Oklahoma, where energy comes in many forms
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(Gallery by Joshua Gunter, The Plain Dealer)
Oklahoma City
-- The origin of Ohio's hoped-for shale gas and oil bonanza starts here, more than a thousand miles southwest of the Buckeye State.
This city is home to Chesapeake Energy Corp., along with other large, independent oil and natural gas producers who have pioneered shale gas development over the last decade in other states and now in Ohio.
What has happened in Chesapeake's hometown and home state might give Ohioans some insight into what to expect as oil and gas development ramps up here.
In Oklahoma City, you can bear witness to the energy debate at full roar. On one side, proponents talk of true energy independence where a steady supply of cheap energy ends the boom-and-bust years and guarantees a golden economy. On the other side, at least one experienced energy analyst predicts the latest boom will be over in a little more than a decade.
Which is it for Ohio?
Looking for answers in Oklahoma City means you must first understand how the Oklahoma companies operate.
Oklahoma City is the energy capital of an energy state. Its past economy has alternately soared and flopped, but leaders are confident this time will be different.
Oil has been a leading industry in this state for at least three generations. It is so ingrained into the culture that it's a way of life for people who live and work there. And now the industry is drawing a couple of thousands of new residents each month to Oklahoma City.
"In some way, shape or form, nearly everybody in the state either works in oil and gas or knows somebody who works in oil and gas," said Cody Bannister, vice president of the trade organization Independent Petroleum Association.
Two states, worlds apart
In Oklahoma City, men wear cowboy boots and hats with suits and jeans, cattle stockyard conducts daily auctions, and people carry handguns openly or concealed as long as they have a permit.
Wellheads and pump jacks are everywhere. So many they appear to outnumber the trees. Oklahomans seem unfazed by their existence. The oil and gas producing equipment is in shopping center parking lots, along city streets and interstate highways, at the Will Rogers Airport, even on the grounds of the state capitol building.
Oklahoma City got a wake-up call in the early 1990s when it was passed over for Indianapolis as the location for United Airlines' major maintenance facility. So elected leaders asked voters to approve a five-year 1-cent sales tax increase, which has been extended several times and generates hundreds of millions of dollars for development.
Now the largest city in the state is well on its way to becoming a big metropolitan player.
It is rebuilding its downtown through a series of major construction projects built with cash rather than debt. The reconstruction began even before the 1995 downtown bombing of the Alfred P. Murrah Federal Building in which 168 people were killed.
Public development has attracted heavy private investment. Gas and oil companies have built new headquarters or renovated older buildings. Downtown has gone from one hotel to 15. And United Airlines has added a direct flight to Cleveland.
Unlike in Ohio where the drilling industry is still a target of environmental organizations, isolated citizens groups and even a few cities concerned about groundwater, Oklahoma's oil and gas producers get little opposition from the public.
The technology used in shale development -- horizontal drilling and hydraulic fracturing -- is not an issue in Oklahoma either.
In fact, hydraulic fracturing has been used to stimulate water wells there, said Roy Williams, president of the Oklahoma City Chamber of Commerce.
Differences between Ohio and Oklahoma go well beyond concerns about technology.
Oklahoma Gov. Mary Fallin launched Oklahoma First, a comprehensive energy policy, in 2011. The plan addressed not only natural gas and oil as Ohio Gov. John Kaisch's energy policy did, but it embraced wind power, energy efficiency and reductions in carbon dioxide emissions.
The goal of Oklahoma's plan is energy independence, using Oklahoma and U.S. energy sources before using imported fuel.
"Of course our biggest single energy resource here is natural gas," Michael Ming, Oklahoma secretary of energy, said in an interview in his office tucked almost anonymously inside a downtown office building. "It's the centerpiece (of the plan) but not the only piece."
Wind is just another form of energy, he said. The public and government want it developed.
"We are the sixth largest state in the U.S. now in installed (wind) capacity," he said. "We have doubled our wind capacity in the last two years."
Ohio's lawmakers, on the other hand, have been trying to figure out a way to scrap the state's policies on renewable energy and halt or end efficiency mandates, something FirstEnergy Corp. is also campaigning for.
Diversification is key
Oil and gas companies, especially Chesapeake Energy and rival Devon Energy, are leading corporate citizens in Oklahoma City. They have created some of the well-paid professional jobs, including those in engineering, financial real estate management, derrick and drill operators and oil field laborers.
