The People of America's Oil and Natural Gas Indusry

Energy Tomorrow Radio: Episode - 121 Oil and Natural Gas Development in the Michigan Basin

Jane Van Ryan

Jane Van Ryan
Posted November 9, 2010

In today's episode, I interview Dr. William B. Harrison, III of Western Michigan University about the economic benefits of oil and natural gas development in the state, particularly the Michigan Basin.

Use the audio player below to listen to information about the article and follow along with the show notes. I hope you find the podcast informative.

00:17 Near the end of October, the state of Michigan held an auction in which it sold leases to oil and natural gas companies interested in drilling in the Michigan Basin. The Basin lies below the entire lower peninsula of Michigan and contains commercially viable deposits of oil and natural gas. The October sale raised nearly $10 million for the state. A similar, very competitive sale in May raised $178 million. So why is there so much interest in the Michigan Basin these days? We have Dr. William Harrison of Western Michigan University on the telephone with us today to explain.

00:59 You've studied Michigan's oil and natural gas deposits and have written about them extensively. How would you describe the Michigan Basin? First of all, how was it formed?

01:08 Dr. Harrison: The Michigan Basin is a natural geological feature in the surface of the earth and it encompasses the entire lower peninsula of Michigan, the eastern portion of the upper peninsula of Michigan, portions of Wisconsin, Illinois, Indiana and Ohio, as well as a small portion of southwestern Ontario. As you can imagine, it's a very large area. It's approximately 124,000 square miles and about half of that area is in Michigan. We call it a basin because it has somewhat of a bowl shape. If you can imagine looking down underground below the surface of the earth, there are layers of rock similar to those found in the Grand Canyon. The layers of rock in this basin are slightly bent downward so that they form a bowl shape and each layer is like having shallow soup bowls stacked one inside another. This stack of layers goes down more than 16,000 feet below the earth's surface in the center of the state.

02:17 Now oil and natural gas has been produced in the state for many years. Can you tell us exactly how much oil and natural gas has been produced in Michigan?

02:25 Dr. Harrison: We started keeping records of regulated and permitted oil and natural gas exploration starting in 1925. Since that time, about 1.25 billion barrels of oil and approximately 7 trillion cubic feet of natural gas have been produced. Currently, we're producing about 6 million barrels of oil a year and approximately 272 billion cubic feet of natural gas per year.

02:53 How does the state rank among oil and natural gas producing states?

02:58 Dr. Harrison: There are a total of 32 states that produce oil or natural gas in the country. We're 16th in terms of our oil production and 12th for production of natural gas. If you look at consumption, Michigan is 13th in oil and 8th in natural gas. We do consume quite a large amount of oil and natural gas.

03:34 Is it fair to say that a lot of the production is coming directly from the Michigan Basin?

03:39 Dr. Harrison: We produce approximately 3.5 percent of the oil that we use. Similar to the rest of the country, most of the oil that's used in Michigan is imported. More than 60 percent of our whole nation's oil and natural gas is imported every day. However, we produce about 35 percent of all of the natural gas we use here in the state.

04:06 In recent months, we've heard quite a lot about the Marcellus Shale formation, which is east of Michigan, and the Barnett Shale in Texas. It's well known that these two formations and a few others can be quite prolific using the combination of horizontal drilling and hydraulic fracturing. Do the underground formations in the Michigan Basin require the same kinds of technologies to produce oil and natural gas?

04:34 Dr. Harrison: Yes, sometimes they do. These technologies, horizontal drilling and hydraulic fracturing, that are being used in these formations in other parts of the country are pretty new. People have been drilling oil and natural gas wells for well over 100 years, but there are constant innovations in the engineering and treatment capabilities. For much of the history in Michigan, these techniques were not used because they simply weren't part of the arsenal that the explorationists had. But if there are formations in Michigan that are very similar to the Marcellus and Barnett Shale, those could be treated in that same way. In fact, Michigan has a formation called the Antrim Shale where more than 10,000 wells have been drilled since the80s. It was one of the first big shale plays in the United States and it's already produced more than 2.5 trillion cubic feet of natural gas.

05:37 That's very impressive. Studies have been produced by Penn State about the economic benefits of the Marcellus Shale in Pennsylvania. They project that natural gas development there could create tens of thousands of jobs and billions of dollars for the economy. Do you have similar studies in Michigan? What's known about the economic impact of oil and natural gas development there?

06:00 Dr. Harrison: There really hasn't been a formal economic study similar to the Penn State one. Although, the Michigan Oil and Gas Association (MOGA), which is our industry professional association, has done some work in compiling information. More than 10,000 jobs currently exist in the oil and natural gas industry and there are around 14,000 individual mineral owners, private people who own property that have oil and natural gas wells on them. That generates approximately $80 million per year of income for those people. The oil and natural gas industry as a whole, including all of the drilling and production of oil and natural gas, as well as the supporting services and economic spin-off, is estimated by the MOGA to be about a $2 billion a year industry in Michigan. Any increases to that current situation could certainly have an economic impact.

07:07 Absolutely. I think that would be very important in your state, considering the U.S. Bureau of Labor Statistics says that the seasonally adjusted unemployment rate in Michigan is about 13 percent, which makes it about the 2nd highest in the country. Are residents of Michigan embracing oil and natural gas development as a way to help the state's economy and to create jobs?

07:30 Dr. Harrison: Generally I would say no. Surprisingly, most Michigan residents are barely aware of current oil and natural gas exploration and development in the state. Most of them don't really see it as an opportunity for economic development simply because they don't know it exists. In areas where there has been historical development, or even some new development, those residents are far more aware and they do believe that the additional activity of oil and natural gas is a positive thing. There is a strong sense of environmental awareness in the state of Michigan and most people don't think that oil and natural gas activity is really compatible with environmental activity. However, in the history of oil and natural gas development in Michigan, there have rarely been any serious environmental problems. In fact, in 1976 the environmental lobbies and the Michigan oil and gas industry developed the Michigan Natural Resources Trust Fund, which is where most of these lease fees, as well as all of the fees from oil and natural gas production on state land, are deposited. Over the years, this fund has been a huge benefit for Michigan residents in that it's used to acquire additional state recreational land and improve existing state recreational land.

08:59 It's really providing quite a nice benefit to all the residents of Michigan, not just those who have leases on their property.

09:06 Dr. Harrison: That's absolutely true. That fund currently has a $500 million cap and approximately $50 to $75 million per year is spent out of that fund for these improvements and acquisitions of recreational properties in Michigan.

09:22 Based on what appears to be the growth of interest in the Michigan Basin, as evidenced by the lease sales, do you think it's possible that the Michigan Basin could become another very significant natural gas resource, perhaps similar to the Marcellus Shale or the Haynesville Shale?

09:42 Dr. Harrison: Maybe. First of all, a lot of the leasing that exists around the world is somewhat speculative. Most of the lease activity that has occurred in the last year is based on one single well that was drilled and had successful production of natural gas. However, there is a significant amount of potential because there are some large areas within the state of Michigan that have very few oil and natural gas wells drilled. These areas may have significant future potential, but that will only really be demonstrated once the oil and natural gas wells are drilled.

10:23 We'll just have to wait and see. Dr. Harrison, thank you so much for providing us information today about Michigan's natural gas industry and the Michigan Basin.