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Shale, Shale, More Shale at Chamber Economic Forecast
BOARDMAN, Ohio -- Local spinoff activity from the Marcellus and Utica shale plays is already substantial -- from giving a boost to businesses that struggled to stay afloat not long ago to landowners depositing newly found wealth from oil and gas leases into area banks -- and appears poised just to grow, members of the Youngstown/Warren Regional Chamber learned Thursday.
Area banks, for example, are all seeing their deposits increase as a result of landowners receiving "significant royalty payments and upfront checks" for the leasing of their mineral rights, said Eric Planey, the chamber's vice president, international business attraction, who spoke at the chamber's annual economic forecast breakfast.
"So as a result, our local banks are in a little bit of a healthier position relative to a couple of years ago," he continued. "Maybe that means more local lending for small businesses in the area," a good thing not only for the local economy itself but in terms of diversifying the economy, he said.
"It is substantial. It is happening. These are checks that are being written across our area. They are very good people that are getting these checks," said Jeff Wagner, senior vice president and chief investment officer for First National Bank. "Our job is really to kind of protect them. Now that they have this newly found wealth its very important that they manage it properly. ... our biggest recommendation for people is to slow down, take a break, realize you don't have to make big decisions right away."
The ripple effect from the shale plays for business is "astronomical," Wagner observed. "We're seeing very small businesses that were having a very hard time all of a sudden, as offshoots to the oil and gas companies, start to perk up." These companies range from trucking and gravel companies down to restaurants, he said. "The trickle-down effect is substantial."
Just three or four years ago "not many of us had heard" much about companies such as V&M Star, TMP IPSKO, Patriot Water Treatment, Dearing Compressor or other companies that added jobs in the region, Planey said
While doing research, Planey told chamber members he recently he came across a headline describing the Utica Shale as "Marcellus shale on steroids."
One of the factors that makes the Utica shale so attractive is it is composed more of what is called "wet gas," which in addition to the natural gas extracted contains ethane, propane, butane and condensate, which he described as "nature's form of pure gasoline." Condensate is "very attractive" because it requires very little refining, he said
Between now and 2015 there will be a "significant ramp-up" in Ohio, Planey said. Chesapeake Energy, for instance, has said it wants to average 50 new wells per year between now and 2016. He noted the Mahoning Valley economy has already benefited from the supply chain, and further potential could come from midstream companies, firms moving and transporting the goods, and downstream companies, such as construction of ethane cracker plants. Ethane is used in the petrochemical industry to create ethylene glycol, which is used for "everything from plastics to appliances to fertilizer."
Even if Shell's proposed cracker plant, estimated to cost $2 billion and create thousands of construction jobs alone, isn't located in Ohio, the Mahoning Valley is close enough that it will have an impact here, Planey said. The abundance of low-cost feedstock could potentially lure operations that went offshore as well.
The crowd attending the event a year earlier were just hearing about the potential of the shale plays, recalled Bonnie Deutsch Burdman, chairwoman of the chamber's board of directors. "What a difference a year certainly makes," she reflected. "By summer you couldn't open a newspaper and not find an article about shale plays and their economic impact, both here and across the country." And outside news organizations such as Forbes and CNN have headlined the Mahoning Valley as "the next boom town."
"There is absolutely no doubt that this will be something that impacts us all for a very long time," Wagner said as he showed a projection of the shale plays in the lower 48 United States. The area identified as the Utica, Marcellus and Huron plays on the map, covering much of Ohio, Pennsylvania, West Virginia and lower New York State, is much bigger than other plays.
Wagner, delivering the event's keynote address, focused on showing the linkage between events in the global market and the Mahoning Valley.
Despite market volatility triggered by events such as the Arab Spring, the tsunami that struck Japan and the European currency crisis, the market didn't move much from end-to-end last year, resulting in zero return. Given the volatility, that represented a "tremendous year," although Wagner acknowledged difficulty in trying to convince investors of that.
"One of the other major results bf 2011 is we have ramped down expectations of this year dramatically, with 2.5% gross domestic product growth anticipated for this year for the United States. "Lower expectations are very, very good for an investor," Wagner said.
The shale plays in the area's "backyard" may also serve as the transition between "what we have today" and the changes that are to come from developing technology, Wagner said. He paid particular note to developments in nanoscale technology, which involves working with matter at the subatomic level to manipulate their properties.
"You can rearrange molecules and make them stronger, tougher, better," he explained.
The same technology can be used to create nano-wires embedded in windows that can take ambient light and store it to be used for illumination later, build nano-antennas that can be used in developing medical scanning devices similar in function to the tricorders seen on Star Trek, and create clothes that can change color, Wagner said.