Friday, September 6, 2013

Pennsylvania Budget and Policy Center: Marcellus Shale NOT beneficial

Policy Center reports Marcellus Shale not beneficial

Written by  Damon C. Williams
Thursday, 05 September 2013 17:06

Marcellus Shale drill at work in Jonestown, Pa. — Photo courtesy Jones
Marcellus Shale drill at work in Jonestown, Pa.
— Photo courtesy Jones

The Pennsylvania Budget and Policy Center – a nonpartisan policy research that provides analytical data on a host of statewide initiatives – has waded into the controversial Marcellus Shale drilling in the state, and proponents of the endeavor will not like what the PBPC is reporting.

Marcellus Shale is a rock formation that underlies much of Pennsylvania and portions of New York and West Virginia at a depth of 5,000 to 8,000 feet, and is believed to hold trillions of cubic feet of natural gas.

According to the center, Pennsylvania will enjoy less of a financial boom for shale drilling as compared to neighboring states. When adding up all the costs – both environmental and fiscal – the PBPC argues that a change in the drilling tax is the only for this industry to truly benefit Pennsylvanians.

"In 2012, Pennsylvania enacted an 'impact fee' on natural gas wells drilled into Pennsylvania's Marcellus Shale that generates a relatively small amount of revenue from the expanding gas industry," wrote PBPC Research Director Michael Wood in his report, "A Look at Other States Shows Marcellus Impact Fee shortchanges Pennsylvanians." He also noted, "replacing Pennsylvania's impact fee with a modest 4 percent severance tax could generate $1.2 billion annually by 2019-20, three times the current fee.

"Using a 'moderate' production scenario - 1,400 new wells per year going forward and gas prices as most recently forecasted by the U.S. Energy Information Administration - the Pennsylvania impact fee brings in less revenue than a severance tax comparable to that of Texas or West Virginia," Wood's report continued. "As production increases over time, the gap grows larger between the revenue generated at the West Virginia or Texas tax rates and from Pennsylvania's impact fee… if Pennsylvania adopted the effective rate of West Virginia's severance tax - the middle rate of the three analyzed in this piece - the commonwealth could generate by 2019-20 nearly $1 billion more per year than it is likely to generate with the current impact fee."

The PBPC report runs counter to the findings reported by HIS, which concludes that "unconventional oil and gas activity increased disposable income by an average of $1,200 per U.S. household in 2012 as savings from lower energy costs were passed along to consumers in the form of lower energy bills as well as lower costs for all other goods and services," and that figure is expected to grow to just over $2,000 in 2015 and reach more than $3,500 in 2025.

The IHS report, "America's New Energy Future: The Unconventional Oil and Gas Revolution and the Economy – Volume 3: A Manufacturing Renaissance," also shows that Marcellus Shale drilling can reduce the federal deficit by roughly $164 billion by 2020, could potentially lead to the creation of 3.5 million jobs and spur trillions of dollars in investment.

"The unconventional oil and gas revolution is not only an energy story, it is also a very big economic story that flows throughout the U.S. economy in a way that is only now becoming apparent," said IHS Vice Chairman Daniel Yergin.

"In addition to significant job and economic impacts from energy production and its extensive supply chains, the growth of long-term, low-cost energy supplies is benefiting households and helping to revitalize U.S. manufacturing, creating a competitive advantage for U.S. industry and for the United States itself."

Those figures, if one believes the report from the PBPC, are borderline fantasy, especially for Pennsylvanians.

"Every year, Pennsylvania is leaving hundreds of millions of dollars on the table that would be collected in other, more conservative states that use those funds to help pay for schools, infrastructure and health care," Wood wrote. "Even assuming lower levels of future drilling - 1,100 new wells per year - and low future natural gas prices - $3 per thousand cubic feet - impact fee revenue would grow more slowly than Texas- or West Virginia-type taxes on the same level of gas production.

"It is important to note that drilling companies also pay local taxes, including property taxes on the production value of gas, in West Virginia, Texas and many other mineral-rich states," Wood continued. "A 2002 state court decision exempted oil and gas reserves from local property taxes in Pennsylvania, leaving municipalities and school districts with little ability to recover the cost of drilling-related impacts."

Contact staff writer Damon C. Williams at (215) 893-5745 or

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