Pennsylvania

Energy. Environment. Economy.

Déjà vu all over again: why the shale gas tax keeps flaming out

GOP House Speaker Mike Turzai

Courtesy: Roxburynews.com

At a June 2015 press conference, GOP House Speaker Mike Turzai voiced his opposition to a severance tax while reading directly from a booklet of talking points prepared by EQT, a major drilling company near his home district in southwestern Pa.

Over the years, both Republicans and Democrats in Harrisburg have wanted to raise revenue by passing a severance tax on Marcellus Shale drillers. Polls have consistently shown a majority of Pennsylvania voters support it. Last year, the idea helped propel Democrat Tom Wolf into the governor’s mansion.

But now, as Wolf and the Republican-led legislature struggle to reach a budget deal after a nearly five-month long standoff, the severance tax is once again off the table.

The tax has been debated since the shale boom took off, so why hasn’t it happened?

There are two main reasons: lawmakers who loathe raising taxes– and lobbyists.

It was obvious over the summer, right before the July 1st budget deadline. Republican House Speaker Mike Turzai called a press conference and railed against the tax.

“I think the governor’s severance tax proposals are designed to stop the growth of natural gas,” he said. “It’s going to stop energy independence, and it’s going to stop the growth of jobs in the Commonwealth of Pennsylvania.”

As Turzai stood in front of a group of reporters and TV cameras at the Capitol, there was another crowd off to his left. More than half a dozen oil and gas lobbyists watched as Turzai read directly from a booklet of talking points emblazoned with the logo of EQT—one of the biggest drillers near his home district in Southwestern Pennsylvania.

Turzai declined to comment for this story.

But the legislature’s perennial failure to implement a severance tax doesn’t surprise Barry Kauffman. He’s the executive director of the nonpartisan government reform group, Common Cause Pennsylvania.

His group has closely tracked campaign contributions and lobbying expenditures of Marcellus drillers. During last year’s election, they spent $17.9 million on state lobbying alone. They spent another $2.8 million on campaign contributions.

“Our elected officials know where their bread is being buttered,” says Kauffman. “Pennsylvania’s one of only 11 states that has no limits on campaign contributions. That is just completely absurd.”

Wolf made taxing the industry a key part of his gubernatorial campaign last year. He saturated the airwaves with TV ads, saying he’d use the money from drilling to fund public education.

“We’ll make the gas companies pay up to fund our schools,” Wolf said in one commercial. “It’s time to get Pennsylvania moving again.”

But these days—nearly five months into a state budget stalemate—things don’t seem to be moving anywhere. Until recently, the severance tax was a major sticking point.

Wolf has given up pushing for it this year.

He acknowledges his earlier statements, that the tax could raise a billion dollars, proved to be unrealistic.

“Yeah, I know the mathematics are very different, but I can’t tell you what’s motivating people who are against [the tax],” he told reporters Monday. “This is something the overwhelming majority of Pennsylvanians want.”

The tax debate stretches back to the beginning of the shale boom itself.

Back in 2009, when Democrats controlled the House, they passed a severance tax. But it was opposed by the Republican senate. During his last year in office, Republican Governor Tom Corbett—who opposed the idea—signaled he was open to it.  Last fall, at the state’s biggest gas industry trade conference, former Republican Governor Tom Ridge told executives he expected the tax was coming after the elections.

Over time, the arguments against the tax have changed. Sometimes, the industry is described as taking its first uncertain steps.

David Spigelmyer, who heads the industry trade group, the Marcellus Shale Coalition, has depicted it that way to state legislators.

“We are very much in the infancy and the early development of this play,” he said at a hearing earlier this year.

At other times, he’s said drillers could get up, and walk away if the tax burden is too heavy.

“It makes us uncompetitive with Ohio, Texas, and Louisiana–China. Capital can move like water in Pennsylvania. It can move from Pennsylvania pretty quickly.”

Lately lobbyists have been telling legislators that the industry is on its knees. Drillers are cutting costs, and laying people off, because the glut of gas and subsequent low prices have hurt the drillers badly.

With the state continuing to face large deficits, the need to find additional revenue grows. So, a natural gas severance tax will most likely be part of the discussion. Whether it becomes a reality remains to be seen.

 

 

Comments

  • bill

    I challenge these pollsters to ask who supports a 5% increase in their home heating bills. Like any other commodity the cost of production ends up in the price at the consumer end.