Devon Energy's new 50-story tower in the heart of the city is a source of pride and faith in the future. The company has leased mineral rights in Ohio but recently has been trying to sell them, saying it has better opportunities elsewhere.
Direct and indirect jobs in the state that supply the industry number nearly 40,000, according to the global economic consulting company IHS. But that estimate doesn't seem to include another nearly 30,000 people who are self-employed in the industry, as reported in an Oklahoma City University study.
"It (energy) has been positive for us," State Treasurer Ken Miller said. "And if you look at what the state economy has done over the last couple of years compared to the U.S. economy, it is a tale of two different economies."
Oklahoma's oil and gas industry accounts for about a third of the state's $150 billion annual economy -- one that has soared during times of high oil and gas prices and crashed when prices fell too low.
The economy crashed in the 1980s and again in the '90s, so diversification has been a goal for some time.
"We often have people talk about how Oklahoma should diversify its economy. We have, and we are and we will," Miller said.
"But that is not going to change the natural endowment that this state is blessed with. It is our anchor industry. It always has been and it will continue to be for the foreseeable future."
Still, the state is pushing diversification. Dave Lopez, Oklahoma secretary of commerce and tourism, said the state recently went through a major data analysis to identify its "wealth creating parts of the economy are."
The study identified five of those areas: aerospace and defense, energy, agriculture and bio-science, information and financial services, and transportation and distribution. There are six military bases, including Tinker Air Force Base, a major driver of economic development.
Wind development is necessitating construction of new high-voltage transmission lines, something that is paying farmers royalties for right-of-way leases.
"In Oklahoma, we have found a common understanding and a common ground between agriculture interest and the energy industry at large," Lopez said. "It's not an either or."
Workforce that's growing
While no state's economy is recession proof, Oklahoma has come close.
The oil and gas industry's headquarters in Oklahoma City is credited with creating a young and growing workforce of educated professionals with skills that other industries can also use.
Unemployment levels have trended about 3 percent below the national average in the last five or six years, said Eric Long, an economist for the Oklahoma City Chamber of Commerce.
Statewide unemployment rate was 5.1 percent in January, below the 7.9 percent national average, and below Ohio's 6.7 percent rate. Oklahoma City metropolitan area's unemployment rate of 5.2 percent was well below the Cleveland metro rate of 8.2 percent.
And unlike Cleveland, which has had a population decline since the 1950s when it peaked at about 1 million people, Oklahoma City's population is growing. It's just under 600,000 -- or about one and a half times the number of the 394,000 people living in Cleveland.
Roughly 2,000 new people a month are added to the Oklahoma City's metropolitan area population of about 1.3 million, Long said.
Underlying the optimism that characterizes the area is the belief that the old days of boom and bust at the hands of the oil and gas industry are gone for good.
The boom may be tempered from time to time by normal business cycles, but the depressions that plagued the state in earlier decades are not coming back, say industry, state and independent experts.
They believe new drilling technologies are a game changer for maintaining steady production, arguing that previous price spikes were caused by shortages, which can now be avoided.
The experts point to 3-dimensional seismic underground mapping, real-time information from the well bore during drilling, the ability to drill horizontally, and more precise hydraulic fracturing as tools that increase production and drive down prices.
"The new technology has unleashed an enormous opportunity for many energy producing states and for our country," said treasurer Miller. "It really did used to be a pipe dream, no pun intended, to be energy independent, but now because of the new technology it is very much a possibility."
Some energy analysts disagree with the belief that shale production has tapped a vast, 100-year supply gas and oil.
"That's rubbish," said Deborah Rogers, a former investment banker, Wall Street financial consultant and advisor to the U.S. Department of Interior and Federal Reserve Bank of Dallas.
"You hear that everywhere. That is the industry line across the board -- that this is a game changer and a national treasure," Rogers said. "I think it is just a PR exercise of disproportionate to the performance of the wells. It is not based on the actual performance of the 60,000 shale wells (that have so far been drilled nationally)."
Rogers said it's not possible to keep up production levels in a field of shale wells.
"You have to engage in continuous drilling just to stay at current production levels," she said, and that is a costly proposition.
She thinks the U.S. shale boom will be over by 2024.
