Randy Walker’s Armstrong County farm has been in the family for three generations. On 72 acres they grow hay, corn, oats, and care for cattle. A few years ago, Randy leased his land to local energy firm EQT, which built three Marcellus Shale wells on his property. Randy receives damage payments for the acres that aren’t usable during drilling. "The payments aren’t much" he says, "but if I said no, no one would get the benefits."
The drilling site includes two lined ponds, one with fresh water and one with flowback water. "The water has to be at least two feet below the liner’s edge," Randy explains, "and the fence around the pits go eight inches into the ground. When all the wells are drilled they’ll take out the water, and put the dirt back...the well pad will cover less than two acres."
Randy has a good relationship with EQT. "They’ve been so easy to work with. They explained everything to me so I knew what was coming. They’ve been extremely honest...they took care of small problems quickly."
For example, the company couldn’t build a road to move in their equipment due to an existing pipeline that no one would claim. In the meantime, EQT asked permission to use a small farm road. Randy recalls the road being completely destroyed, "It was a quagmire of disaster." Eventually EQT rebuilt the road—a road they would never again use. In fact, Randy later asked EQT to add more gravel, and the same day they were out adding rock.
EQT also took care to protect the environment. "They did all kinds of water testing before and after drilling. I have cattle that drink from a spring just down the hill from the well pad, and we’ve had no problems."
Soon the crews will return and begin a fourth well.
Randy is grateful for the extra income. He notes there are fewer financial pressures, "Life is a lot easier now for my wife and me." Thanks to a leasing bonus and royalty payments, he was able to paint his barn and purchase a higher quality tractor. "There are over 600 acres in my pool. That’s a lot of people benefiting from drilling."
Drilling in rural Pennsylvania isn’t just benefiting landowners. Randy notes his amazement when he visited the drilling pad and saw his brother-in-law from Texas. "He just happened to be assigned to my drilling pad," he chuckles.
It’s not just out-of-staters who are finding work. Randy says he’s always running into locals working on his pad, from mechanics to construction workers. And he’s quick to point out that even the experts from Texas and Louisiana contribute to the local economy. During the construction of his well pad, workers booked rooms at a nearby hotel in Kittanning.
If a severance tax is enacted in Pennsylvania, Randy knows he’ll be the one paying the bill. "My royalties are based on my share of what the wells produce," he explains. "A tax at the wellhead taxes my share and the company’s share, but the companies will just pass that on."
In other words, it’s the landowners and consumers of natural gas heat or electricity that will bear the brunt of the tax. It’s a good reminder that people ultimately pay the taxes levied on corporations.
Randy concludes, "We could run our state economy on this boom if the government would let us. But with more taxes...I just don’t know how many wells won’t be drilled and jobs won’t happen."
State legislators who advocate for an expansion of government incentives for alternative energy sources need to pay attention to the events happening across the pond where the European Commission is abandoning country-by-country targets for greenhouse-gas emissions after 2020.
Mounting debt and surging rates from an over-reliance on renewable energy sources such as solar and wind prompted the commission’s action, reports the Wall Street Journal (paywall):
Take Spain, where financial incentives for renewable energy have driven renewables to as much as 25% of electricity generation. They have also left the country with a $41 billion gap between what energy costs to produce and what utilities can charge for power. Mariano Rajoy's government has been scrambling to scale back the subsidies and close the gap. These efforts have left in the lurch those who installed wind and solar on the promise of high fixed payments for their power.
In Germany, Angela Merkel is also seeking to push through cuts in wind and solar subsidies and to cap new installations of renewable capacity going forward. Germany's feed-in tariffs—which guarantee renewable-energy suppliers above-market prices for their power—have helped drive up retail power prices by 17% in the past four years while costing utilities and small businesses billions. Many of Germany's largest energy users are exempt from the green surcharges, a fact that the European Commission is currently investigating as a possible illegal subsidy.