    • Roscoe McCloskey

      If that is the case, why all the lies and false information from the industry? It won’t impede the extraction, it won’t push the industry elsewhere. Where are they going to go? The gas is in PA. Everything about this industry is corrupt and full of misrepresentations and lies. They just don’t want to pay the tax. What we should do is make them pay all the costs of extracting our gas. Make them repair all the damage they do, return the area to the way it was before they came and created the destruction, make them clean up every drop of spilled chemical and cubic centimeter of released poison gas.. Then we would see how economically feasible this fuel is. If we were to do that we would all be using solar and wind energy immediately. Without extraction colonies like PA absorbing all of those costs the gas would not be anywhere near affordable. This whole discussion is foolish. I do not willingly give up the quality of life they are stealing from me by running their trucks up and down the roads I drive, by cutting huge swaths of timber for their pipelines and well pads, by pouring massive amounts of poison into the air and the water and the earth. Yet I have to pay to provide them the ability to do so. I say level the playing field, make them pay. See if they can survive in a real capitalist environment. They are struggling now because they are a fat, bloated industry that has no idea how to survive in business unless they are in a position of subsidized monopoly. We are a foolish state run by greedy and corrupt people who are paid off by the industry. I am so sick of hearing how the industry is going to leave if we tax them. Go! I am not a supporter of the tax, I have no desire to create a situation where we rely on their money to educate our children. We need to be able to do that and we need to be able to support everything else without their money. It will be easier to do if we are not paying for most of their profits with our sacrifices.

      • bill

        Wow. Quite a response. I was merely referencing the poll in the article that is not indicative of public support. Of course everyone wants to tax someone or something else besides themselves. By the way, natural gas is a necessary component for things beyond energy. It’s chemical makeup makes plastics possible as well as a key in the manufacture of pharmaceuticals. Speaking of which, perhaps you should take the whole Prozac before reading and responding to these articles.

        • Roscoe McCloskey

          Actually, you were doing nothing of the sort. You were trying to rationalize the lack of a tax and framing the discussion in such a way that some of less informed may decide a tax is a bad thing on the industry. Typical shill behavior. And no, not everyone wants to tax someone or something else. Many people are aware of the benefits of taxes and don’t feel that every penny of tax paid is a step towards communism. But then, you double down on the shilling with the tired old idea that we can’t live a fulfilling life without all that the wonder stuff that is NG can provide. And on top of that your proudly stand up display your childish annoyance with an informed person commenting on your foolishness. I wonder, do they use natural gas to manufacture Preparation-H? Perhaps you could find out, and in the process acquire some for the butt hurt you seem to have.

          • bill

            Do you actually kiss your significant other with that mouth?

      • South Philly

        Here, here.

    • BobSchmetzer

      The oil & gas prices are based on a international supply and demand. When Iran is able to dump their Oil & gas into the market and Saudi’s keep dumping. There will be the lowest prices in many years. Pa Tax will not be considered.

      • bill

        Not quite accurate. Oil is indeed priced globally. But natural gas is priced regionally. Texas nat gas is now fetching 3.70/mcf. PA is now fetching 1.90/mcf. Russia is getting 7.50/mcf from European countries. Iran and Saudi Arabia do not export nat gas. only crude oil.

    • CitizenSane1

      Okay, so then you admit that the severance tax will be passed on to consumers, and not actually cost the industry a dime. Thank you. I suppose now you’re going to try and convince people that the O&G industry cares so much about people that they don’t want to see them pay more.

      • bill

        Yes, and I don’t know why the industry opposes it. But my point goes to the first paragraph of the article which continues the line about a vast majority of Pennsylvanians favor a 5% severance tax which helped Wolf get elected. However, if the question was asked “do your favor a 5% hike in your home heating bill?” or if Wolf, a businessman, would have said that during the campaign I think the response would be quite different.

        • CitizenSane1

          Let me put it this way. Every home owner pays property tax/school tax. Not every home owner is a natural gas customer – I’m not, nor do I intend to be. So the real question is, would every homeowner want to have a property tax increase? I heat my entire 2500 sq/ft home with a whole house wood furnace, and get my electricity from Ethical Electric. In 2017, I’m going solar voltaic. FYI: For reasons I stated previously, I am not in favor of a severance tax. The last thing I want to see PA do is create another cash cow to become dependent on.

  • http://www.facebook.com/1522786448 Scott Cannon

    Pennsylvania has become the mecca of dysfunction and ship of fools. We allow an industry that is doing damage to our environment and forcing eminent domain pipelines near our schools and neighborhoods, and we cater to them because the industry is throwing money at our law makers? Until Pennsylvanians stop becoming lazy, apathetic, uninformed enablers, the ship will continue to sink.

    • bill

      Eminent domain and interstate pipelines is a federal issue. PA Legislators have nothing to do with it. Know your target before you shoot.

