An aquaintance of mine lives in northeast Ohio near Lake Erie.  Recently he provided an interesting overview of the economics of natural gas production in northeastern Ohio.

He has natural gas wells on his property which he uses for heating and for fueling his car.  He has his own compressor that he uses to compress natural gas for his car.  The dedicated natural gas car, a ’99 Ford Crown Vic, is fueled overnight in his home garage using a refurbished compressor fed from his own gas wells. He gets about a 250 mile range in local driving and drives about 4000 miles per month.  He is planning to convert his pickup to natural gas as well.

Deep shale-gas

Recently natural gas has been in the local news.  A leasing company is offering $1600-$3000/acre + 15-20% royalties for a 1 year lease.  The company plans to resell aggregated lease packages to drillers wanting to lateral drill to Utica and Marcellus formations which are much deeper than the currently producing Clinton sands.

Apparently the play is attracting investors from all over the world. In addition pipelines will need to be built to export distillate and gas from these deep wells in Ohio, Pennsylvania, and New York state.  As my aquaintance says “This is beginning to feel like gold fever around here and all kinds of crazy things are happening. It should boost jobs and hopefully housing.” 

He is planning to start a local fast fill station (nautural gas) and a vehicle conversion shop (to run vehicles on either gasoline and natural gas).  When gasoline was $4/gallon there was a lot of interest in natural gas, but now that price has dropped to $3.10/gallon, interest has waned.  He estimates that natural gas would cost $0.80/gallon-gasoline-equivalent from the gas company or under $1.50/gasoline-gallon-equivalent if sold it at a fast fill station. There is a 50 cent/gallon tax credit based on the mpg of the vehicle and the miles driven/year for natural gas vehicles. There was a tax credit, which may be reinstated, for the differential when you buy factory installed CNG, EPA certified vehicles.

Background

Clinton sand

The Clinton sandstone have been producing natural gas and oil since1887, but by the late 1940’s, oil and gas operators believed that the Clinton was played out.  As a result of hydraulic fracturing, from 1951 through 1957 oil and gas producers renewed their interest in Clinton drilling.  Beginning in 1970 rising natural gas and oil prices, high demand for local supplies of natural gas, advances in fracturing technology, and the introduction in 1978 of the NGPA Section 107 “Tight Sands” incentive gas pricing and the Section 29 tax credit combined to create a massive drilling boom in the Clinton sands. During the peak year of 1981, there were 6,085 wells drilled in Ohio, 76 percent of which were in the Clinton sandstone.

Marcellus and Utica Shales

The Marcellus Shale is estimated to be the largest exploration play in the eastern United States. Horizontal drilling combined with multistaged hydraulic fracturing has resulted in a drilling boom for the Marcellus in Pennsylvania, West Virginia, southern New York, and eastern Ohio. It is believed that the technology also may have application in other shale units, such as the Utica Shale, which extends across much of the Appalachian Basin region.  See the Ohio Department of Natural Resources for more details on drilling in the Marcellus and Utica shales.