Natural gas production tax gets life in Pennsylvania House

The potential for a tax on Marcellus Shale natural gas production gained new life Wednesday, as a bill emerged from a state House committee and Democratic Gov. Tom Wolf urged leaders of the Republican-controlled chamber to speed it to a floor vote.

Wolf, who has long sought the tax, called the proposal "fair and commonsense."

Pennsylvania, the nation's No. 2 gas state thanks to the prolific Marcellus Shale, is the only major natural gas producer that does not tax production. Wolf and other supporters of the tax say it is a fair way to help stitch up Pennsylvania's deficit-riddled finances amid a four-month budget standoff.

Six Republicans on the House Finance Committee defied party leaders to vote for the bill with all 10 Democrats.

The exploration industry opposes it, as does the Pennsylvania Chamber of Business and Industry, and it still faces a climb to get to Wolf's desk. House Republican leaders, who oppose it, could use procedural tactics to bottle it up or delay it.

The Republican-controlled Senate approved a similar tax in July, along with provisions designed to speed up the state's issuance of pollution-control permits for the activities of various industries. The House bill did not include those provisions, and Senate Majority Leader Jake Corman, R-Centre, said Republicans in his chamber would not support the tax without them.

The House bill imposes a volume tax that rises with the price of natural gas from 2 cents per thousand cubic feet to 3.5 cents per thousand cubic feet. A sponsor, Rep. Gene DiGirolamo, R-Bucks, said at the current price it would raise about $250 million in a full year, although others calculated a figure closer to $100 million, using 2016 production and current prices.

Opponents also warned that a provision in the bill changing the terms of landowner royalty contracts is unconstitutional. It would effectively prohibit producers from deducting costs before paying the 12.5 percent royalty in future contracts as well as tens of thousands of existing contracts, said James Welty, vice president of government affairs for the Marcellus Shale Coalition, a trade association.

That makes the bill is a "double whammy" for the industry, Welty said, when combined with hub prices in Pennsylvania that recently have ranged from one-half to one-third of the price at a benchmark hub in Louisiana.

"That's why you're seeing capital flow to other basins" in other states where prices are higher, Welty said.

Pennsylvania's lower prices are due to a lack of pipeline capacity to bring the gas to customers, according to the U.S. Energy Information Administration, an arm of the Energy Department.

Meanwhile, the industry and other business groups roundly say there is a profound need for faster permits: Long and uncertain wait times play havoc with a business' ability to keep its crews, equipment and money available. That hurts the economy, they say, but environmental groups bitterly oppose the Senate's proposed permitting changes.

Joe Minott, executive director of the Philadelphia-based Clean Air Council, on Wednesday said the natural gas tax "should not be used to trade away the clean air and water of Pennsylvanians."

In any case, the industry has been encouraged by higher prices at the Louisiana hub, and the number of shale wells drilled in Pennsylvania has almost doubled in 2017 compared with the same point last year.

DiGirolamo said he does not believe a tax will hurt Marcellus Shale exploration in Pennsylvania, which also sits atop another relatively unexplored shale formation, the Utica Shale.

"They're paying this tax in every other state," DiGirolamo said. "They're not leaving. The jobs are still there."