Pennsylvania

Energy. Environment. Economy.

When It Comes To Energy, Corbett Is Willing To Spend Big

Susan Phillips / StateImpact Pennsylvania

Gov. Tom Corbett stands in front of the shuttered Sunoco refinery in Marcus Hook, Delaware County.

Republican Governor Tom Corbett certainly can’t be accused of being a big spender. The 2011 budget he signed into law cut more than $1 billion in state spending, reducing funding for nearly every state department.

This year’s budget, finalized last month, kept funding relatively level, but reduced spending for county-level public health programs, among other items.

There’s one exception to this bare-bones philosophy, though: the grants and tax breaks the Corbett Administration has directed to energy companies.

Here’s what Corbett has handed out since May:

Corbett said the grants — which come with job-creation and investment conditions — are worth it. “When you’re looking at the investment you have to look at what it would have cost us had we done nothing, had we let these businesses go,” he argued during a press conference announcing the Marcus Hook deal. “But also, by growing the business. Pennsylvania is, in my opinion, the energy state.”

Click here for a look at how Philadelphia’s refineries are reinventing themselves, and how the domestic shale boom is playing a role in that effort.

By the end of the year, Pennsylvania will be the third-highest energy producing state in the country.
Corbett has said he wants to make Pennsylvania “the Texas of natural gas drilling.” That means a hub where energy companies not only extract gas, but process it, too.

“If we can keep the gas in Pennsylvania, for manufacturing in Pennsylvania, we get a huge benefit to that,” he said, when making the case for a tax break aimed at Royal Dutch Shell.

A Tax Break In A Buyer’s Market

The break may end up as the largest in state history. It provides a 5 cent-per-gallon tax break on ethane Shell would purchase from Pennsylvania-based natural gas drillers. The company is considering building an ethane processing plant – known as an ethane cracker – in Beaver County. The facility would be the first of its kind on the East Coast, and Corbett is convinced it would kick-start a chemical processing corridor that generates thousands of jobs.

Since Shell has already been granted a 15-year tax amnesty window as part of a Keystone Opportunity Zone bill signed in February, the break would generate millions — perhaps billions — of credit dollars that Shell could sell to another company.

The break comes at a time when ethane prices are at record lows, because the domestic shale boom has created a supply glut for the product. Ethane prices are measured by the price the compound is sold for at two major trading hubs: Mount Belvieu, Texas, and Conway, Kansas.

During a ten-month stretch, the Mount Belvieu price has dropped from about 90 cents a gallon to around 30 cents. That’s according to the Oil Price Information Service. The decline is even steeper in Conway, where ethane sold at 40 cents a gallon last fall was trading at 2.25 cents earlier this month.

That means Shell’s tax break was, at one point, worth twice as much as the cost of the actual ethane.

Texas-based energy analyst Rusty Braziel has written extensively about ethane prices at his RBN Energy blog. He expects ethane to remain “dirt-cheap” until 2017, when construction is expected to wrap up at several new petrochemical plants. But even in that buyer’s market, he said Shell’s proposed cracker is “a risky proposal that I don’t think would be prudent if the tax incentives weren’t there.”

That’s because the vast majority of ethane is processed at well-established hubs in the Gulf Coast and Midwest. During the timeframe that Shell would construct its cracker, two new pipelines will likely be built to transport Marcellus Shale ethane away from Pennsylvania.

“The only way that there’s any ethane for that cracker to use, by the time you get to 2017, is if it — I’ll use the word steals — barrels from one or both of those two pipelines,” Braziel said. “Steals is a strong word. All I mean is that it basically offers a price that is high enough for those producers to stay in the northeast, rather than move it to the south.”

The tax break is a gamble, really, since Shell’s plant would only create about 500 jobs. The rest of the 17,000 Corbett is promising only come if other companies build processing plants, too. (That figure is based on an industry-funded study.)

But Corbett is confident the tax break will pay off, and makes it clear he’ll continue to spend money on energy, even as he holds the line on the state budget. “What this does — it talks about whoever is governor after me, two or five governors after me,having an economy that is growing based on manufacturing that does not exist right now,” he said. “So they will have money for education, for social services.”

Comments

  • CarrV

    On what vast business acumen does Gov. Corbett base his predictions for an energy revolution in PA??

    • guest

      On industry-funded studies, of course! And we all know how objective and impartial they are. He is a liar and a crook and these are all quid pro quos for all the campaign contributions he got from this industry. He needs to be investigated for corruption in this area as well as for his role in the Sandusky-Penn State pedofile/sexual abuse scandal and cover up. He was Attorney General when the early charges were under investigation and around the time the Center County DA, Ray Gricar, who was investigating the initial charges for the County, mysteriously went missing. No one knows what happened to him…he’s “presumed dead”. A strange lack of concern for the mysterious disappearance of a DA, an important law enforcement official. It smells like a huge cover up to me, one the powers that be want to sweep under the carpet as quickly as possible. Corbett received large campaign contributions from the 2nd mile charity where Sandusky recruited his victims. The 2nd Mile recently announced that it had called off the investigation into this incident that was to be done by an outside party – because, it is filing for bankruptcy! What has that got to do with anything?? The remaining at risk children are to be transferred to another one of it’s facilities in Texas. Really??! And where is the concern for these children? Who knows what kind of outfit this is and what might happen to them. But, the media says we should move along, nothing to see here! No so fast! Corbett needs to be investigated, thoroughly, and so does the 2nd Mile.

      • Andrew

        Wow. That was textbook liberal. Divert from point, offer a well rehearsed unrelated point

  • Guest

    Too bad he isn’t willing to fund the infrastructure necessary to make our state successful.  Deficient bridges and roads, aging mass transit fleets.  It’s time for the Governor to increase transportation funding to bring our system into a state of good repair.

  • phoenix

    Only 500 jobs, but a 1.7 billion dollar tax break. Tom Corbett promised 17,000. Ok your trustworthy.

About StateImpact

StateImpact seeks to inform and engage local communities with broadcast and online news focused on how state government decisions affect your lives.
Learn More »

Economy
Education