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Ohio Natural Gas At Crossroads
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The head of Chesapeake Energy today will give an update on the company’s Ohio operations at the Columbus Metropolitan Club. Chesapeake is among the nation’s largest producers of natural gas and it’s expanding its hydraulic fracturing in Ohio, raising hopes of a new economic boom. But in some states the fracking boom is slowing.
Despite the shutdown of some wells in other states, the Ohio drilling continues.
Earlier this year, Chesapeake announced it will curtail eight percent of its natural gas production by idling 24 rigs in Texas, Louisiana, and Pennsylvania.
To determine why Chesapeake and other oil and gas companies continue drilling here while cutting back in other areas, it’s important to know a little about commodity prices and rock formations.
Geologist Christopher Perry works at the Ohio Department of Natural Resources.
At the annual meeting of the Ohio Oil and Gas Association, Perry stands next to a map of Ohio which marks limestone and shale formations deep beneath the surface. Perry says much of Eastern Ohio sits atop a 400-million-year-old formation known as the Appalachian Basin.
“The Appalachian Basin is like a bowl-shaped structural feature that’s underground.”
And, Perry adds the deepest part of the underground bowl is in Western Pennsylvania where drillers have to go down ten thousand feet or more to recover natural gas. Eastern Ohio, by contrast, is closer to the edge of the Appalachian Basin so its closer to the surface. And that means dry natural gas is mixed oily materials.
“Because its not as deep it didn’t get cooked as much it wasn’t subjected to as much temperature. And because it wasn’t cooked as much it still contains hydrocarbons. Not only are there hydrocarbons but there’s liquids, because they haven’t been driven off. They’re still in the shale.”
Perry says this makes for something called “wet gas.” Up until a couple of years ago none of this mattered. Because companies lacked the technology to drill and get it. But, a controversial horizontal drilling technique known as hydraulic fracturing has unlocked bountiful amounts of natural gas.
“Quite frankly, the drilling companies that developed this technology and have implemented it in a wide variety of basins across the country have kind of victimized themselves with their own success. They’ve flooded the market with dry gas.”
So now, Joel Rudicil of JR Resources in Richfield, Ohio says the law of supply and demand has collided with what the industry calls the “shale plays” resulting in a suspension of drilling activity in some regions.
“Well, the reason that you would see a downturn in exploration and development is simply due to commodity price. We’ve got natural gas prices now that are at a 50 year low at something south of 2-dollars fifty cents, we’ve got oil at 100 dollars a barrel.”
So, now Chesapeake and other companies are looking for shales that hold ‘wet gas’ with both natural gas and oil because dry gas wells alone are unprofitable with today’s natural gas prices.
So far, an industry report says seven wells in two Eastern Ohio counties have been fracked. But, Rudicil says little is known publicly about the richness or productivity of those wells.
“Well, much of that information is proprietary because of the companies that have made significant investment acquiring lease-hold positions are still doing they’re exploratory phase. So much of that information is proprietary but what we all hear is that it’s encouraging.”
The first public production reports on the seven new wells are due later this month. When the numbers are disclosed we will know better whether Ohio is on the cusp of another oil boom. Geologist Perry says even without production numbers recent actions by Chesapeake energy and others are tell-tale.
“They’re committing capital to build mid-stream facilities, a processing plant, a storage facility for the liquids that the shale will produce . You know that’s almost a billion dollars in cost here in Ohio. So that’s an indicator that the shale will be very viable and productive.”
While the final verdict is pending on the richness of Ohio’s shale reserves. Rudicil says further exploration and recovery of the oil and gas will hinge mostly on future commodity prices and the economic laws of supply and demand.