Slow down on a shale tax
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Much to the joy of the big spenders in the state House of Representatives, a huge tax on natural gas production from the Marcellus Shale in Pennsylvania is one step closer to reality. It is coming at a time when natural gas prices remain at some of their historic lows, and when parts of the state are just starting to see this activity help the local economy.
With the Senate debate set for this week, it is important to look at a few political, regulatory and legal issues from the perspective of someone working in the conventional (or non-Marcellus Shale) oil and natural gas industry.
My first reaction and precaution in the rush to consider and impose a severance tax is to ask whether Pennsylvania should slow down the debate and consider the long-term ramifications. The intensity of everything having to do with the Marcellus Shale has been overwhelming in the past 18 months, but the real development potential is several years, even decades away. Trying to get any tax in a form that will "mature" well into the future in just a few legislative session days may not be our best approach, and changing the way a tax is structured after the fact is far from certain in Harrisburg's highly charged political environment.
The second issue -- dividing the proceeds of a severance tax -- is a face-off between "population" and "property" that shows in the nonparty-line vote in the House. The people-heavy areas in the southcentral, Lehigh Valley and southeastern parts of the state have little familiarity with oil and gas drilling and are outside the Marcellus formation. The more sparsely populated parts of the commonwealth have a long history of oil and gas development. Those areas have also struggled economically for a long time, are not convinced a tax is beneficial and are dealing with drilling's short-term inconveniences and long-term benefits.
First Published October 11, 2010 12:00 am
