Oil and natural gas from the ground is the first step in what observers believe will be Ohio’s oil boom.
Securing leases and then drilling wells is know as the “upstream” segment of oil and gas development. With that part of the business in full swing, “midstream” companies are looking at opportunities in Ohio’s Utica shale.
Midstream operations begin with pipelines and extend to the processing facilities that break down natural gas into chemicals that have a variety of uses.
“It’s critical,” said David Mustine, managing director for energy with Jobs Ohio. “If we don’t have the midstream, the Utica shale doesn’t get developed.”
Chesapeake Energy, one of the first companies to explore the Utica shale, also was among the first companies to announce midstream operations.
Several other companies have announced projects aimed at moving oil and gas from Utica wells to the marketplace. The projects all translate into millions of dollars of investment, along with hundreds of jobs to construct pipelines and facilities and maintain finished operations.
WHY IN OHIO?
The Utica shale is a rock formation that lies about 6,500 feet below the surface. Oil and gas companies believe it will be a rich source of liquid natural gas, dry gas and oil. The formation can be found in most of Ohio, but indications are the east side of the state — including Stark and Carroll counties — will be the best area to find oil and liquid gas, which are more valuable.
Companies use two processes to get to the oil and gas, horizontal drilling and hydraulic fracturing.
When drilling a horizontal well, the drill bit bores vertically toward the shale, then the well bends to slice through the rock on a horizontal line, generally for about one mile. Hydraulic fracturing — also called fracking — forces a slurry of water, sand and chemicals into the well. Pressure fractures the rock, then sand and water help release the gas and oil.
Midstream activities become a factor after wells start producing.
“You don’t know what’s down there until you drill it,” said Jerry James, president of the Ohio Oil & Gas Association and president of Artex Oil Co. in Marietta.
Drilling companies still are experimenting and making certain they can get the oil and gas the Utica promises to deliver, James said. But production results for some of the first wells have been promising, and midstream companies are moving forward with plans.
Most Ohio wells have collection tanks and equipment to separate oil, gas and brine that comes from a well. The oil and brine remain in the tank and are collected by trucks, while the gas is moved through a pipeline.
Utica shale wells, however, promise to be more productive than the traditional vertical wells that dot the state. The shale promises to provide liquid natural gas, which is processed to split different components such as ethane, propane and butane.
Companies expect to build more pipelines to gather and move dry gas and liquid natural gas, along with compression stations to help move the gas. Also needed are fractionation and cryogenic processing facilities for natural gas liquids.
Mustine said Gov. John Kasich has been pro-active and worked with companies eyeing the Utica shale. Kasich and a contingent of state officials went to Texas last fall to meet with oil industry executives. State officials have been talking with midstream companies about assistance on projects.
PLENTY OF PROMISE
So far, there are three midstream projects on the books and more companies expressing interest, Mustine said. The proposed investments are valued at more than $1.5 billion.
Chesapeake announced the first midstream project in March. A subsidiary of the Oklahoma City based company, Chesapeake Midstream Partners has teamed with M3 Momentum and EV Energy Partners — part of EnerVest — for a $900 million project to process natural gas liquids.
Plans are for a cryogenic processing facility near Kensington with capacity to handle 600 million cubic feet of gas per day. Natural gas liquids will be delivered through a pipeline to a hub in Harrison County with a fractionation capacity of 90,000 barrels per day and storage capacity of up to 870,000 barrels.
Chesapeake’s Midstream Partners is a separate company from Chesapeake Midstream Development, which has been acquired by Global Infrastructure Partners — a private equity firm that includes Credit Suise and General Electric.
MarkWest Energy Partners, a Denver-based company, and the Energy and Minerals Group announced in June plans to work with Gulfport Energy Corp. to provide gathering, processing, fractionation and marketing services. Gulfport is drilling in the Utica shale.
MarkWest expects to have 60 miles of gas-gathering pipeline and compression stations in place before the year ends, and another 140 miles of pipeline by the first quarter of 2014. The project also calls for processing centers in Harrison and Noble counties.
In early July, NiSource and Hilcorp Energy Co. announced joint ventures to build gathering lines. Hilcorp will get leases held by NiSource, which is parent company to Columbia Gas. The joint venture, Pennant Midstream, plans to build 50 miles of pipeline in Northeast Ohio and western Pennsylvania, and a cryogenic gas processing center in Ohio. It should be operating next summer.
Mustine said the project should lead to thousands of construction jobs. Hundreds of workers should find jobs once facilities are operating.
Others known to be considering midstream projects are El Paso Midstream Group, Caiman Energy II and Dominion East Ohio, Mustine said.
Caiman Energy II said it has teamed with Williams Partners and secured $800 million in equity commitments to build midstream operations in the Utica shale. Other partners are EnCap Flatrock Midstream and Highstar Capital.
The group worked together on midstream projects in the Marcellus shale, with Caiman selling its interest to Williams earlier this year. That business now operates in West Virginia, Pennsylvania and Ohio as Williams Partners Ohio Valley Midstream. Caiman has maintained an office in Green since late last year.