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Gas Companies Struggle With Lack Of Infrastructure

Ohio recently reached a milestone in its growing natural gas industry: 500 wells have now been permitted and over 200 have been drilled into the Utica shale. But now that companies know where they plan to drill, many are wondering how they’ll get their gas to companies that can actually do something with it. Drive around eastern Ohio, and you’ll see the rural landscape of places like Columbiana, Carroll, and Harrison counties is changing. Giant oil rigs dot the farmland. Big tanker trucks clog the two lane highways. The state’s anticipated drilling boom seems to be well underway. But look closer, and some experts say the drillers are in somewhat of a holding pattern.

You have a chicken or the egg problem.

Andy Thomas is a fellow at Cleveland State University and has studied the economic potential of shale development in Ohio. He says energy companies are wondering what part of the industry to develop first.

The problem that we’re seeing now that we’re having to address is, what happens when an oil and gas well is drilled and completed and is ready to produce, but there’s no processing plant to carry that gas to?

Thomas says companies are already far along in identifying the locations for wells, and in many cases they’ve started drilling. But, Thomas says more infrastructure is needed to put the oil and gas into use – pipelines, for instance, to carry the gas from new well sites to existing pipes that run between cities and utility companies. But even then, it’s not just a matter of sending the raw material down a pipe. The Utica shale is rich in both dry natural gas and petroleum liquids. Those are chemicals like ethane, propane, and butane—ingredients that fetch a higher price on the open market, and can be used to make plastic and other materials. Someone has to separate the dry gas from all of those liquids. And that’s where processing plants come in. At the new Exterran plant in Youngstown, regional VP Matt Sucy is surveying the conference room where several new employees are spending the day learning the ropes, and taking a mid-morning break. “We’ve got about 50 people who are new hires that are going through the orientation. So they’re finding out about the company, about the products that we’re manufacturing here, about the business as a whole...â€? Exterran makes and operates machines that clean out water and dirt from the natural gas. Like the drilling companies, Sucy says Exterran grappled with when was the right time to invest in Ohio’s Utica shale. Ultimately, Sucy says they chose to get in early while demand is on the upswing and beat the competition.

You always want to be early, if there’s growth there. And the volume of gas being produced by the Marcellus and the volume of drilling going on certainly was a good indication for us.

Exterran is one of a handful of processing and storage companies that are getting in early on the so called “midstreamâ€? development of Ohio’s shale industry. Local MANUFACTURERS are ALSO moving quickly to get involved. At Panelmatic in Youngstown, machines are stamping out intricate shapes on thick sheets of metal. Panelmatic is a supply chain manufacturer. They make containers that hold the equipment that regulate the flow of natural gas into pipelines and filtering plants. General Manager Cory Jones says the ramp up of drilling in the area has brought him some new customers.

We’ve had a couple of people in here that have asked 'How many can we do at a time? How fast can we do it?'

Jones says he’s now facing his own timing dilemma. He knows he’ll need to add more staff to meet the looming demand, but until that demand actually materializes, he can’t really afford to. “Which comes first, the chicken or the egg? It’s going to be hard to make that investment if the business isn’t there, but then if the business is there then you’ve gotta move fast because they don’t accept no as an answer.â€? It’s a question more local manufacturers are dealing with, but experts say it’s a good problem to have. Many predict 2013 will be one of the busiest years in midstream development for Ohio’s shale industry.