Illinois and Ohio: A Tale of Fracking in Two States

It took Illinois – which now finds itself in the throes of perhaps the worst financial crisis in the nation – more than two years to implement high-volume hydraulic fracturing (HVHF) regulations. But as EID highlighted earlier this month, it certainly could be worse. Case in point: New York state, where fracking has been banned. At least Illinois has a path forward.

On the other hand, things could certainly be better. Just look at Ohio and the development of the Utica Shale and you will see the type of economic opportunity Illinois has squandered thanks to two-plus years of legislative delays.

The Utica is often compared to Illinois’ New Albany Shale geologically but also in terms of its vast economic potential. For the Utica, the forecasts of that enormous economic potential have proven accurate, and the state’s urgency to capitalize on its natural resources has paid off.

Since shale development in Ohio took off in 2011, $22.3 billion has been invested in the state as a direct result. Two years ago, a $9.5 billion economic impact and up to 47,000 jobs in the Land of Lincoln were forecast for Illinois in a report sponsored by the Illinois Chamber of Commerce Foundation. Many scoffed at the estimates, but based on what’s happened in Ohio, those figures might have been conservative.

Unemployment Rates Plummet in Ohio Shale Counties

In Ohio’s nine primary shale counties, unemployment is down 66 percent since 2010, which is 15 percent more than the national average and 13 percent more than the state average of 53 percent. Meanwhile, four of the five Illinois counties with the best prospects for shale development — Wayne, Hamilton, Clay and Gallatin — all have unemployment rates well above the national rate.  Each of Ohio’s nine primary shale development counties has seen at least a seven percentage point drop in unemployment the past four years.  Compare that to Illinois, where just one county with shale potential has seen more than a two percentage point drop.

The reason for the steep drop in unemployment rates in Ohio’s shale counties is clear: There are now more than 700 Utica Shale wells operating in Ohio. The development has not only led to jobs related to the drilling and fracking process, it has also revived Ohio’s once-dormant steel industry. Suddenly, steel pipe manufacturing and metal fabrication for midstream development projects are in high demand. The oil field support industry has thrived as well and new hotels, restaurants and other businesses have cropped up throughout eastern Ohio.

Quick Implementation of Regulations in the Buckeye State

Another key to Ohio’s rapid economic development — in sharp contrast to Illinois — is the fact that the state implemented effective regulations in a timely fashion. Like the Illinois Hydraulic Fracturing Regulatory Act (IHFRA), Ohio’s SB 315 is considered among the toughest set of fracking regulations in the country. Unlike the IHFRA, SB 315 had no long rule-making delay, as it was implemented in June 2012. Ohio Department of Natural Resources Director James Zehringer recently talked about how this allowed the industry to take off in Ohio:

“Ohio’s oil and gas industry is growing and moving our state toward energy independence. At the same time, we have updated our laws and increased our staff to provide Ohioans the proper protections as the industry continues to grow.”

Two-plus Years, Two Different Approaches

Granted, HVHF began in Ohio in 2010. Illinois Hydraulic Fracturing Regulatory Act negotiations didn’t begin until early 2012. The legislation wasn’t signed into law until 2013 and it was stalled in regulatory malaise before regulations were finally implemented in November 2014.

For a more apples-to-apples comparison, let’s take a closer look at the economic activity spurred by the Utica shale development in its first two years of production versus the potential for Illinois’ New Albany shale.

In the Utica Shale’s first two years of development, 882 oil and natural gas drilling permits were issued, 552 wells were developed and 152 went into production. All that drilling activity led to $6 billion in midstream development from 2011 through 2012, primarily pipeline and natural gas processing projects. More than $10 billion had been invested by September 2013. By January 2014, 658 shale wells had been drilled and 249 were in production.

Illinois has been poised for similar drilling activity and midstream development. More than 600,000 acres have been leased, there are numerous pipeline projects, and there are four Illinois refineries ideally positioned to process regional crude.

Sarah Magruder Lyle, Vice President of Strategic Initiatives for American Fuel & Petrochemical Manufacturers, recently talked to the Effingham Daily News about Illinois’ potential to capitalize on refining and petroleum product manufacturing opportunities:

“Illinois is in a unique position because of its energy portfolio. With the exception of hydropower, this is a state that produces and uses just about every kind of energy there is and with four refineries and plants and most of the production happening in this part of the state, it’s very important to us.”

Tax Revenue and Wages Increase in Ohio Shale Counties

Tax revenue has also played a huge part in Ohio’s revival in its first two years of shale development. Ohio’s top five shale counties saw their sales tax revenue jump from $15.5 million in 2011 to $22.9 million by 2013. Those sales tax spikes can be attributed to the fact that consumer spending up 12.2 percent in the Buckeye State over past three years.

A 30 percent jump in shale jobs from January 2011 to end of 2013 contributed to Ohio’s level of disposable income, with shale workers making better than $30,000 more annually than the average Ohio worker. Youngstown is a prime example of the good-paying jobs shale development has provided, as it has accounted for approximately 600,000 man hours of labor hall work annually the past four years, good for a total of $64 million in wages in the Youngstown region.

Illinois also stands to benefit greatly from the tax revenue from shale development. A 3-to-6 percent severance tax on oil produced, as well as business taxes, income taxes and an ad valorem tax — which would stay at the local level, providing much-needed revenues for public schools — would all help refill depleted state and local coffers. Additionally, permitting fees would help better fund state regulatory agencies.

 Ohio a Model for Illinois Going Forward

Shale development transformed eastern Ohio into an economic powerhouse in just two years, garnering national media attention. And there is no sign of development slowing in the Buckeye state. There were more than 100 shale-related projects taking place in Ohio as of April 2014, many for the process and transportation of natural gas.

In contrast, the Land of Lincoln has had the weakest jobs recovery from the Great Recession. Illinois is in the midst of the worst pension-funding crisis in the country. We also have the worst-funded public school system, worst credit rating and the worst migration rate in the U.S., as 95,000 left the state last year to find work.  One in four Illinois households relies on the Supplemental Nutrition Assistance Program, and for every person that has found a job last year, two have signed up for foods stamps.  Illinois’ $9 billion budget deficit could grow to $14 billion by 2026, and the state has more than $4 billion in unpaid bills.

Shale development could go a long way towards reducing that deficit, paying those bills and creating much-needed good paying jobs.

Based on what’s happened in Ohio — and what hasn’t happened in the Land of Lincoln the past two years — development of the New Albany Shale is poised to provide a path forward for Illinois.

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