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Ohio’s oil is a boon for plastics production

Apr 9

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The early discovery of oil and gas in Ohio in the 19th century helped the Midwestern state grow to become the nation’s top oil producer, a title it held until Oklahoma dethroned Ohio in 1902. Today, significant technological advancements are unlocking the potential of new oil and gas sources that earlier Ohioans were unable to tap.

Straight Arrow News contributor Peter Zeihan says Ohioans have found a new use for their natural resources: plastics. Zeihan says Ohio’s unique natural endowment allows manufacturers to produce high-end plastics at globally competitive prices and indicates this might be one route forward for future economic growth in America’s old industrial heartland.

The following is an excerpt from Peter’s April 9 “Zeihan on Geopolitics” newsletter:

Since I’m here in Ohio, why not talk about what makes this region so unique? Today, we’ll be discussing how shale in Ohio has propelled economic growth in an unfamiliar way.

For most of America, the shale sector looks fairly similar – traditional oil production produces natural gas as a byproduct, which is flared off until infrastructure is put in place to harness it. However, the Marcellus and Utica fields in Ohio primarily produce natural gas that is used for fuel across the central and eastern U.S. This is a bigger deal than it seems. If the tri-state area of Ohio, West Virginia and Pennsylvania were a country, it would produce more natural gas than any countries save Russia and the United States itself.

But what truly sets the region apart isn’t simply the abundance of natural gas, but of natural gas liquids such as ethane, propane and butane. The local prevalence of these materials has enabled Ohio to become a world leader in high-end plastics manufacturing. Thanks to this, Ohio has seen boosts in industrial activity and the establishment of chemical facilities throughout the state.

Hey everybody, Peter Zeihan here coming to you from just outside historic harbor village just across the river from Marietta, Ohio, and that is the Ohio River behind me. Today we’re going to be talking about something that is an exception from the exception. So the big exception is the American shale sector because it has a different economic structure and uses different technologies for most oil production in the rest of the world. And as a result has very low production costs, and produces a lot of natural gas as a byproduct of oil production. So when you’re in Texas, most notably, say the Permian, people are after the crude oil, and then natural gas comes up as a byproduct. And they have to flare that natural gas until the infrastructure can be built out to absorb it and bring it into the say, the chemical sector here in Ohio and moving into Pittsburgh area in Pennsylvania, you’ve got a different problem. The natural gas field is the Marcellus Utica, and they are dry gas fields where people are after the natural gas rather than the liquids, because they’re using it for fuel in every place from Chicago to Boston, to Washington, DC. And so they need it for electricity. But there are still liquids here, especially in the western parts of the play, which move into say, Ohio. There you’re getting a fair percentage of something called natural gas liquids, which in layman’s terms means things like propane and butane. That means that in this part of the country, it’s not just that the natural gas is cheap, because the production costs in the Marcellus are very low. But so many NGLS come out of places like the Utica play that Ohio has become a world leader in things like high end plastics, because for them, it’s not the oil, that’s the waste product. It’s the propane and such that is a primary feedstock into chemical specifically for things like plastics. And so we’re seeing dozens of chemical facilities that do secondary processing, popping up in the more populated parts of Ohio, taking advantage of what is basically below global cost inputs of things like ethane, propane, butane, and the rest. So here we are in the middle of the continent, and we’re suddenly seen an explosion in industrial activity for something that we normally associate with the Chinese coast, the Persian Gulf or the Texas coast. Very different situation, very different geology, very different outcomes.

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