The natural gas industry’s drilling of Pennsylvania’s Marcellus Shale provides economic benefits to the state including job opportunities and a reliable domestic energy source. That has been true in every state where the industry exists. A recent study by the American Petroleum Institute stated that the natural gas industry is responsible for $34.7 billion to the state economy and Pennsylvania’s shale gas production has increased exponentially over the past few years. Yet Pennsylvania is the only major gas producing state that does not charge a severance tax.
The industry generously profits from the Commonwealth’s natural resources. A reasonable severance tax would help address the state’s needs and invest in one of our greatest resources: Pennsylvania’s children. The opposition to a commonsense severance tax is being fed to the public directly from the industry and their paid operatives and fails to acknowledge the inherent need to fund Pennsylvania’s schools and take care of our environment.
Despite claims to the contrary, natural gas companies remain strongly profitable. In 2013 the market value of natural gas produced in the Keystone State was $11.8 billion compared to $4 billion in 2011. Drillers paid just 1.9 percent of that in impact fees. As the industry flourishes, the PA Department of Revenue reports the industry’s corporate net income taxes paid in 2013 fell below pre-Marcellus drilling levels in spite of increased production.
The industry and its special interest allies continue to perpetuate the myth that Pennsylvania’s favorable tax climate is the cause for Pennsylvania’s low natural gas prices; but the facts show otherwise. The reality is that an estimated 80 percent of the natural gas produced in PA is exported out of the state and thus any additional cost due to a severance tax would be paid mostly by non-Pennsylvanians. Furthermore, Pennsylvania’s residential prices in February 2015 were 53 cents higher than West Virginia’s and our commercial prices were 54 cents higher.
The Pennsylvania Chamber of Commerce, Commonwealth Foundation and others special interest groups claim that a severance tax would negatively impact Pennsylvania’s competitive edge to attract more gas drilling. Drillers haven’t left Alaska, Texas, North Dakota, West Virginia or any other state with gas reserves that are taxed. The total energy under the ground in Pennsylvania is estimated to exceed the energy value of Saudi Arabia. Pennsylvania has the natural resources with an estimated 1.925 billion cubic feet of recoverable gas in the Marcellus Shale and would still be offering a competitive business environment for the industry. At the same time that a small impact fee went into effect in Pennsylvania in 2012, Pennsylvania jumped from seventh to third in the rankings of natural gas producing regions. Unfortunately, the majority of that impact fee revenue stays in localities with gas wells and does not apply to areas with pipeline and compressor station disruptions.
In 2009, Chesapeake Energy said, “We gladly pay a severance tax in every state where we’re active, except in New York and Pennsylvania.” The industry needs to make a reasonable investment in the Commonwealth, the same as all hardworking Pennsylvanians do, to improve our educational system and our future. As Governor Tom Wolf has repeatedly warned, we cannot continue to do the same thing and expect a different result. The last administration’s policies had a devastating effect on the Commonwealth and we are working hard to reverse that and turn Pennsylvania back into an innovator and leader in energy as well as education. We need to work with the Governor to break the cycle of placing oil and gas interests ahead of Pennsylvania’s children and our environment.