      • CitizenSane1

        Is that why the industry and their pro-gas shills are trying to get gathering lines classified as “public utilities” so they can have eminent domain authority?

        • bill

          Precisely, but again the PA Legislators don’t control the PUC. It is a separate Commission funded by utilities, not tax dollars.

          • CitizenSane1

            Actually it is since it is reliant on state and federal funding and every agency that is funded via the general budget is accountable to the state legislature and it’s administrators are appointed by the Governor and approved by the State Senate: (direct quote) *EXAMPLE: Pennsylvania Public Utility Commission Press Release: “Governor Wolf appointed Gladys M. Brown Chairman of the Pennsylvania Public Utility one day after receiving unanimous approval from the Pennsylvania Senate.”

            The Source of the PUC Funding:
            “The PUC is funded by assessment of the regulated public utilities. Subject to budget approval, the PUC may assess utilities up to three-tenths of one percent of gross intrastate revenue to cover the cost of regulation. All assessments are paid into the General Fund of the State Treasury through the Department of Revenue for use solely by the Commission. The budget for Fiscal Year 2014-15 is $64,571,000 in state funds and $3,785,000 in federal funds, for a total of $68,356,000.” http://www.puc.pa.gov/about_puc.aspx

            Also see the PA/PUC Organizational Chart: http://www.puc.pa.gov/general/pdf/PUC_Org_Chart.pdf

          • bill

            Scott Cannon’s original post here scolded the lawmakers for allowing eminent domain. I said it was a federal issue and didn’t involve state legislators.You said the pipeline companies were trying to get eminent domain via the PUC. I again said that the legislators don’t control the PUC. They approve their budgets, appoint and confirm their Commissioners. So you are saying that the legislators could stop the PUC from allowing the use of eminent domain for pipeline construction by cutting their funding until they submit? Impeach the PUC Commissioners? Please elaborate.

          • CitizenSane1

            FYI: The PA State General Fund is funded by tax dollars.

  • nathansooy

    House Speaker Mike Turzai, quite clearly, is a wholly owned subsidiary of EQT (and the rest of the Oil & Gas industry). Turzai is one example among many more that could be named. Pennsylvania’s State Legislature resembles the Coal Industry controlled politics of West Virginia that I knew when I lived in Kanawha County years and years ago. “Oh St. Peter don’t you call me cause I can’t come! I owe my soul to the Company Store.”

    • Guido

      How do you know this? Facts, please.

      • CitizenSane1

        In the legislature, 2013-2014 natural gas donations to:
        Senate President Pro Tempore Joe Scarnati totaled $101,788.
        House Majority Leader Dave Reed totaled $81,250.
        Senate Minority Leader Jay Costa totaled $48,700.
        Representative Jeffrey Pyle totaled $44,745.
        Former Senate Majority Leader Dominic Pileggi totaled $43,000.
        Senate Majority Leader Jake Corman totaled $40,750.
        House Speaker Mike Turzai totaled $27,500.

        • Guido

          Interesting numbers. What are the sources?

          • CitizenSane1

            Common Cause and Marcellus Money: http://marcellusmoney.org/findings-2/

          • Guido

            If those are your sources then the figures are from organizations with an agendas that assuredly are far from nonpartisan.

          • CitizenSane1

            Can’t dispute the facts, so you attempt to discredit the source…. but you can’t. First, I didn’t realize that energy development was a “partisan” issue. There are democrats and republicans alike who have come out in support, and in opposition to this massive industrialization. They may have a “partisan agenda”, but can you show me a source that says these numbers are wrong? No, because they’re not.. If anything, these numbers are conservative because they only disclose “direct campaign contributions” not contributions funneled through PAC’s, like “Friends of (fill in the name)”.

          • Guido

            “Facts” from your point of view. You simply posted “facts” from an organization with an obvious agenda and took them as gospel.
            Nice try.
            Have a nice day.

          • nathansooy

            Everyone is entitled to their own opinion but not their own set of facts. If you disagree with our conclusion, you must introduce some new facts to counter-balance the facts that we have presented.

            On this issue, I don’t think you have any.

          • Guido

            Read my post again. It is very clear. But let me try a simpler statement. The source of “facts” should be thoroughly reviewed. When it becomes obvious that the source has an agenda, then the presented facts are indeed open to questions of accuracy and non-bias.

          • bill

            Please give us the total campaign spending of these so called “bought off” officials and the percentage of which was evil gas money.

  • Jim Foster

    This is not that hard to understand. A significant percentage of the PA Legislature has been bought and paid for by the Marcellus industry. How else do you explain the Speaker of the PA House openly reading talking points from the driller lobbying group? How else do you explain why PA is the only state with significant Marcellus resources tht doesn’t have a severance tax?