Moreover, the Journal says, European companies are moving production to the U.S. where the shale gas boom is producing an advantage in energy costs—not to mention a reduction in carbon emissions as natural gas picks up more of the share of electricity generation.
As the Journal said in a separate piece:
“The innovation of the private oil and gas industry in extracting natural gas from shale has done more to reduce CO2 emissions than have all of the Obama Administration's subsidies, mandates and crony-capitalist schemes for renewable energy.”
Another benefit of the gas boom has been lower heating bills, which have remained moderate even during recent cold snaps.
All of which suggests that state Rep. Tommy Sankey (R-Clearfield) is on the right track with his bill to repeal Pennsylvania’s Alternative Energy Portfolio Standards.
The standards—adopted in 2004—require the state’s electric companies to obtain 15 percent of their energy from alternative sources by 2023. Europe’s experience is crystal clear evidence it’s time for government to stop picking energy winners and losers.
A fair and sound tax policy requires that people or businesses pay for the government they use, including the cost of extracting natural gas. Yet despite the passage of a natural gas "impact fee" nearly two years ago, a few lawmakers and government union bosses insist drillers still aren't paying their "fair share." For example, PSEA union president Mike Crossey joined House lawmakers today for a press conference promoting legislation to increase taxes on drillers.
In reality, gas companies are already paying for more government than they're using, including an estimated $810 million in 2013 royalties to landowners, $500 million on road repairs, and billions in existing state taxes. In addition, gas drillers face the same tax climate common to every other Pennsylvania business, including the highest effective corporate income tax rate in the industrialized world.
Initially promoted as a way to compensate communities for the local impact of natural gas drilling, much of the $400 million in collected by the "impact fee" is funding broad programs that have little connection to natural gas drilling impacts, like the Commonwealth Financing Authority and Growing Greener.
Clearly, the primary goal of a new severance tax isn't just to pay for the government the natural gas industry is using, but to line the pockets of special interest groups like Crossey's PSEA and other government unions that profit off of bigger, more expensive government.
As long as the Marcellus miracle continues, those lobbying for government handouts will keep calling to increase the industry’s taxes and fees—which would effectively raise engergy costs across the state.
Those calls should be ignored because gas drillers are already paying for the costs of government they use, and more.
Could natural gas replace gasoline or diesel for Pennsylvania drivers?
With natural gas certain to become even more plentiful, many people are asking whether that could someday be the norm for transportation. But state lawmakers have taken the speculation one step further by introducing a package of legislation, called Marcellus Shale Works, to subsidize vehicles fueled by natural gas.
Unfortunately this legislation is simply corporate welfare that will do little to make natural gas vehicles economically feasible for companies or taxpayers. Petroleum Products Corp., an operator of pipelines and storage facilities notes one hauler decided against compressed natural gas and liquid natural gas for safety and economic reasons. According to the company, it cost up to $100,000 per truck bay to “explosion-proof” its maintenance areas and trucks would have smaller payloads due to the additional weight of fuel tanks.
Reuters reports that C.R. England purchased five liquid natural gas trucks in 2011, but hasn’t recuperated the almost $80,000 premium per vehicle. The company is seeking a grant from the Pennsylvania Department of Environmental Protection to add CNG trucks. Without the grant, the company’s Director of Fuel admits, they wouldn’t be considering natural gas trucks.
Freight hauler Con-way Inc. found natural gas-based fuels are expensive even with subsidies, according to Randy Mullett, a company vice president.
Con-way is testing two compressed natural gas trucks in the Chicago area and plans to add three or four liquefied natural gas (LNG) trucks in Texas, where state incentives will help offset the added costs. But Mullett said fueling big rigs with natural gas is "not the slam dunk that it's presented to be."
Natural gas-fueled vehicles have been economical for gas suppliers like Cabot Oil & Gas, which owns a $1 million compressed natural gas fueling station in Susquehanna County. And natural gas appears to be attractive for companies with certain situations like UPS, which is investing $50 million to support 1,000 liquid natural gas truck tractors whose routes are within 150 miles of a fueling station.