All that glitters isn't gold
Oklahoma has been a major oil and gas player for all of its 113 years as state. But there have been environmental consequences, prompting critics to say that people in Oklahoma just don't know what they have lost over decades of major drilling. Or that they have been lulled into complacency by the industry's public relations campaigns.
State officials, including the regulators, insist that hydraulic fracturing has never ruined groundwater. But there have been earthquakes, as there have been in Ohio. In Youngstown, a series of 12 quakes, ranging from 2.1 to 4.0 magnitude, occurred in 2011 and were linked to a new injection well there.
The University of Oklahoma in late March said a 5.7 magnitude earthquake in the state in 2011 was potentially caused by injection of wastewater from drilling and hydraulic fracturing that began in 1993.
The Oklahoma Geological Survey earlier investigated whether hydraulic fracturing itself caused a series of 43 quakes, from 1.0 to 2.8 magnitude. The probe noted there was a strong correlation between the well fracturing and the quakes but concluded the seismic data was not clear enough to say for certain.
"You do have disasters," said Patrice Douglas, chairwoman of the Oklahoma Corporation Commission, which regulates the industry and also oversees the state's electric and gas utilities.
The commission's three members are elected statewide rather than appointed, as in Ohio, and they have public meetings every day to vote on issues in one of the industries.
"We have had blowouts throughout the years," said Douglas, referring to when drilling crews lose control of the pressure. "You have things that happen along 100 years of oil and gas development. When we see something like that happen, we really work to ensure that it doesn't happen a second time."
Natural gas good for America
Natural gas not only makes good business sense in Oklahoma City, it also happens to be patriotic -- the right thing to do for America.
That's the message of the Oklahoma Energy Resources Board, a government agency funded entirely by voluntary contributions from the oil and gas industry and overseen by an industry board appointed by elected officials.
The resources board not only produces national advertising for television, it has a fully developed educational mission in classrooms from kindergarten to college. In Ohio, an educational arm of the Ohio Oil and Gas Association is in the early stages of such a program.
Chesapeake Energy is converting all of its vehicles to run on compressed natural gas. Throughout Oklahoma City, CNG is available at a price between 79 and 99 cents a gallon of gasoline equivalent. Across the state are hundreds of CNG stations. Cleveland has two CNG stations and Ohio has 12.
In early March, Oklahoma took delivery of its first 242 CNG vehicles from Chrysler, the result of a 22-state national initiative organized by Gov. Fallin, a Republican, and Colorado Gov. John Hickenlooper, a Democrat, to buy CNG vehicles if carmakers would make them.
Ohio Gov. Kasich, a Republican, signed the agreement, but his state has yet to take delivery of a CNG vehicle, partly because it still has only a few CNG stations.
"We are exploring the possibility of retrofitting two or three snow plows either in northern Ohio or central Ohio, or both," said Kasich spokesman Robert Nichols.
A renaissance for Ohio?
Accelerating manufacturing is Gov. Kasich's primary hope for natural gas.
Ohio has been a heavy manufacturing state for decades, its cities historic melting pots of immigrants seeking work in the state's heavy industries. And today the state is struggling to move into high-tech manufacturing while hanging on to what's left of its older industries.
Gas and oil production have had a place in Ohio's development since the first well was drilled in Trumbull County in 1859. There were intermittent state oil booms in the 1880s and '90s.
More than 220,000 wells have been drilled in Ohio, but the industry has never been the state's economic mainstay. IHS Consulting said Ohio shale jobs numbered about 18,000 in 2012, of which 4,200 were directly in the industry.
Whether the suspected mother lode of shale oil and gas under the rolling hills of eastern Ohio will lead to an Ohio manufacturing and economic renaissance as hoped is the real question.
Russell Evans, an economist with the Oklahoma City University, said Ohio manufacturing logically should get a boost from shale development.
"I would assume given a manufacturing background, given the existence of those facilities, given a trained workforce, that some of that production (of parts and components) would be readily transferable (to Ohio)," Evans said.
Rural Ohio counties, such as Carroll and Harrison counties where Chesapeake has been drilling, have in fact seen a lot of new spending, but few new jobs , according to a recent Cleveland State University study.
The ongoing drilling could stop economic decline in these Ohio counties, Evans said, as it has in Oklahoma.
"It keeps activity going there longer than you would expect otherwise to see activity going in that county (where drills are busy)," he said. "You have the drilling there, which means you have people in your hotels, diners. You have some more year-round employment."