Ohio's Established Supply Chain for Shale Gas Maximizes ROI

Costs associated with accessing markets, shipping products and supplies, and support services can be a considerable business expense for energy companies involved in the extraction and distribution of natural gas. In addition, having efficient access to an established energy supply chain and natural gas delivery system can advance or hinder a project.

Energy companies are looking at both the Marcellus and Utica Shale natural gas reserves to supplement the nation's energy supply and to keep customer utility rates in check. The Marcellus Shale formation stretches from the edge of Maryland to New York, Pennsylvania, West Virginia and Appalachian Ohio along the Ohio River. The boundaries of the deeper Utica Shale formation extend under the Marcellus Shale region and beyond. Experts estimate the Marcellus Shale formation has the potential to produce the energy equivalent of 87 billion barrels of oil -- enough to meet total U.S. natural gas demand for 20 years.

A recent Penn State University study indicates companies involved in the Marcellus Shale gas development plan to increase their investment to more than $11 billion in 2011, up from $4.5 billion in 2009 and $8.8 billion in 2010. The study reported that the next wave of investment would focus on creation of the energy industry supply chain supporting Marcellus Shale gas extraction and distribution.

Already Ohio companies are leveraging ease-of-access to market and a well-developed logistics infrastructure to service the natural gas supply chain at the speed of today's business environment and achieve the fastest return on their investment.

Everything that made Ohio the ideal location choice for suppliers to the automotive industry is in place for Tier I and II suppliers to efficiently and affordably supply the Marcellus and Utica Shale gas industry: central location, logistics infrastructure, skilled workforce and a favorable state tax structure. Like the auto industry, shale gas supply chain companies are finding Ohio is the ideal location choice to achieve the fastest return on their start-up investment and that they will benefit from the state's manufacturing know-how and world-class logistics infrastructure.

Extracting and distributing shale gas requires a lot of supplies from drill bits, pipes and fixtures, machinery, sand, water, containers, measurement tools and safety equipment. And, every well is unique, making it important to have fast access to a full range of support services to ensure commercial success.

Supply chain companies that locate operations in Ohio to support the Marcellus and Utica Shale natural gas industry will find the state's central location places their company in close proximity to all five primary states spanned by the Marcellus Shale Formation. And Ohio's world-class transportation infrastructure makes it fast and easy to service customers. Ohio is within 600 miles of 60 percent of the U.S. and Canadian population and is within a one-day drive of 70 percent of North America's manufacturing capacity, so components and finished goods quickly reach their destination anywhere in North America.

V&M Star, a pipe maker for the oil and natural gas industries in Youngstown, recognized the potential for Marcellus and Utica Shale reducing U.S. dependence on foreign energy sources. In 2010, V&M Star's parent company, Vallourec, invested $650 million in a new pipeline mill, directly attributed to pipeline expansion for the Marcellus and Utica Shale natural gas. V&M Star President and COO Joel Mastervich attributes the company's location in Ohio's Enterprise Appalachia has a key factor to the investment in Marcellus and Utica Shale natural gas.

"Our proximity to the Marcellus and Utica Shale formations was a key factor in our decision for the new pipe mill," said Mastervich. "And, since construction began, we've come to appreciate the emerging potential of the Utica shale, which is even closer to our operations."

In addition, Dearing Compressor & Pump Co., a Boardman-based manufacturer of industrial pumps and compressors used in natural gas drilling, recently announced an investment of about $3 million in a new assembly plant to expand its production capacity.

"We recognized the need for expansion about a year ago, and I would say 99 percent of it was driven by the Marcellus Shale," notes Becky Wall, co-owner of Dearing Compressor & Pump Company, in an interview with the Youngstown Vindicator. "We were able to start reacting to the business potentials in the Marcellus Shale sooner than other companies."

Energy companies have a growing need for engineers, researchers and skilled manufacturing workers, which are readily available in Ohio. Ohio's universities and colleges are ready to meet the need for new technologies and skilled green collar workers through new research, degrees and training specific to the advanced energy industry through programs such as The University Clean Energy Alliance of Ohio (UCEAO) and investments through Ohio Third Frontier.

"We have a skilled and productive workforce in our existing mill and we knew we could find high quality employees for the new mill here," continued Mastervich. "There is an established center of pipemaking expertise in Youngstown. Also, the project received- and continues to receive- a high level of cooperation from local, county, state and federal governments."

In addition, supply chain companies can reduce operating costs with Ohio's favorable business climate, because there is no tax on inventory or corporate income - and boost the return on investment with no tax on purchases of machinery and equipment.

Yet, perhaps the most significant tax benefit that supply chain companies that locate in Ohio can obtain is there is no tax on inventory.

Ohio's comprehensive supply chain is just one of the key benefits for energy companies involved in the commercial development of Marcellus and Utica Shale gas, according to Ed Burghard, executive director of the Ohio Business Development Coalition, the nonprofit organization that markets the state for capital investment.

Ohio promises a perfect balance that allows business owners, their employees and their families the opportunity to achieve both their professional and personal aspirations without having to sacrifice one for the other. Ohio offers businesses an environment that makes it easy to foster work-life balance. The convenience of travel, with short commutes from work to home, lower stress and give more time to priority family activities.

"In Ohio, work-life balance is more than a buzzword; it's the way we do business," said Burghard. "Companies are trying harder to help their employees achieve better work-life balance because this positively impacts a company's bottom line. Ohio's Low-cost, low-stress communities and short commutes create the State of Perfect Balance, where you can achieve both professional and personal success without sacrificing one for the other."