Companies will switch to natural gas when it makes economic sense. Government can’t predict future energy trends, and they shouldn’t be choosing winners and losers.
The natural gas boom spawned by free enterprise and new technology is doing more to help the poor than LIHEAP, a decades-old welfare program, according to the Wall Street Journal. At the same time the Journal reports that Germany’s so-called green energy programs are forcing consumers to pay well above market prices for electricity.
A study by Colorado-based energy broker Mercator Energy quantified savings produced by hydrofracturing and horizontal drilling techniques used in the Marcellus and shale deposits across the U.S.:
From 2003-08, shortly before the fracking revolution took hold, the price of natural gas averaged about $7.20 per million BTUs. By 2012 after new drilling operations exploded across the U.S.— from West Texas to Pennsylvania to North Dakota—the increase in natural gas production had slashed the price to $2.80 per million BTUs.
Thanks to the lower price for natural gas families saved roughly $32.5 billion in 2012. (That’s 7.4 billion MMBTUs of residential use of natural gas times the $4.40 reduction in price.) The windfall to all U.S. natural gas consumers -- industrial and residential—was closer to $110 billion.
The Mercator study notes low natural gas prices help low-income families the most because they spend a larger share of their income on energy. Despite energy subsidies:
" . . . lower natural gas prices have still shaved $10 billion a year from the utility bills of poor families."
By comparison, LIHEAP provided approximately $3.5 billion in home-heating subsidies to about nine million households in 2012, the Journal reports. That is only 35 percent of the benefit from lower gas prices.
Meanwhile, government green energy mandates have Germans paying the highest electricity prices in Europe, the Journal says:
This year, Germans will be forced to pay 20 billion euros ($26 billion) for electricity from solar, wind and biogas plants—electricity with a market price of just over 3 billion euros...In the near future, an average three-person household will spend about 90 euros a month for electricity. That’s about twice as much as in 2000.
Low-income Pennsylvanians are the biggest winners when politicians allow safe and affordable energy to be developed rathern than impose mandates designed to pad the pockets of green special interests.
The Delaware River Basin Commission (DRBC) continues to stymie development of the Marcellus Shale in all or parts of 13 Pennsylvania counties even as Governor Corbett, Senator Pat Toomey and property owners plea for an end to the commission's three-year moratorium on gas-well drilling.
Property owners had hoped the DRBC would act on the matter at its July meeting but no action was taken. Bob Rutledge, executive director of the Northern Wayne Property Owners Alliance LLC, says the commission wants to develop the "perfect regulation."
They are completely overstepping the basis of their charter of monitoring water quality and quantity, said Rutledge, whose Wayne County farm has been in his family since the 1840s.
Clark Rupert, a commission spokesman, said the DRBC takes its authority to regulate drilling from its 1963 compact—a broadly worded document that makes no mention of gas wells. The commission has not said when it would act on a proposal to regulate gas-well drilling.
The delay has prompted property owners to explore legal action against the commission, Rutledge said.
On June 27 property owners and Gov. Tom Corbett, an ex-officio DRBC member, sent letters claiming that the commission is infringing on property rights and denying the region of economic benefits.
Gov. Corbett’s letter says:
I am writing to convey a profound sense of frustration and disappointment on behalf of my constituents…
Adoption of this moratorium…was purportedly done to allow for the drafting of appropriate standards that would protect the water resources of the basin. However, deferring the submission of applications until regulations are adopted presumes that regulations will, ultimately, be adopted. That has failed to occur. In their letter, the property owners say that they will be left to conclude that litigation against the commission will be necessary to "regain our right to access our mineral estates" if the commission does not at least act in July to schedule a vote on its proposed drilling regulations.
The Alliance said it had "spent two and a half years…and nearly three quarters of a million dollars to procure a precedent-setting lease that is among the most community- and environmentally friendly leases in existence." The lease is now in jeopardy the Alliance reported.