    • JF

      You mean like the Democrats have been bought and paid for by the Unions?

  • CitizenSane1

    “Drillers could get up, and walk away if the tax burden is too heavy.” If ONLY that were true! They didn’t leave any other state because of a severance tax, did they? My biggest concern with a severance tax is that it will ‘institutionalize’ unconventional gas and oi drilling in PA by creating a ‘cash cow’ for the state to depend on to generate more revenue, and ultimately encourage more drilling. What we need to do is find out how high a severance tax needs to be for the drillers to “get up and walk away”, and that’s the tax we need to impose on them. Also, I’d like to know how in the hell Mike Tarzai and David Spigelmyer can still say “energy independence and job creation” with a straight face when we all now know that Marcellus gas is slated for export to overseas markets where the price is higher, and since the “shale boom” began in 2007, PA has gone from 7th in job creation to 49th nationally. How can they so blatantly lie like that without choking?

    • bill

      Exports: Because of the huge cost to build plants to liquefy natural gas for export and the limited number of pending permit requests at the Dept of Energy the EIA estimates total natural gas exports might reach 13% of the domestically produced gas by the year 2025. The remainder will be consumed domestically.

      • CitizenSane1

        Simply not true. Prior to the “shale boom”, there were zero LNG export facilities in the US. Now, there are fore, with an additional 19 pending approval. Also, Oil and gas corporations, like ALL corporations, have a binding fiduciary responsibility to their share holder to reap for them the highest return on their investment. That means that they must minimize operating costs, and sell their product, or service in the highest paying market. Currently, that is the Asian market where the price is 4 to five times the domestic price. In other words, if/when the overseas price drops below the US domestic price, OR the US price rises to match the Asian market price, then that gas will be sold domestically. It also worth keeping in mind that the biggest investors in US shale gas are China, Japan, and India. The reason there is this “glut” is because the supply is greater than the demand in the US, and there are not enough export facilities built. That being said, to use your argument, IF 83% of this gas is really intended to be sold in the US, and there is such a “glut”, and the price is too low for them to profit, then why the push to drill more wells? It would make far more sense for them to leave it in the ground, where it would be more valuable and less cost intensive, and let the supply diminish and the demand increase. No, I’m not an expert, but I’m not a fool either.

        • bill

          First, not all drillers are corporations with fiduciary responsibilities. Of the 144 operators in PA 8 are corporations. The rest are LLC’s or sole proprietors.

          Second, They keep drilling because the legal contracts with the landowners require production within a certain time frame or the contracts can be reopened which would not be in their best interests.

          Finally, you say the supply is greater than the demand which is only partially accurate. The domestic demand is there but the access to that demand has not yet been built out (pipelines).

          As far as Asia is concerned, LNG is tanking

          http://www.cnbc.com/2015/08/31/asian-lng-price-to-plunge-as-local-demand-wanes-supply-jumps.html

          • CitizenSane1

            An LLC is a “Limited Liability CORPORATION”, and these LLC’s have public shareholders. Therefore they do have a fiduciary responsibility to their shareholders, exactly as I explained. Also, if the “domestic demand” was there, the price would be significantly higher, and in PA, the legislature would not be trying to force rural communities that do not have pipeline infrastructure to deliver natural gas to “adopt a budget plan” to cover the costs in order to create a demand where there currently is none. Most of the people in my region heat with wood, wood pellets, and many have gone with geothermal. Many people are also moving away from propane for hot water and going with solar. It would also cost each individual home owner between $4k and $6K to connect to the infrastructure. I heat my 2500+ square foot home with a high efficiency catalytic whole house wood furnace for approximately $350 p/year. Why in the world would I want to switch to natural gas and be at the mercy of utility company rates? As for the Asian market tanking, that may be, but the target overseas markets besides China are India, Norway, Japan, Canada, and some European Countries. Here is an article from a pro-industry publication that actually came out today: http://energiaadebate.com/shale-gas-opens-door-to-u-s-lng-exports/ .

          • bill

            Nice article but full of “maybe”, “might”, “possibly”, “exploring the idea” , “contemplating”, “taking a cautious stance” whereas you stated: “when we all now know that Marcellus gas is slated for export to overseas markets” as a done deal.

          • bill
  • BobSchmetzer

    The studies from the federal government are being cherry picked so as the oil & gas industry can exploit the land , air & water. Those culpable are those who choose to ignore the studies. Vernon Swanson did a study for the Dept. of the Interior for the Nuclear regulatory commission. Looking for sources of uranium for military and industrial uses. They found them in the dried sea beds called Black Shale’s . Marcellus shale is one of them. The air , land , and , water is being made radio-active.

