Economic Development and Manufacturing

Oil and gas production boosts Michigan economy

September 26, 2014
| By Pete Daly |
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An American Petroleum Institute representative in Grand Rapids earlier this month said technological innovation in oil and gas extraction is “changing the entire vision of our energy future and opening vast new possibilities” for economic growth.

Rayola Dougher, in Grand Rapids to speak at a meeting of the Michigan Oil and Gas Association at the Amway Grand Plaza, said Americans have been accustomed to thinking the country is running out of oil and gas.

“Now we have an abundance,” she said. “We’re bringing in a lot of new oil, a lot of new natural gas, around the country.”

According to the American Petroleum Institute, horizontal drilling and hydraulic fracturing have led to that dramatic increase in the amount of oil and natural gas that can be extracted from shale and other so-called “tight formations” underground.

“There is a nice ripple effect throughout the economy — and here in Michigan, too, even though you are not a major energy producer,” said Dougher. “You have possibilities moving forward, stimulating jobs and economic growth.”

By one estimate, she said, Michigan now has about 182,000 jobs that are connected one way or another with oil and gas production.

The API, based in Washington, recently released results of a survey of vendors it did for the domestic oil and natural gas industry. The industry contributes an estimated $15.8 billion to the Michigan economy; API said at least 295 businesses located throughout Michigan are part of the larger oil and natural gas supply chain. Michigan cities with the most vendors are Traverse City with 36 and Kalkaska with 29.

Examples of two suppliers in West Michigan are Plasma-Tec Inc. in Byron Center and Hemco Gage in Holland — actually, sister companies that have about 130 employees between the two of them and are currently looking to hire from 10 to 15 new employees, according to Chris Wysong, president of Hemco Gage.

Plasma-Tec is a precision machining, turning, grinding and thermal-spray coating shop. Components for pumps used in the oil and gas industry are one of its specialties.

Hemco Gage designs and manufactures thread, cylindrical and pin gauging, with a specialty in API threading. The API website states that Hemco is one of just two companies in the United States licensed by the API to manufacture master gauges. They are used by industry suppliers to ensure that threads connecting oil and gas pipeline fittings are of the highest quality, to prevent expensive leaks and environmental pollution.

Wysong, who is also vice president of Plasma-Tec, said, “both of those companies have been positively impacted by the shale oil and gas boom.”

Plasma-Tec is in the process of relocating to Moline, where it has a brand new 30,000-square-foot manufacturing facility. Wysong said business has been so good that Plasma-Tec is considering a potential 24,000-square-foot expansion of the new plant. The company’s board and Leighton Township officials have already approved the potential expansion, he said.

Oil and gas production in Michigan is “quite low — a small share” of U.S. production, according to Dougher. However, she notes Michigan recently ranked 15th among the states in improved natural gas reserves.

“You’re sitting on top of a big shale deposit” containing natural gas, “but they have hardly scratched the surface of that,” she said.

According to the Energy Information Administration of the federal government, the huge Eastern shale formation that extends as far south as Texas and as far west as North Dakota, where the current boom in oil and natural gas production is well underway, also underlies most of the Lower Peninsula. The major development focus in Michigan right now is in the Antrim formation under most of the northern half of the Lower Peninsula. There is estimated to be almost 20 trillion cubic feet of “technically recoverable natural gas” there, which EIA says is enough to fuel Michigan for 25 years, at the current rate of use. The Antrim formation is from 600 to 2,200 feet deep and ranges in thickness from 70 to 120 feet.

Dougher said production of oil and gas in Michigan is actually lower than it was in the 1990s.

“The big turnaround has only happened in the last few years, and it’s been stunning in several states,” notably North Dakota, which, over the last eight years, went from production of 90,000 barrels a day to more than 1 million.

There is not significant production in Michigan, notes Dougher, but the state’s metal manufacturing base — like Plasma-Tec and Hemco Gage — stands to gain from supplying the drilling, extraction and refining industries throughout the United States.

The dramatic drop in the price of natural gas is also an economic benefit, according to the API. Dougher said the low natural gas price has saved the average American consumer about $1,200 a year in energy costs compared to prices in 2008.

She said that might actually be a higher cost savings for Michigan residents because 78 percent of homes in this state are heated with natural gas, a higher rate than average in many other states.

A major focus of the API is influencing government policy that affects exports of oil and natural gas, which can have an economic impact on all states, Dougher said — including Michigan.

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