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· May 17, 2013

New shale report questions fracking’s short term benefit

wellhead2On Thursday, State officials released the much anticipated 2012 Utica shale production report. Administration officials were quick to celebrate the findings of the report and heralded it as the beginning of a “new boom” in Ohio. Realistically though, this report includes information that should cause officials to temper their expectations – at least in the short term. As we have written in the past, the Kasich administration and the oil and gas lobby both promised that shale exploration would bring a wave of new jobs to Ohio. While recent reports have noted that not only were these claims dubious to start with, in reality the job growth is not nearly as strong as they originally estimated. The report provides some clues on why that is. Only 87 horizontal wells were producing oil and gas last year at some point – most of them were only active for three months or less. And while officials expect that number to increase to 362 by the end of this year it is still unlikely that the increase will lead to the giant job expansion promised. In addition, the report shows that the shale play in Ohio is rich in natural gas but that crude oil production will play a much smaller role. Not that long ago the oil and gas industry and state officials were touting the wealth of crude oil here in Ohio. Recently though industry experts have said that this is not the case and the numbers in yesterday’s report back it up. While natural gas will still draw many companies to the region, the fact that crude oil production is expected to be well below original estimates could negatively affect the job and economic growth prospects of the region and the state. Finally, there is the issue of expected state revenue. While Republican lawmakers refuse to institute a reasonable severance tax rate, lawmakers will have to make do with the current abysmally low severance tax. The findings in yesterday’s report show that without raising the state’s severance tax lawmakers should not expect a revenue windfall anytime in the near future from oil and gas exploration. At its peak, state officials are still only estimating state severance revenue to equal $69 million in one year – this being an enormous give away to big oil. Yesterday’s report is another piece of information to help us understand the role shale exploration will have in Ohio for years to come. While some of the information released was encouraging, policymakers should be realistic in what opportunities can be leveraged in the years to come.

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