    • bill

      Vernon Swanson retired in 1978. The technology to drill into the Marcellus layers over a mile down did not exist then. He may have found radioactive sources in more shallow layers but could not have studied the Marcellus back then.

      • CitizenSane1

        The shale gas plays have been well known for 50 years. The reason they did not explore them further, or attempt to extract them was because the cost to extract from shale is many times higher than conventional gas deposits. Shale gas wells are also not the most productive with only 10% of the gas being economically retrievable. The life-span of a conventional well can be as much as 75 years, is less labor intensive, and leaves a much smaller environmental footprint. Unconventional shale gas wells have an average life-span of 5 to 7 years, require frequent “re-stimulation” and leave an environmental foot print between 5 and 18 acres. The technology has existed for decades to extract gas from shale, but it wasn’t until 2005 when the Bush/Cheney administration made the industry exempt from the Clean Air Act, the Clean Water Act, and the Superfund laws that gave the industry the option to go after it with minimal liability.

        • bill

          I think you’ll agree that Dr Tony Ingraffea is no gas supporter.

          Please watch his comments about the so called Bush/Cheney “loophole”.

          http://www.tubechop.com/watch/706437

          Your footprint calculations are a little off. One conventional well has a footprint of about 2 acres. One unconventional well about 4 acres. However, 12 laterals can be drilled from just one unconventional pad. 12 laterals from 4 acres. 12 conventional wells would take up 24 acres.

  • Guido

    There already is an impact fee, aka tax. But those monies go to the county in which fracking takes place. The tax proposed by Wolf and others would go into the general fund. I live in Pennsylvania and my county is benefitting from the impact fee.
    And, yes, some folks are complaining about fracking close to schools and whatever. That said, NIMBYs always are everywhere.

  • sheldon leonard

    Turzai doesn’t have a problem raising taxes on Pa citizens (he voted for Tom Corbetts’ 2 billion dollar hike in gas taxes and vehicle taxes) and he would probably vote for hikes in sales and income taxes too, but just don’t touch his friends in the shale industry

    • Guido

      Sheldon, you are referring to Act 89, the transportation bill, that was passed with bipartisan support. What you incorrectly call taxes provide monies for roads, bridges, public transportation infrastructure, and related projects. These activities translate into jobs that provide income and sales tax monies.

      The chance’s of Turzai voting for an increase in income and sales taxesare slim and next-to-none.

  • Trees2

    It should be abundantly clear to almost every Pennsylvanian that Gov Wolf said whatever he had to to win he election. His track record as abusiness man demonstrates that he is unable to run a private business, so why should be be surprised that his tenure as governor has shown he is inflexible and unyielding even when it puts the educational and social services in peril

    We, as the citizens of Pennsylvania, need to demand that our government at state, county and municipal level be accountable for the revenue they generate through taxes and fees. Once we know where our money is being spent, only then can we make intelligent choices about how to fund or not fund the activities of government.

    Natural gas is just the latest “cause celeb” which pits landowners with natural gas against the rest of the citizens of Pennsylvania. Both drillers and landowners pay numerous taxes and fees for the privlege of producing natural gas. Pennsylvania has been behind the curve in dealing with natural gas drilling and pipeline infrastructure development. Natural gas is a cyclic business, just as every other natural resource, funds generated from taxes and fees should not be relied upon to fund critical programs.

    As a nation, we have avoided the struggle and public dialog about a long term energy strategy since 1972! Instead, we have been whipsawed by OPEC and vocal extremist with a narrow agenda. Until we muster the political will to address energy in the broadest context, we will be held hostage by extremes that care little about the economic or ecological consequences of their choices. We need to base our dialog on sound peer reviewed science that has been replicated and economic realities.

    There is a middle ground that will allow for both economic growth and ecological well being of we are willing to look beyond the rhetoric and 30 second sound bits. A well though out compromise that balances the needs of society and the health of our environment is achievable if we choose to engage in meaningful dialog and seek to understand before being understood.

  • JF

    Jesse White is a coward. Like many other cowards, he likes to throw mud, but refuses to engage or allow open debate on his Facebook page. Since he’s not representing anyone I guess it shouldn’t bother me, but it does.

    Wolf is in because the public was so disgusted with Corbett a garbage can could have won. A severance tax might have some benefit to the State, might not. Ultimately the costs will be passed on to the consumer. If most of the consumption is out of State is let’s us keep more revenue here. If we use the bulk of the gas here, it’s basically a net loss as it costs money to administer a tax.

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