COLUMBUS, Ohio – Ohio Gov. John Kasich's claim that a single energy company could recover $1 trillion worth of oil and gas from the state's shale is an exorbitant overestimate, according to experts interviewed by The Associated Press.
At current oil prices, that figure represents more than four times U.S. oil production last year. Viewed another way, every drop of oil produced in America for the next four years will be worth roughly $800 billion, based on current prices and production rates.
"I think he's way off base," said Arthur Berman, a Texas-based petroleum geologist and independent energy consultant. "My best estimate is he's probably wrong by a couple of zeroes."
U.S. crude oil production in 2011 was 2.078 billion barrels. At roughly $100 a barrel, that's $200 billion worth of oil.
The revenue potential of newly accessible deposits of oil, natural gas and natural gas liquids under the state is important because Kasich is pursuing an increase in a state tax that large-volume oil and gas producers pay on what they extract. Proceeds from the tax would fund modest statewide income tax relief.
During his 2010 campaign, Kasich pledged to reduce and eventually phase out the income tax. He faces opposition to his manner of funding the reduction from the well-funded energy industry and some fellow Republicans in the state Legislature.
Kasich traces the trillion-dollar figure to a conversation with an energy company CEO. He has repeated the number often in local and national television interviews and in public appearances.
"One energy company said they were going to take a trillion dollars' worth of value out of our state," he said on WCMH-TV in Columbus in March.
"And if we can't take advantage of some of that and let Ohioans in all 88 counties benefit, it would be a colossal mistake," the Republican governor continued, "because keeping the money here and letting families have more and small businesses be more successful means that we're healthier as a state. This is not confusing or complicated. It's pretty simple."
Kasich has never identified the source of the figure, and spokesman Rob Nichols declined again this week to name the individual. He said the executive characterized the figure as the value of the resources over the life of the gas reserve, which could be decades.
"We were as surprised as anyone when they said it would be a trillion dollars," Nichols said.
Portions of both the Utica and Marcellus shale formations lie under much of eastern Ohio.
Philip Budzik, a research analyst with the U.S. Energy Information Administration, said a new report has estimated that just over 1 trillion cubic feet of natural gas within the portion of the Marcellus Shale now reachable under Ohio with modern technology. A similar estimate has not yet been calculated for the Utica Shale, which is more extensive in Ohio.
He said many factors would have to go into an estimate of the dollar value of those assets.
"I have no idea what the gentleman used to come up with his estimates," Budzik said. "And you have to know the time frame he's looking at, whether it's 50 years or 100 years or what. You have to make a number of assumptions about the future to come up with such a projection."
Budzik acknowledged that an oil company like the one Kasich spoke to may have the latest information based on its own experience in the field, but he said an accurate estimate must include information from multiple companies and over at least several years of production.
Drilling has boomed in Ohio, Pennsylvania and other shale states as the energy supplies have become available through new horizontal drilling techniques over the past year or two. Much of the Utica Shale has not yet been explored.
"The thing about the oil and gas industry, you don't know what's down there until you get there," Budzik said. "It's very much a gamble, it's a casino. You spend your money and hope for the best. If you're lucky, you become a big company and you buy a jet. If you're not lucky, you go into bankruptcy."
Berman said that although it's expected that any governor would be optimistic about the potential for drilling in shale regions, "the truth of it is they rarely ever deliver what the producers say they will."