Department of Natural Resources (DNR). Based on current production results and the continuing upward trend of new drilling permits issued, the state predicts that unconventional reservoirs will account for about 82% of Ohio's natural gas production by 2015, the Institute for Energy Research (IER) reported.
Ohio—once the largest oil producer in the US at the turn of the 20th century—may soon advance its rank closer to this status through 2015. In May, the Ohio DNR released production numbers for 2012, which accounted for 636,000 bbl of oil and 12.8 bcf of gas. As of June, the state has produced 413,000 bbl of oil, bringing its ranking to 18th in the US for oil production.
Ohio's current crude oil output is primarily derived from stripper wells in the eastern part of the state; however, this is expected to change through 2015. While the play is still being developed, the state predicts that oil from the Utica shale will provide 73% of the state's total output within the next 2 years.
For the 2012 reporting period, horizontal shale wells accounted for less than 1% of the 51,000 oil and gas wells in Ohio. According to an IER study, shale wells supplied 12% of the state's total oil production and 16% of its natural gas output.
The Appalachian basin, which crosses eastern Ohio, contains both the Marcellus and Utica formations. The Marcellus shale thins out on its western edge, which results in fewer Marcellus wells being drilled in Ohio compared to Pennsylvania and West Virginia.
The state's natural gas reserves were estimated at 758 Bcf in 2011, or 0.2% of total US gas reserves, according to the IER report. Ohio's natural gas production has declined 58% since its peak in 1984 when it had a marketed production of 186,480 Mcf, according to the US Energy Information Administration. The state currently supplements its natural gas production with supplies from western Canada and the Gulf Coast, but this scenario may change as drilling continues.
Transportation
A major challenge for increased production in Ohio is the development of pipelines and processing facilities. Ohio has the second-highest refining capacity in the Midwestern US. Its four refineries process 528,000 b/d of crude, with much of the feedstock coming from the Gulf Coast.
In 2009, the 1,679-mile Rockies Express Pipeline was completed and began delivering natural gas from the Rocky Mountains eastward, into eastern Ohio. In July, Rockies Express Pipeline LLC announced a precedent agreement with a large Utica shale producer to transport up to 200,000 decatherms/day of processed Utica production to markets in the Midcontinent. Competition between the rise in Marcellus and Utica gas and production from the Rockies is leading to a reversal of the Rockies Express Pipeline, which was the largest to be constructed in 20 years in the US. The decision is being reviewed the Federal Energy Regulatory Commission.
Processing capacity
The Utica contains an abundance of natural gas liquids (NGL). Much of the new infrastructure under development in Ohio will serve rising NGL production. On Sept. 30, Pennant Midstream LLC announced the construction of a 12-in., 38-mile NGL pipeline that will require an investment of approximately $60 million, the company said in a press release.
The line will connect the Hickory Bend Cryogenic Processing Plant in New Middleton, Ohio, to the UEO Kensington facility near Kensington in Columbiana County. The pipeline will have a delivery capacity of 90,000 b/d of liquids once online. It is jointly owned by Harvest Pipeline, an affiliate of Hilcorp Energy Co. and NiSource Midstream Services.
The company said the addition of this pipeline is critical to unlocking the potential of the Utica shale in Ohio. The new line will enhance the Pennant gathering and processing facility, offering access to wet gas processing as well as residue gas and NGL takeaway to attractive market destinations. The pipeline is under construction and expected to be completed by July 2014.
In May, MarkWest Utica EMG LLC, a joint venture between MarkWest Energy Partners LP and The Energy and Minerals Group (EMG), began the expansion of a large-scale midstream system to support the rapidly growing drilling programs of Antero Resources, Gulfport Energy Corp., and other producers in the southern core of the Utica shale. The company reported it would construct a third 200 Mcfd cryogenic gas processing facility at its Seneca processing complex in Noble County, Ohio. The complex will process a total of 600 MMcfd once completed.
Markwest Utica EMG also is developing the Cadiz complex in Harrison County, Ohio, which is anchored by Gulfport. In May, the company began operating the 125 MMcfd Cadiz I plant, which was the first major cryogenic processing facility in eastern Ohio. The capacity at Cadiz will increase to 325 MMcfd by mid-2014 with the completion of Cadiz II. Within the last year, MarkWest Utica EMG has executed agreements with seven producers developing acreage in the southern core of the Utica shale. By 2014, the company's midstream system in the Utica shale will consist of more than 300 miles of gathering pipeline, five processing facilities totaling almost 1 Bcfd, and 10,000 b/d of C2+ fractionation capacity.
Ohio also will see many other smaller projects develop through 2015. Pinto Energy LLC announced in September that it will develop the Ashtabula Gas-to-Liquids (GTL) project. The 2,800 b/d plant will be installed at the company's 80-acre industrial site just east of Ashtabula, Ohio. The plant will convert natural gas from Utica and Marcellus shale into specialty products such as solvents, lubricants, and waxes as well as transportation fuels.
The plant may be the first commercial small-scale GTL plant in North America. The facility will use Velocys Plc FT technology, and the operator has chosen Ventech Engineers International LLC as the project's EPC contractor. The plant will be fabricated in Ventech's facility in Pasadena, Tex., prior to installation. Design for the Ashtabula facility began in April 2013 and, according to Pinto, it will begin construction in the first half of 2014. Mechanical completion of the plant is expected in late 2015, with a start-up in early 2016.
The wide range of infrastructure projects slated for eastern Ohio within the next several years bode well for increased production from the Utica. While many of these also will serve Marcellus production coming out of Pennsylvania and West Virginia, Ohio will continue to see increased unconventional resource development.
Regulatory concerns
Because Ohio has a long history of oil and gas production, no surprises are expected in its regulatory framework. Ohio's law R.C.1509.02 grants sole authority to the Ohio DNR to regulate activities associated with oil and gas exploration and production.
On Sept. 6, the cities of Broadview Heights, Euclid, Mansfield, and North Royalton, Ohio, filed an amici curiae brief in support of the City of Munroe Falls' position that drillers should be required to comply with local ordinances requiring construction and zoning permits (in addition to state laws and regulations). The resulting litigation is now before the Ohio Supreme Court, and the constitutionality of R.C.1509.02 is being challenged.
The question of "home rule" such as in New York state, where municipalities are granted the power to enact local rules regarding oil and gas activity, is now being discussed in Ohio. The current law gives the Ohio DNR sole authority to regulate activity. According to court documents, the City of Munroe Falls is arguing that "all municipalities are entitled to fundamental rights to make land use determinations to protect community character and development goals." The brief urges the Court to reverse a Court of Appeals, Ninth Appellate District, decision that found state law preempted city ordinances pertaining to zoning and construction. According to the brief, if upheld this finding would diminish the tradition of municipal home rule and eliminate traditional municipal zoning authority over prevalent industrial use.
The City of Munroe Falls filed its brief in the Ohio Supreme Court on Sept. 6, which required Beck Energy Corp. to file a response within 30 days. The case was under appeal as of mid-October and the arguments will most likely be heard in mid-2014.
Big question
Despite regulatory contingencies, the Utica is on its way to becoming a highly productive play. The IER study highlights that Utica development will contribute greatly to Ohio's energy supply through 2014-2015. Although there is more development needed to actually bank on the viability of the Utica shale.
"The biggest question is if the resource is there," said Dan Simmons, Director of Regulatory and State Affairs, IER. Before new regulations come into play in Ohio, Utica development will have to grow.
