Manufacturers Tie Ohio Plant Investments to Shale Gas Expansion

May 2, 2012
Executives say further expansion possible if transportation and regulatory issues are addressed.

Shale gas expansion in Ohio has fueled steel mill investments, cut industrial energy costs, revitalized refineries and could create an "energy belt" in the region, several manufacturing executives said Wednesday during the Ohio Energy Jobs Summit in Columbus.

The Summit, hosted by The Hill newspaper, included leaders from major manufacturers operating in the state, such as Pittsburgh-based United States Steel Corp. (IW 500/60) and Marathon Petroleum Corp., as well as state lawmakers and regulatory officials who discussed issues concerning energy production in Ohio.

Oil and condensates from the liquids-rich Utica Shale region in Ohio has secured supplies for Marathon Petroleum's refineries in the state, said company President and CEO Gary Heminger.

Marathon Petroleum's Ohio refineries have reduced their reliance on crude supplies from the hurricane-vulnerable U.S. Gulf region, Heminger said.

Transportation is the key driver for future shale gas-related expansion in the state, Heminger said. Findlay, Ohio-based Marathon Petroleum, which was spun off from Marathon Oil Corp. (IW 500/11) last year, started a new trucking company to transport oil from the Utica play to its Canton refinery.

But marine transportation will be the lowest-cost alternative to moving oil from the eastern part of the state to western markets, Heminger said. The company is working on a project along the Ohio River in Steubenville to move condensate to other markets in the region, including the Chicago area.

Steel Industry Resurgence

Several steel mills throughout the state have restarted or expanded to supply the growing need for pipes and tubing used in oil and gas transmission and extraction.

U.S. Steel added 200 jobs at its Lorain Tubular Operations to provide seamless steel pipe for oil and gas producers, said Doug Matthews, vice president of U.S. Steel's Tubular Operations.

Prior to the recession, the company was trying to find a direction for the Lorain plant. At the time, most of the market for its seamless pipe had moved away and the facility wasn't equipped to produce products for the energy industry, Matthews said.

By 2010, the shale gas boom had begun in Ohio and U.S. Steel decided to invest in the Lorain facility to supply the industry's growth in the region.

Shale gas has also reduced input costs for U.S. Steel, which is a heavy consumer of natural gas, Matthews said.

"It's a catalyst for a revitalization of U.S. manufacturing," he said.

Questions Remain

Many questions about the future of shale gas in Ohio focused on how to proceed with the regulatory process. Most executives and lawmakers echoed previous calls for more state-level oversight and less federal involvement.

Heavy-handed federal regulations will likely hurt small businesses in the state with little improvement to health and safety, said Jerry James, president of the Ohio Oil and Gas Association. In addition, federal regulations typically don't discern between minor violations and serious infractions, he said.

But Jack Shaner, deputy director of the Ohio Environmental Council, said past federal pollution standards that the state didn't voluntarily accept eventually led to cleaner air and water in Ohio. Shaner said he agrees federal laws shouldn't target innocent mistakes and that current laws do differentiate between minor and major violations.

Shaner suggested that state shale gas regulations include mandatory post-drilling testing to ensure ongoing safety and stiffer penalties for companies that try to game the system for an economic advantage.

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