Getting started in the U.S. natural gas supply chain

Energy companies are looking at both the Marcellus and Utica Shale natural gas reserves to supplement the nation's energy supply and to keep gas commodity costs in check. The Marcellus Shale formation stretches from the edge of Maryland to Pennsylvania, New York, West Virginia and Appalachian Ohio region along the Ohio River. The boundaries of the deeper Utica Shale formation extend under the Marcellus Shale region and beyond. Shale gas has the potential to meet the total U.S. natural gas demand for generations.

Proximity to the population centers of the United States and Canada, along with the expected longevity of the resource, establishes the Marcellus and Utica Shale formations as an important long-term and stable source of natural gas supply for the eastern United States. Energy companies that want to maximize their investment in establishing a supply operation to support drilling, processing or delivering the natural gas derived from shale formations must identify a central location that is proximate to all five states that occupy the formation.

A new white paper by the Ohio Business Development Coalition looks at how Ohio's Appalachian Region provides supply chain companies with cost-effective and easy access to all states involved in the Marcellus and Utica Shale gas industry, while maximizing return on investment now and over the life of the shale gas reserves.

Ohio is the ideal location choice for Tier I and II suppliers to efficiently and affordably supply the Marcellus and Utica Shale gas industry, offering a central location, logistics infrastructures, a skilled workforce and a favorable state tax structure. Everything that made Ohio the ideal location choice for suppliers to the automotive industry is in place for Tier I and II suppliers to leverage to efficiently and affordably supply the Marcellus and Utica Shale gas industry. This standing capability results in lower operating costs and maximum return on investment.

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

Shale gas supply chain companies are finding Ohio is optimally situated in the five-state Marcellus and Utica Shale region to achieve the fastest return on their start-up investment and to benefit from both the state's manufacturing know-how and its world-class logistics infrastructure.

“The Kasich administration is focused on economic development opportunities related to shale - upstream, midstream and downstream. We believe this industry has the potential to 'move the needle' in regards to Ohio's economy,” David Mustine, energy manager of JobsOhio said.

According to the Public Utilities Commission of Ohio, the state has over 54,000 miles of natural gas distribution pipeline. Ohio's highway system provides easy access to customers involved in the extraction and distribution of shale gas in each of the five-state Marcellus and Utica Shale region.

In addition, components and finished goods can be shipped quickly to supply chain operations based in Ohio from anywhere in the U.S. or around the globe through Ohio's central location and world-class logistics infrastructure.

Supply chain companies that establish operations in Ohio can reduce operating costs with the state's favorable business climate, because there is no tax on inventory or corporate income tax. Companies also can boost return on investment with no tax on purchases of machinery and equipment. This means a supply chain operation can keep everything on hand that a drilling operation will need without bearing an incremental tax burden.

Perhaps the most significant tax benefit supply chain companies will gain is that products or services sold to customers outside of Ohio are not taxed by the state. Companies located in Ohio can easily do business with the other four states located in the Marcellus and Utica Shale region without having to pay Ohio state tax on revenue.

Edited by Kevin Scarpati