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Proposed Pennsylvania’s Gas Severance Threatens Energy Development, Study Finds

The Associated Petroleum Industries of Pennsylvania (API-PA) released a study May 7 that revealed the potential for economic damage if a proposed natural gas severance tax is passed by state lawmakers.

The report analyzed the impact of Governor Tom Wolf’s proposal to add a 5 percent tax on the value of the natural gas extracted from wells, 4.7 cents per thousand cubic feet (Mcf) on the volume of the natural gas, and a 5 percent tax on the value of natural gas liquids produced.

Stephanie Wissman, API-PA executive director, says the higher energy taxes could put a damper on Pennsylvania’s energy activity, an industry that contributes $34.7 billion to the state annually.

“If a new tax is created, in 2016 alone, the commonwealth could lose 6,000 jobs, not just in the oil and gas sector but also across a range of industries that are part of the gas industry supply chain and from service industries that depend on spending by workers employed in these industries,” Wissman said.

One feature of the proposal is drawing particular concern from the natural gas industry – a $2.97/Mcf for shale gas produced in Pennsylvania, regardless of the actual sale price. This means drillers wouldn’t be able to pass any additional costs on to landowners.

A spokesman for the Harrisburg-based Pennsylvania Chamber of Business and Industry compared the inclusion of the $2.97 floor price as forcing someone making $40,000 a year to pay income tax on $100,000.

If passed the proposal would repeal the existing gas impact fee, which has distributed more than $630 million to communities since 2012. The study estimates that from 2016 to 2025, the new tax could lead to cumulative losses of over $20 billion in value added or gross state product. Supported employment in the state could also drop by nearly 18,000, the study said, adding high-paying construction and oil and gas sectors would be hardest hit.

Sources:

Oil & Gas Journal

Powersource Pittsburgh Post Gazette

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