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CNG, Rail Key to Shale Industry's Growth
YOUNGSTOWN, Ohio -- There's potentially trillions of cubic feet of dry gas, wet gas, and oil trapped in the Utica shale just waiting to be released. Just one question: what to do with it all?
Steve Franckhauser of HbK Energy, Eric Planey, vice president of international business attraction at the Youngstown/Warren Regional Chamber, and Ken Prendergast, executive director of All Aboard Ohio, have some answers as oil and gas giants move into eastern Ohio for a piece of what they believe is the next great energy reserve.
"The biggest concern is changing consumer habits," says Steve Franckhauser, director of HbK Energy, a division of Hill, Barth & King, a public accounting firm. "How do we create other uses and opportunities for that natural resource we have underneath our feet?"
Natural gas prices are at historically low rates because, in part, these energy companies have become victims of their own success, Franckhauser says. Exploration in western Pennsylvania's Marcellus shale and now the Utica shale has driven down the price of dry natural gas, thereby reducing revenues across the board.
Thus, Franckhauser observes, it’s essential that any national energy policy include the development of natural dry and wet gas to power American industry to a much greater degree.
Among the first shifts that could immediately affect demand for shale gas is retrofitting coal-burning electric power plants so they can burn natural gas, Franckhauser says. "AEP [American Electric Power] has announced it intends to convert two of its plants from coal to gas," he says. "That's not easy and not inexpensive."
First Energy has also announced it’s going to decommission some older coal-burning plants, Franckhauser adds, but notes the need to take up the slack with other power sources. "That electricity is going to have to come from somewhere," he says. "In some cases, companies will reconfigure the plants they have in place. It won't happen overnight, but it's beginning already."
Another project likely to fuel demand is Royal Dutch Shell's "cracker" plant – a $2 billion processing complex planned for Monaca, Pa., just 40 miles southeast of the Mahoning Valley, Franckhauser says. The plant would convert liquid ethane from the Utica shale into ethylene, a key ingredient in the manufacture of many plastics.
"Products from that facility will serve the plastics industry from Cleveland, the Mahoning Valley, Akron-Canton, the upper Ohio Valley and West Virginia," Franckhauser says. "There is a market waiting for them."
The most important and sustainable transformation for the natural gas market comes from the conversion of motor vehicle-engines that burn compressed natural gas, or CNG, instead of gasoline and diesel fuel.
"The Holy Grail of the industry is transportation," Franckhauser remarks. While the transportation industry holds vast opportunities for natural gas from the Utica and Marcellus shale, convincing consumers of the wisdom of such a move will take some time.
Conversion to CNG among fleet vehicles is under way, but these vehicles operate on a CNG/diesel or gasoline hybrid system, Franckhauser reports. That's because Ohio lacks a broad network of CNG filling stations needed to support vehicles that run entirely on natural gas.
"There are no public stations in Cleveland, one in Canton, none in Youngstown. There are four or five in Columbus and there are three near Pittsburgh," he says. "You can go somewhere on compressed natural gas. The question is getting back."
It's likely that any conversion will take place in stages, Franckhauser says. While some trucking companies are finding it’s to their benefit to convert their fleets to CNG-hybrid tanks, it's likely to take longer before the average consumer drives his passenger cars or pickup truck powered with CNG.
Much of this is predicated upon the price of oil, Franckhauser relates. Natural gas prices are at all-time lows as gasoline is hovers at $3.50 a gallon. "When gas prices start to hurt again," he notes, “that's when you'll see interest in CNG accelerate."
Gasoline prices are projected to be fairly low through 2013. "The good news is that it makes life more affordable for all of us,” Franckhauser observes, “but it inhibits growth in consumer GNG."
Even more attractive about CNG is the abundance of natural gas in this country, Franckhauser says. "Our nation's energy policy has gone by the name of OPEC," he states. Political turmoil in the Middle East and offshore drilling disasters had an immediate effect on the price of fuel in this country. "Before that petroleum hits the refineries, your gas is going to go up,” Franckhauser says. “We're all beholden to the price of oil."
On the other hand, the United States is a net exporter of natural gas. "We have a superabundance, the HbK Energy director says. “We can’t reach capacity and won't be able to."
Drilling in the Utica shale could transform the economy of northeastern Ohio. "I'm a little tired of being called the ‘Rust Belt,’ Franckhauser laments. “I want the industry to sprout here. I want the capital here. I want the jobs here."
One of the greatest challenges this region faces, says the Youngstown/Warren Regional Chamber's Planey, is developing a viable logistics network to accommodate the anticipated robust demand.
"All of the NGLs [natural-gas liquids] coming out needs to be separated and processed," he explains. "It takes a lot of capital expenditure, planning, and a lot of legal issues in terms of rights of way for getting pipeline, rail and truck infrastructure done."
A sound transportation infrastructure is critical to supporting shale development and demand in the region, All Aboard Ohio's Prendergast adds. All Aboard Ohio is a nonprofit agency that promotes improvements to railroad and public transportation systems across the state.
“The Utica holds wet gas,” Prendergast notes. “It’s likely to see more vehicular transport, which means a lot more potential for rail.”
Over the last five years, when drilling in the Marcellus shale hit full stride, investment in railroads has skyrocketed in pockets of western Pennsylvania, Prendergast reports. Once dormant tracks have been rejuvenated, and the potential for Ohio is enormous.
"It could be a repeat of what happened in the Marcellus, only multiplied," Prendergast predicts. Analysts have projected as much as $15 billion could be spend on infrastructure development in the Utica shale over the next half-century.
It takes 30 railroad cars to supply every well that’s drilled, Prendergast reports, and that excludes hauling the gases product once the well is in operation. The Utica play, projected to last well toward the end of this century, could see the drilling of as many as 20,000 by the end of the 2030s. Add, manufacturing, processing and cracker plants into the mix, and that creates more opportunity for developing new rail hubs.
“It'll mean tens of thousands of carloads,” Prendergast says. “We’re going to see some major investments. What we saw in the Marcellus is just the tip of the iceberg.”
FIRST PUBLISHED in the MidAugust print edition of The Business Journal. To subscribe, CLICK HERE.
Copyright 2012 The Business Journal, Youngstown, Ohio.