In our opinion, the Alliance said, the Commission is allowing itself to be held hostage by the media and an emotion-driven anti-drilling community made up mostly of people from outside our region and by activist staffers within DRBC who are exercising their personal biases.
In the meantime, two companies that sought to drill in the Delaware River basin are withdrawing from the region where they would have paid an estimated $187.5 million in leases to landowners. Although the companies named low gas prices as the reason for their change of plans, the inaction of the DRBC could only dampen the enthusiasm of developers.
Rome wasn’t built in a day, but we’re guessing it took less than three years to secure an okay to drill.
Remember the frackaphobic film Gasland (2010) directed by Pennsylvania native Josh Fox? Although a documentary in name, we proved the film to be largely fictional. Despite critical acclaim and an Oscar nomination, the film grossed a meager $30,000 at the box office.
But that hasn’t stopped Mr. Fox from filming a sequel creatively titled Gasland Part II.
Thankfully, the Washington Free Beacon saved us the trouble of watching it by publishing their own fact-check. The Beacon focuses on four of the new film’s main hydraulic fracturing myths summarized below.
Myth: Water contamination is caused by fracking.
Fact: Ironically, as we reported earlier this week, the EPA backed away from the very study cited in the film that supposedly showed fracking at fault for contaminated water in Wyoming.
Myth: One flawed study proves natural gas is not environmentally friendly.
Myth: Fracking causes earthquakes.
Fact: The Free Beacon points out that minor tremors have been associated with poorly placed waste water disposal injection wells, not the fracking process itself.
Myth: Well casings and safety precautions are inadequate.
Fact: Fox uses a scary article showing 60 percent of well casings fail within 30 years. But the article refers to wells drilled under the ocean in the Gulf of Mexico using a different method than the land-based natural gas industry uses. Another study on land-based wells in Ohio and Texas showed an infinitesimal .00006 percent failure rate (14 of 220,000 wells).
So, why is it so important to combat these falsehoods?
The Times-Tribune reported last week that Scranton area residents are paying one-third less for natural gas than five years ago. Marcellus Shale Coalition spokesman, Pat Creighton, commented, “We are flush with gas in the United States, and that is a direct benefit to the consumer.”
Lower energy prices don’t just benefit consumers, either.
An Austrian steelmaker is actually outsourcing a production facility with 150 jobs to the U.S.—Texas to be exact. Why? Due to fracking, the natural gas used to power industrial smelters costs 75 percent less here than in Europe. Natural gas is fueling economic growth nationwide and here in Pennsylvania.
For an honest take on the fracking’s impact, and an entertaining takedown of Josh Fox’s propaganda, watch the documentary FrackNation instead.
With all of its enormous resources, the federal government’s capacity to influence exceeds even that of Hollywood and Madison Avenue. That is why it is so disconcerting when Washington abuses its power to persuade and such good news when one of its misdeeds misfires.
According to National Review Online, the U.S. Environmental Protection Agency (EPA) has backed away from a 2011 draft report that alleged that hydraulic fracturing fluids likely were the cause of contaminated water supplies in Pavillion, Wyo.
The report—released without peer review—generated alarming headlines in national media and contributed to frenzy around similar false allegations in places like Dimock, Pa, which were also proven unfounded. NRO reports the following:
The New York Times reported that ‘chemicals used to hydraulically fracture rocks in drilling for natural gas in a remote valley in central Wyoming are the likely cause of contaminated local water supplies, federal regulators said.’ The Financial Times ran a story headlined ‘EPA blames fracking for Wyoming pollution.’ National Public Radio announced that ‘for the first time, federal environmental regulators have made a direct link between the controversial drilling practice known as hydraulic fracturing and groundwater contamination.’ And the Salt Lake Tribune ran an editorial subtitled ‘EPA report shows water poisoned.’
In reality, the study conclusively proved no such thing. The research was fundamentally flawed, with the conclusion being derived less from science than from politics.
Wyoming state regulators expressed concern over the EPA report, which was found to be based on sloppy research methods that produced a small sample likely tainted by naturally occurring contaminants.
