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Don’t Knock PA Fracking – It’s Been Our Keystone

PA Fracking Our KeystoneJohn Felmy
Retired Chief Economist, American Petroleum Institute

 

Fracking is the Keystone of Pennsylvania but the anti-fracking politician’s energy policies will leave PA out of the recovery when natural gas prices improve.

As a former dirt poor country boy turned economist who grew up near Williamsport, PA, I have seen the positive economic impact of natural gas drilling in the Keystone State. When the “shale gale” was operating in full force, diners and motels were full, local governments were collecting millions of dollars in impact fees, and communities across the state were becoming more prosperous.

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During my travels through Pennsylvania a couple of years ago, I saw things I never saw growing up, “Help Wanted” signs. Before that, there were few good paying jobs. I remember vividly my first job on a sawmill in central PA.  It was hard work, dangerous and didn’t pay much, but good for teaching a youngster the meaning of work.

Much of Pennsylvania’s economic success is attributable to fracking, but now with Marcellus Shale natural gas prices hovering at times below $1.50 per million Btu (MMBtu), drilling activity has slowed, erasing many of the financial gains. This is not surprising. The energy industry is cyclical and has a long history of booms and busts. Things are, in fact, now improving again.

In Pennsylvania, however, the oil and gas business has two additional challenges: Democrat presidential candidates have opposed fracking; Sanders wanted to stop it entirely, and Clinton says she will regulate it to death; and a governor who wants to impose a severance tax on natural gas to fund education. Gov. Wolf’s proposed tax is a campaign promise made to his political base, namely the state teachers’ unions.

The General Assembly has, to date, managed to stop major tax increases in the Pennsylvania budget, but the battle isn’t over. Gov. Wolf is likely to try again next year, despite the fact his political gift to teachers’ unions could spell economic calamity for Pennsylvania cities and counties, especially those outside of Philadelphia.

Placing another tax on natural gas will lower production. That in turn will reduce the impact fees paid to municipalities and counties. It also will stymie job growth. Low gas prices already have forced drillers to put projects on hold and lay-off workers. Nationwide, more than an estimated 100,000 oil and natural gas workers have lost their jobs.

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But Gov. Wolf ignores these facts, asserting his 2016-17 proposed 6.5 percent severance tax would have raised a substantial sum for education. The Pennsylvania Independent Oil and Gas Association (PIOGA) projected a more likely outcome. It warned the tax would “put people out of work, drive more businesses into bankruptcy, reduce energy production and result in less net-tax revenue to the state.”

The tax also could encourage drilling companies to move elsewhere. Drillers in Pennsylvania already are paying higher taxes and fees than in West Virginia, which also holds Marcellus Shale resources. Pennsylvania’s 9.99 percent Corporate Net Income tax is substantially higher than West Virginia’s 6.5 percent corporate tax.  Plus, West Virginia provides certain sales tax exemptions to drillers, which lowers drilling costs by about $120,000 per well.

If the severance tax is enacted, Pennsylvania could be left out of the recovery when oil and natural gas prices improve. No one wants Pennsylvanians to look back at the shale gale as the “good old days,” the time when jobs were plentiful and workers had money in their pockets.

To ensure a bright future, Pennsylvania’s voters should reject the anti-fracking positions held by Secretary Clinton and other like-minded pols, and the legislators should hold the line against Gov. Wolf’s severance tax. Their energy policies are aimed at promoting themselves and furthering their political aspirations. They do nothing for the well-being of the Keystone State.

John Felmy served as the Chief Economist at the American Petroleum Institute in Washington, D.C., from 2000 to 2015.

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