Pa. Leaves Money on the Table by not Enacting Gas Severance Tax

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The following policy brief was released by the Pennsylvania Budget and Policy Center on February 21, 2015

Responding to overwhelming public support for enacting a severance tax on natural gas production, Governor Wolf and several members of the General Assembly have released severance tax proposals in 2015. Actual production results from 2014 show that these plans would generate hundreds of millions of dollars in funding for schools, health care, environmental protection, and other critical needs.

Newly released gas production figures confirm that Pennsylvania is a natural gas production giant – number two in the country following only Texas. Conservatively, the natural gas produced in Pennsylvania had a market value of $13.9 billion[1] in 2015. Yet Pennsylvania remains the only major oil- and gas-producing state without a severance tax.

Growth in both the number of wells and amount of production was strong in the second half of 2014, despite recent low prices. In October 2014, gas insiders said Marcellus operators would still make money even if gas prices remain low in the long term.[2]

PA Shale Gas Production Continues to Boom

Source. Pennsylvania Department of Environmental Protection

This brief examines how much several of the new severance tax proposals would have raised had they been in place in 2014 (using a natural gas price of $3.49 per MCF - $1 less than the Henry Hub price).

Plan Sponsors

Bill Number

Tax Rate

Estimated 2014 Yield in Millions

Distribution

Governor Wolf

 

5% of price + $0.047 per MCF (similar to WV rate)

$881

Public Education

Local Communities

Other

 
   

Replaces Impact Fee

   

Reps. DiGirolamo, DeLissio, Murt, and Readshaw

Not assigned

3.2% (on top of Impact Fee)

$444

Basic Education

Pensions

Human Services

Environment

$178

$156

$67

$44

       

Rep. Harper

HB 82

3.5% (on top of Impact Fee)

$486

Pensions

$486

Sen. McGarrigle

SB 519

4%

$555

Public Education

$555

Sen. Brewster

SB 395

5% (credit for Impact Fee payments)

$468

Public Education

$468

Sen. Haywood

Not assigned

8%

$1,111

Growing Greener

$100

       

Public Schools

$607

       

Pensions

$404

Many signs point to continued increases in natural gas production. The numbers of permits issued and wells drilled increased from 2013 to 2014. Infrastructure and demand constraints are also resolving. The industry is developing additional pipeline capacity. Power plants in the region are switching from coal to natural gas, and a natural gas foreign export facility is opening in 2017. Increases in natural gas prices will only fuel more activity.

Gas production values in 2014 show how much revenue Pennsylvania continues to leave on the table by failing to enact a severance tax. As lawmakers and the governor negotiate the 2015-16 budget, a severance tax should be part of the solution.


Footnotes

[1] Using the average Henry Hub price less $1 per MCF ($3.49 over 2014).

[2] http://www.platts.com/latest-news/natural-gas/pittsburgh-pennsylvania/us...