Unlike the Dimock debacle where the EPA confirmed the allegations of contaminated water were unfounded, the agency is choosing to merely drop the Wyoming study without completing the draft report. NRO says:
EPA reps said ... that although the agency ‘stands behind its work and data,’ the study won’t be finalized, and the Obama administration won’t rest on the report’s conclusions.
That’s a nice talking point, but if the Pavillion study could actually stand up to scrutiny, you can bet the EPA would be using it to act—and to act boldly.
But in the end, it didn’t matter much whether fracking had actually contaminated Wyoming’s water; having the public think it did sufficed for the EPA. So go the cynical politics of an agency with an agenda.
Pennsylvania’s new drilling impact fee has not deterred special interests from demanding more money from the state's most prolific producers of new energy.
Act 13 of 2012 imposed fees on natural gas wells that are based on the value of the natural gas produced. The fee for the first year of a horizontal gas well ranges from $40,000-$60,000, depending on the price of gas. The state expects to collect $400 million in just the first two years of this fee.
The price of natural gas has steadily declined over the past two years due to an abundance of supply—saving Pennsylvanians hundreds on their energy bills. Now those who depend on big government are suggesting the state should base the fee on the volume of gas produced rather than on its price to get even "more" tax revenue.
John Hanger, a Democratic candidate for governor, went even further, calling the impact fee "a huge subsidy to the gas industry." A fee is now a subsidy? How Orwellian!
Claims that Pennsylvania collects less money from producers than other states are missing the big picture. Patrick Henderson, Gov. Corbett’s Energy Executive, says the critique ignores more than $1.7 billion in state taxes paid by oil and gas operators since 2007. Plus, the commonwealth’s taxation begins in a well's first year while other states exempt taxes for the initial few years, says Kathryn Klaber, president of the Marcellus Shale Coalition.
It may be fair to expect an industry to compensate for its negative impacts on local infrastructure, such as damaged roads; however, even the current impact fee goes beyond that by sending money to counties that have no gas wells.
Changing the law to maximize tax revenue would create chaos for companies doing business in the state, and would run the risk of driving the businesses themselves to other, more business-friendly gas-producing states. Despite the claims of critics, gas drilling has created tens of thousands of jobs, and provided billions to Pennsylvania residents in royalty and lease payments.
But the groups that depend on taxpayer funding as part of their business model aren't satisfied with the benefits for Pennsylvania families, they just want more for themselves.
One news story highlights hundreds of jobs lost and millions of taxpayer dollars down the drain via corporate welfare. Another celebrates millions of new state revenue and free market job creation. This contrast offers a lesson for lawmakers.
The closure of Pittsburgh-based Flaberg Solar, a manufacturer of mirrors for the solar energy industry, is a tragic story of job loss and taxpayer abuse. Flaberg was awarded $10.2 million in stimulus funds and received an additional $10 million in state grants, putting taxpayers on the hook for up to $20 million.
(T)he current order and market situation in the North American solar market does not offer any prospect of profitably justifying to continue [the plant's operation], said Flaberg Solar's parent company in a statement.
Flaberg Solar, which once employed 200 people, says it cannot afford to pay former workers severances owed them. Vendors stand by with uncollected receivables as the company projects a debt of as much as $7 million.
A second article reported that the commonwealth expects to collect $400 million from the Marcellus Shale Impact Fee in the first two years of the tax's existence.
Although the tax was an unnecessary money grab, its success in generating revenue demonstrates the ability of private ventures to produce thousands of jobs, economical energy and billions of dollars in wealth without government aid.
The entrepreneurial spirit exemplified in the development of Pennsylvania's Marcellus Shale is key to the higher standard of living Americans enjoy. In contrast, corporate welfare schemes like subsidies for Flaberg Solar squander capital and destroy jobs.
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation crafts free-market policies, convinces Pennsylvanians of their benefits, and counters attacks on liberty.