Tuesday, July 28, 2009

Small Changes In Natural Gas Prices Will Offset Impact Of Proposed Natural Gas Severance Tax

Marcellus Shale development will pump $14.17 billion into the state’s economy in 2010 and create more than 98,000 jobs, while generating $800 million in state and local tax revenues, according to an economic study completed by the Pennsylvania State University for the Marcellus Shale Committee and the House Natural Gas Caucus.
The industry study notes a consistent increase in annual drilling and projects a $25 billion contribution to the Commonwealth’s economy in the year 2020. This level of activity would generate almost $1.4 billion in state and local tax revenue and create more than 176,000 new jobs.
The study confirms the "main factor affecting (Marcellus Shale) development is the market price for natural gas." (page 7) In fact, the study says that for every one percent change in price, drilling increases 2.7 percent. (page 33)
The study contents drilling activity would be curtailed by about 30 percent if the proposed severance tax on natural gas production were enacted in the state. (page 31) The result would be to generate $1.4 billion less state and local total tax revenue between now and 2020 than if the industry is allowed to grow without the new proposed tax.
It would also result in less job creation and overall economic benefits in Pennsylvania. No other mineral in Pennsylvania is subject to such tax, however, coal mined in Pennsylvania is subject to a 35 cent per ton federal mine reclamation tax.
The study, however, does not take into account projected changes is natural gas prices over the study period and its impact on drilling activity and state and local tax revenues.
Even a small change in natural gas prices, less than 41 cents per million BTUs over the 11 years of the study, would offset the impact of the proposed severance tax, according to information in the study.
The price of natural gas on July 22 was $3.79 per million BTUs, up 50 cents over the previous week, according to the Energy Information Administration. The study notes the average price of natural gas has been $7 per million BTUs. (page 7)
Pennsylvania is the only state with major natural gas reserves without a severance tax on natural gas production. A recent poll found 87 percent of those surveyed support a severance tax if revenues were used to fund environmental programs.
The industry study also confirms companies drilling Marcellus Shale natural gas reserves do not pay Pennsylvania's 9.99 percent Corporate Net Income Tax like other large businesses in the state because they are organized as limited partnerships which pay taxes at the Personal Income Tax rate of 3.07 percent like any individual. (page 30) (Click here for a full copy of the study)
NewsClips
Marcellus Shale Estimated Natural Gas Yield Rises
Gas Well Tax will Impede Development, Study Claims
Rapid Growth In Marcellus Shale Jobs, Study Says
PennFuture Calls Study Example of Fuzzy Logic

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