Gov. Tom Wolf’s proposed severance tax threatens to smother Pennsylvania’s natural gas industry in its early years, Marcellus Shale Coalition president Dave Spigelmyer warned Tuesday.
“I hate to think where Pennsylvania would have been the past six years if shale hadn’t been here,” Mr. Spigelmyer said at a Times-Tribune editorial board meeting Tuesday ahead of the coalition’s meeting in Wilkes-Barre.
He cited job growth in gas-producing regions, lowered heat and power costs for consumers and tax revenues paid to the commonwealth and local governments.
Still, natural gas producers struggle with low prices, demand that hasn’t nearly kept pace with supply and a constraint in pipelines to move their product out of state, he said. He argued that piling Mr. Wolf’s proposed tax on top of these market conditions will worsen the pain.
Though the rock is here in Pennsylvania, the operators might not stick around if they can develop oil and gas on their land holdings in other states at a cheaper cost, Mr. Spigelmyer said.
“Capital will flow like water from the state if we don’t get it correct,” he said.
Wolf spokesman Jeffrey Sheridan questioned where it would go.
“Every other major oil- or gas-producing state has a severance tax,” he said. “The governor is proposing a very reasonable tax that’s in line with our neighbors.”
Mr. Wolf has proposed a severance tax of 5 percent on the value of gas at the wellhead, plus 4.7 cents per thousand cubic feet of volume, a structure Mr. Sheridan said is based on West Virginia’s severance tax.
The governor projects the tax would raise $1 billion in fiscal year 2017. He plans to use a large portion to restore state funding for education.
To ensure a reliable stream of severance tax money, the tax includes a floor of $2.97 per thousand cubic feet, a minimum price of gas at which they will assess the 5 percent tax, Mr. Sheridan said.
For the past 12 months, the volume-weighted average gas price for the Marcellus Shale region has been $2.62 per thousand cubic feet, according to a recent analysis by SNL Energy.
Mr. Spigelmyer likened the price floor to forcing someone to pay income tax on an arbitrary $100,000 per year when he or she actually makes $50,000. “It’s meddling in markets and it’s pretty dangerous,” he said.
Mr. Sheridan said the tax would take effect in 2016. The Wolf administration is banking on gas prices rebounding by then.
“There’s no place for them to go but up,” he said.
If warranted, Mr. Sheridan said Mr. Wolf will consider modifying the price floor, but not the severance tax rate.
This article was written by Brendan Gibbons from The Times-Tribune, Scranton, Pa. and was legally licensed through the NewsCred publisher network.