Natural gas severance tax would make largely negative trends even worse

Posted: July 27, 2017 8:21 am

By Daniel J. Weaver

It has become an annual ritual at crunch-time as the House and Senate work to find the revenue to fund a state budget: legislators whose constituents are receiving the benefits of lower electricity prices and cleaner air propose a natural gas severance tax that will adversely factor into companies’ deployment of capital in Pennsylvania that would increase tax revenues through growth rather than an additional tax on only one industry.

It’s true, the gas may be here, but it is also in many other states where the tax, business and regulatory climate – even in those states with severance taxes – is more amenable to economic development.  Pennsylvania would lose out on new investment and our industry will not succeed as the governor claims he wants.

This year is no exception, with a scheme to tax shale gas production at various percentages that would only raise a fraction of the amount of money needed to supplement the 2017-2018 fiscal year and beyond.  Regardless of the percentage, a severance tax will result in less drilling activity and production as well as a considerable loss of good jobs.  A small increase in one of the state’s broad-based taxes would not have the same direct impact on employment, as it would be spread the tax pinch evenly and across all segments of our economy.

Very little has changed in the world of Pennsylvania’s natural gas producers, but a lot of what has changed has been negative.  Natural gas from our state is still sold at a substantial discount from interstate hub prices due to a lack of pipeline capacity, while obtaining permits and other authorizations necessary to develop shale gas reserves has taken increasingly and unreasonably long times.

It’s time to stop this unwarranted and misguided effort to balance the budget by focusing on one industry that has the real potential to provide additional significant benefits to Pennsylvania, if enabled to do so through a responsible and common sense business development approach. The idea that Pennsylvania has left “billions” off the table by not enacting a severance tax erroneously assumes that the level of shale gas investment and development would have remained the same.

And remember, the bulk of the gas produced is privately owned – it’s not the Commonwealth’s gas.  The state budget is already benefitting greatly from the natural gas “owned” by the Commonwealth, in the form of lease and royalty payments from drilling on state land, along with the payment of taxes by our industry that are paid by every other business contributing to our economy.

There is simply nothing “fair or reasonable” about singling out and burdening energy producers with this tax.

Daniel J. Weaver is President & Executive Director of the Pennsylvania Independent Oil & Gas Association

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