By John Whitesides
STEUBENVILLE, Ohio (Reuters) - Out past the vacant storefronts and abandoned buildings, beyond the shuttered steel mills and decaying industrial plants, residents of eastern Ohio suddenly are seeing dollar signs.
In a region more accustomed to hard times than optimism, residents hope that a boom in shale gas drilling using the controversial technique of hydraulic fracturing - or "fracking" - will lead to wealth, jobs and a reservoir of domestic energy that could dramatically boost the area's fortunes.
But the growth of fracking here and across the nation has raised concerns about contaminated groundwater, how to dispose of toxic waste and even whether fracking causes earthquakes.
In Ohio, that has created an election-year challenge for Democratic President Barack Obama.
With the presidential campaign focused on jobs, the economy and the need to cut U.S. dependency on foreign oil, Obama's administration has walked a fine line in trying to impose environmental rules on the growing fracking industry without stifling badly needed jobs or a vast supply of domestic energy.
It is a particularly delicate issue in Ohio, a politically divided state that may play a key role in determining whether Obama or presumptive Republican challenger Mitt Romney wins the presidency in the November 6 election.
The optimism over fracking in eastern Ohio springs from its spot atop the Marcellus and Utica shale formations, which hold broad deposits of natural gas and crude oil. Energy giants such as Chesapeake Energy Corp and MarkWest Energy Partners are investing billions of dollars to tap the shale in a process that could reinvigorate economically stunted cities such as Steubenville.
"All we're looking for is a chance. This is our chance," said Ed Looman of the Progress Alliance, an economic development group in Ohio's Jefferson County, which includes Steubenville.
"The politicians have to stay the hell out of it," Looman added. "The last thing we want to do is regulate these energy companies to the point that they don't want to come here."
'A BETTER UNDERSTANDING'
In January, Obama was criticized by Republicans for delaying a decision on construction of TransCanada Corp's Keystone XL oil pipeline from Alberta, Canada, to the Texas Gulf Coast because of environmental concerns.
In Ohio and other states, where Obama's chances of a second four-year term as president could hinge on how middle-class families feel about their jobs and finances, he has tread lightly in regulating fracking.
That has won the Democratic president rare praise from oil and gas lobbyists, while frustrating environmentalists and others who have seen Obama as a protector of the environment. The head of the American Petroleum Institute, the trade group for U.S. oil and natural gas companies, recently said the administration now has "a better understanding" of the industry.
The evolving nature of Obama's relationship with the oil and gas industry was evident in his State of the Union address in January, shortly after his Keystone decision. Obama touted the potential of natural gas and said that drilling for it could create nearly 600,000 jobs nationally by the end of the decade.
Industry supporters have estimated that oil and gas drilling in Ohio could mean more than 65,000 new jobs and nearly $5 billion in investment in the state's economy by 2014.
"We're taking every possible action to develop a near 100-year supply of natural gas," Obama said in March.
Obama's leniency on fracking included last month's decision to give drillers at least two more years to invest in equipment that slashes unhealthy air emissions from fracking wells.
His administration also proposed rules for public lands that would require companies to disclose the chemicals they use in fracking after, rather than before, they drill.
Most drilling for natural gas is on private land, which has limited the administration's authority and left most of the regulation to state governments.
Obama's relatively light touch on federal regulation has not stopped Romney from accusing him of being too heavy-handed.
"I will respect states' proven ability to regulate fracking, rather than sending federal bureaucrats to take control," Romney, who wants to expand oil and gas drilling, said in a column in the Columbus (Ohio) Dispatch newspaper in March.
In a reflection of the economic potential of natural gas drilling, Obama's fellow Democrats and environmental activists who want more safety rules or a moratorium on new drilling have been gentle in criticizing his approach.
"I understand Obama's position, politically. The regulations have been quite a bit less than I would desire, but they would be infinitely (less) under Republicans," said Dave Simons, former chairman of the Sierra Club conservation group's Ohio panel on fracking. "Economic times are tough. There is big money in this, and ... (people) are willing to take a chance on this."
Analysts said the need for jobs in hard-hit areas like Ohio's Jefferson County, where the 10.1 percent unemployment rate is well above the national average, has made natural gas drilling - and fracking - a bipartisan cause.
For the most part, "it hasn't been Republicans against Democrats" on fracking, said William Binning, a political scientist at Youngstown State University in Ohio. "Both parties have been reluctant to come out strongly against it."
'MAKE SURE IT'S SAFE'
Fracking involves the high-pressure injection of sand, water and chemicals into shale to crack it open and allow the flow of gas or oil. It has sparked an energy boom in several regions of the United States and driven natural gas prices to 10-year lows.
But environmental concerns about fracking also have grown, from complaints of contaminated groundwater in Pennsylvania and Wyoming to earthquakes in Ohio last year that a state agency linked to fracking.
A Quinnipiac University poll this year found that nearly three in four Ohio voters believed fracking should be stopped until more studies are done. However, 64 percent thought the economic benefits outweigh the environmental concerns.
"Somebody definitely needs to audit what's going on and make sure it's safe," said Rich Clendenning of Lisbon, Ohio, a welder looking for work in fracking. But, Clendenning said, "the way some people's finances are now, they would probably put up with earthquakes if it meant they had a job."
Democratic-sponsored proposals to restrict fracking have been bottled up in Ohio's Republican-controlled legislature.
"Anybody who stands in the way of the fracking boom is seen as standing in the way of jobs," said Democratic state Representative Robert Hagan, who has called for a moratorium on new drilling.
So far, few of the promised new jobs and economic benefits have materialized in towns such as Steubenville, where start-up positions for drilling companies are often filled by out-of-town crews with industry experience.
However, the flood of Louisiana, Texas and Oklahoma license plates in the region has created a trickle-down effect for hotels, restaurants and other businesses in Steubenville.
The local Best Western hotel has added housekeeping and restaurant staff. An Italian restaurant has expanded its seating. And Janie Mayle, president of an industrial supply company, added a salesman to pursue business in fracking.
'SHOT IN THE ARM'
Tony Guida of Guida Realty in Steubenville is overseeing sales on a 3,800-acre (1,500 hectare) parcel of land west of town that will be developed for commercial, residential and industrial uses.
"This was really the shot in the arm we needed," Guida said. "There is a lot of excitement, but a lot of us are trying to figure out where the jobs are going to come from."
Local officials expect a boom in jobs for truck drivers, safety officers, welders, pipeline technicians and other industry jobs - many at annual salaries of $60,000 to $70,000, nearly double the median household income in Jefferson County.
"People are very excited at the prospect of good jobs with good benefits, but we try not to overpromise," said Anne Wheeler, the human resources manager for operations at MarkWest.
Energy companies also are paying local farmers and landowners $3,000 an acre (0.4 hectare) or more for mineral rights to their land, plus royalties on the eventual production of natural gas.
The optimism could be good news for incumbent office-holders, from Obama to U.S. Representative Bill Johnson, a Republican elected in 2010 whose congressional district is on Ohio's eastern border.
Johnson, who faces a rematch with Democrat Charlie Wilson this year, supports fracking and, like Romney, criticizes Obama's approach on regulation.
Wilson has not called for more regulation. He lists his top concerns as ensuring that fracking jobs go to local workers and improving local roads and bridges that will carry heavy loads of water and drilling supplies.
"We don't want this to be a gold rush and then a bust that goes away quickly," he said.
(Editing by David Lindsey and Will Dunham)