Natural Gas

Recent Issues

Lessons from Fracking's Borderlines


New Yorkers shouldn’t have to eye secession to tap the riches beneath their feet. Pennsylvanians shouldn’t have to worry that taxes and regulations will drive away opportunity and raise energy prices. Both states should remind the nation that prosperity is always vulnerable to the heavy hand of government.

Will Lawmakers Renege on ‘No Broad-Based Taxes’ Pledge?


Pennsylvania State Budget

As lawmakers scramble to find revenue to fund the $1.6 billion spending increase they passed last week, a broad-based tax increase, once deemed “off the table,” is in play.

Governor Wolf's Natural Gas Tax Proposal


Governor Wolf continues to press for a natural gas severance tax despite ongoing layoffs and potential bankruptcies in the natural gas industry.


Recent Blog Posts

No Doubt About it: PA has a Severance Tax

tax

What do Christmas festivities, a new office building, and a Ford Explorer have in common? They were all paid for with impact fees on natural gas, raising doubts about the necessity of imposing higher taxes on the industry.

A recent audit of local government spending revealed some officials aren't prioritizing the costs related to natural gas drilling or, worse, the expenses associated with drilling were exaggerated from the beginning.

Back in 2012, when the impact fee was being implemented, we questioned the need for more revenue to offset the local costs of natural gas drilling:

Much of the revenue generated through Act 13 isn't used to address drilling impact—Marcellus Shale isn't responsible for deteriorating bridges and parks in midstate counties where drilling doesn't even occur. Act 13 sustains unrelated programs such as Growing Greener and is littered with corporate welfare like subsidizing rail freight assistance and natural gas vehicles.

The Auditor General's report is proof that such questions were well warranted. It's now clearer than ever that the impact fee is addressing far more than drilling impacts. It is clearly a tax.

Instead of debating the wisdom of the current impact fee (tax), Governor Wolf and others continue to push for an additional natural gas tax. Yet, the IFO estimates the current impact fee is equivalent to a 6.9% severance taxhigher than severance taxes in Louisiana, Wyoming, and West Virginia.

With natural gas prices still climbing from record lows and the industry shedding a third of its jobs in 2016, this audit should put a final nail in the severance tax coffin. Any further effort to raise energy taxes would be a transparent attempt to balance the budget on the backs of working people.

As we've seen, raising niche taxes to fill budget holes is a losing strategy. Only six months ago lawmakers passed new taxes on digital downloads, vape shops, and cigarettes. The result? A estimated $524 million budget shortfall.

Let's avoid repeating our mistake and acknowledge the truth: imposing an additional tax on one industry will do nothing to help solve the state's budget problems. 

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posted by Elizabeth Stelle | 02:45 PM

PA's Conflicted Relationship with Natural Gas

The government giveth, and the government taketh away. Nowhere is this more apparent than in Pennsylvania’s relationship with the natural gas industry.

On the one hand, Gov. Wolf offers a Pipeline Investment Program that would provide $24 million in matching grants to businesses, schools and hospitals for connections to gas pipelines.

On the other, the Pennsylvania Department of Environmental Protection (DEP) proposes new rules on already highly regulated production activities. The gas industry filed a legal challenge to some of the rules. They claim the regulations will cost $2 billion a year “without providing meaningful environmental benefits.” Excluding initial start-up costs, DEP estimates the maximum annual cost of the regulations to be $31 million, or about $24,000 a well.

Meanwhile, Braskem America, a plastics manufacturer, chooses Texas over Marcus Hook, Pa., for the location of a $500 million plant because of Pennsylvania’s lack of pipeline capacity to deliver feedstock.

At the same time, pipeline projects are missing in-service targets due to regulatory delays.

Delayed by about 18 months is the start-up of Sunoco Logistics’ $2.5 billion Mariner East 2 project, which will transport natural gas liquids from western Pennsylvania to Marcus Hook. The company is responding to requests from the DEP for additional information on permit applications.

In New York, the Constitution Pipeline, has languished since April when New York regulators denied the project a water-quality permit. The denial came four months after New York Gov. Cuomo had approved $2 billion in economic-development grants that included an extension from the pipeline to a manufacturing plant.

Pennsylvania should learn from these missed opportunities and stop efforts to finance pipeline extensions to private businesses with tax dollars. After all, Governor Wolf just lamented policies that put well-connected businesses before taxpayers:

" . . . too often, special interests and the well-connected are put before Pennsylvania families and the middle class."

So why not return to citizens the $24 million being transferred from an “underutilized” fund for alternative energy projects? Instead of doling out politically-selected grants, the Governor should focus on ways to balance safety with enhancing the competitiveness of one of the state’s most promising enterprises.

In general, state government is too focused on doling out taxpayer cash and promulgating regulation than on fostering an environment for good-paying jobs and economic growth.

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posted by Gordon Tomb | 03:17 PM

PA Business Climate Isn't Winning any "Miss Congeniality" Contests

Why would one of Pennsylvania’s largest natural gas producers suddenly switch from selling all non-Pennsylvania assets to purchasing a $3.3 billion Houston company that operates exclusively in Louisiana?

A Dallas Morning News article suggests Pennsylvania’s less than “congenial” business conditions.

Range Resources, which in 2004 drilled the first commercial horizontal well in Pennsylvania’s Marcellus Shale, plans to purchase Memorial Resource Development partly because of regulatory hurdles in Pennsylvania and other Northeastern states.

Energy companies are trying to cope with constant calls for higher taxes, new methane emissions standards, a dramatic overhaul of drilling regulations, and pipeline delays. At the same time, the region is experiencing a severe and prolonged drop in natural gas prices.

The Dallas Morning News reports:

The U.S. gas market is Balkanized," said Subash Chandra, an analyst with Guggenheim Securities. "And the Appalachian Basin is becoming increasingly isolated."

Pipeline projects in Pennsylvania and New England running into regulatory issues over the past year include Northeast Energy Direct, Constitution, Rover and PennEast. In some cases, the delay could be a matter of months; for others, longer.

Keeping the natural gas from getting to market in the Northeast makes retail prices bounce around more and can contribute to shortages in an unusually cold winter. And it pushes some producers to the sidelines for a while.

A couple of the producers with the best cost of production in North America are sitting on their hands for a couple of years," Miller said.

In Pennsylvania, the industry has shed thousands of jobs, and the number of drilling rigs operating in the state is at 2007 (pre-boom) levels. The paper continues:

But in the meantime, the Range purchase of Memorial means Range will have options. It can push development in Louisiana while waiting for more congenial conditions in Pennsylvania.

Reporting on the transaction, Forbes says, “[P]ipeline bottlenecks in the northeast have gotten so bad that Range has been realizing sale prices 66% below market.”

Before punishing the natural gas industry with a severance tax or regulations of questionable value, Pennsylvania politicians should consider congeniality—or common sense.

Unfortunately, a lack of it seems already to have driven one company to invest $3 billion in Louisiana instead of in Pennsylvania.

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posted by Gordon Tomb | 01:14 PM