Energy Returned on Capital Invested: Ohio “Shale” vs Green “Schist”

Guest resource economics by David Middleton

Ohio’s shale energy industry attracts nearly $78 billion in investment since 2011

COLUMBUS, OHIO – Total investment in Ohio’s resource rich shale energy sector has reached $78 billion since tracking began in 2011, according to a Cleveland State University (CSU) study.

Prepared for JobsOhio, the report represents the most recent data available and covers shale investment through the second half of 2018. Earlier in the year, IHS Markit released estimates that by 2040, the Utica and Marcellus shale region, of which Ohio is a significant part, will supply nearly half of all U.S. natural gas production.

The study from CSU’s Energy Policy Center at the Maxine Goodman Levin College of Urban Affairs, showed drilling investments were slightly down in the second half of 2018 compared to the first half, but total upstream investments were up. Total shale-related investment in Ohio for the second half of 2018, including upstream, midstream and downstream, was around $3.82 billion. Total investment from 2011-2018 totaled about $77.7 billion.


World Oil

Energy Returned on Capital Invested (EROCI)

Can you say “hockey sticks”?

And those aren’t the only hockey sticks. Proved reserves of natural gas have also hockey sticked…

From 2011-2017, Ohio’s proved natural gas reserves grew from 758 to 26,123 billion cubic feet (Bcf). EIA’s 2018 reserve report comes out later this month. However, the relationship between production and proved reserves from 2011-2017 is very linear (R² = 0.9555). This indicates that the 2018 proved reserves will be around 31,000 Bcf.

 Reserves (Bcf)  Production (Bcf)
2018                                     31,056                            2,409
2017                                     26,123                            1,791
2016                                     15,143                            1,437
2015                                     12,104                            1,007
2014                                       6,723                                512
2013                                       3,161                                166
2012                                       1,233                                  84
2011                                           758                                  79
2011-2019 Growth                                     30,298  $75,744,713,509  Value @ $2.50/mcf 

Using a generic price of $2.50 per thousand cubic feet (mcf), or million Btu (mmBtu). The estimated growth in proved reserves from 2011-2018 is worth $75.7 billion. That’s just natural gas proved reserves. Proved reserves are the 90% probability case. Probable reserves, the most likely case(>50% probability), aren’t reported at the State level; but they are by definition significantly higher.

What’s that? A $77.7 billion investment in $75.7 billion worth of natural gas doesn’t sound like a winner? Well, there’s also the value of the production, which includes some crude oil.

Click to enlarge.

$75.7B + $30.5B = $106.2B

That’s a 37% return over 8 years, a 4.6% average annual return.

On top of that, only $53.8 billion was upstream (exploration, drilling and production) investment. This works out to a finding and development (F&D) cost of $1.42/mcf. The oil & gas prices cited earlier were wellhead prices (what the producer can expect to receive). From 2011-2018, the wellhead spot price for natural gas averaged $3.27/mcf. The rest of the $77.7 billion went to midstream (pipelines, processing plants, etc.) and downstream (power plants, petrochemical plants etc.). Natural gas prices escalate from upstream to downstream (a value-added process). So, the total value of the $77.7 billion investment is much larger than just the value of the oil & natural gas.

Ohio’s Shale Economy: What the Research Says

“All in”, $77.7 billion works out to $2.06/mcf (million Btu).

Regarding Green “Schist”

New clean energy investment in developing nations slipped sharply last year: report
Nina Chestney

LONDON (Reuters) – New clean energy investment slid by more than a fifth in developing countries last year due to a slowdown in China, while the amount of coal-fired power generation jumped to a new high, an annual survey showed on Monday.

Bloomberg New Energy Finance (BNEF) surveyed 104 emerging markets and found that developing nations were moving towards cleaner power sources, but not fast enough to limit carbon dioxide emissions or the effects of climate change.

New investment in wind, solar and other clean energy projects dropped to $133 billion last year from $169 billion a year earlier, mainly due to a slump in Chinese investment, the research showed.

China’s clean energy investment fell to $86 billion from $122 billion a year earlier. Investment by India and Brazil also declined, mainly due to lower costs for solar and wind.

However, the volume of coal-fired power generation produced and consumed in developing countries increased to a new high of 6,900 terrawatt hours (TWh) last year, from 6,400 TWh in 2017.

The increase of 500 TWh is equivalent to the power consumed in the U.S. state of Texas in one year. Coal accounted for 47% of all power generation across the 104 countries.



According to BP’s 2019 Statistical Review of World Energy, the “world” generated 15.9 billion mmBtu (converted from TWh) of energy from renewable sources from 2017-2018. This works out to $19.05/mmBtu, about 10 times the cost of natural gas.

mmBtu Invested ($) $/mmBtu
2018        8,463,089,501  $       133,000,000,000  $  15.72
2017        7,392,040,238  $       169,000,000,000  $  22.86
2017-2018      15,855,129,739  $       302,000,000,000  $  19.05

Some may take issue with this comparison, because it doesn’t account for the heat loss in generating electricity from natural gas. The average combined cycle natural gas power plant generated 1 kWh per 7,627 Btu. A 100% efficient power plant would only require 3,412 Btu to generate 1 kWh.

While it is true that some of the energy is lost in the process of generating electricity and heating our homes, advanced combined cycle natural gas power plants can achieve >60% efficiency in converting heat into electricity, the 2018 average was about 45%. Modern natural gas furnaces can achieve 90-97% efficiency.

Energy Returned on Capital Invested $/mmBtu
Ohio “Shale” 2011-2018  $       2.06
Ohio “Shale” @60% efficiency  $       3.43
Ohio “Shale” @45% efficiency  $       4.58
World Renewables 2017-2018  $    19.05

And, unlike renewables, natural gas can replace coal on a megawatt for megawatt basis. So, if saving the planet from carbon dioxide was the real objective, the greenie weenies would be all on-board the natural gas bandwagon.


bbl = barrel, barrels. Each barrel consists of 42 US gallons. 1 bbl of crude oil contains approximately 5.8 million Btu of energy.

Bcf = 1 billion standard cubic feet (scf) of natural gas.

Btu = British thermal unit.

mbbl = 1,000 barrels.

mcf = 1,000 standard cubic feet (scf) of natural gas, generally equal to 1 million Btu. Technically it’s usually more like 1,020,000 Btu; but mcf and mmBtu are usually treated as being interchangeable. Natural gas prices are generally listed as $/mcf or $/mmBtu.

mmBtu = 1,000,000 Btu.

mmcf = 1,000,000 standard cubic feet (scf) of natural gas.

scf = Standard cubic foot (feet) of natural gas, measured at 60 °F at sea level (14.7 psi). Generally equivalent to 1,020 Btu.

Shale = “Shale is laminated, indurated (consolidated) rock with > 67% clay-sized materials.” Jackson, J.A. (1997). Glossary of Geology, 4th Ed., American Geological Institute. Most “shale” plays aren’t technically shale.

Schist = 1) A foliated metamorphic rock, generally resulting from the deformation of shale and other types of mudstone. 2) A scatological euphemism, as in “green schist.” As a professional geologist, I make extensive use of geological euphemisms… And I don’t care if you think it’s childish.

Data Sources

Ohio Natural Gas Marketed Production

Ohio Field Production of Crude Oil

Ohio Natural Gas Proved Reserves

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Henry Hub Natural Gas Spot Price (Dollars per Million Btu)

BP Statistical Review of World Energy

via Watts Up With That?

December 2, 2019 at 04:07PM

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