Study shows proposed Pennsylvania gas severance tax would be costly

A proposed natural gas severance tax in Pennsylvania would have negative economic consecutives for the state, according to a Natural Resource Economics Inc. study released May 7 by the Associated Petroleum Industries of Pennsylvania (API-PA).

“Higher energy taxes could put a damper on energy activity, and the commonwealth could be worse off with a new severance tax,” said Stephanie Wissman, API-PA executive director. “Natural gas development supports hundreds of thousands of jobs in Pennsylvania, contributes $34.7 billion annually to the state economy.”

The report, “The Economic Impacts of the Proposed Natural Gas Severance Tax in Pennsylvania,” analyzed the impact of Gov. Tom Wolf’s proposal to implement an additional gas severance tax. Proposals include adding 5% on the gross market value of production plus a fixed fee of 4.7¢/Mcf produced and establishing an artificial floor of $2.97/Mcf regardless of the actual gas price (OGJ Online, Mar. 3, 2015).

“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.

An existing local impact tax, which is collected from every shale drillsite in Pennsylvania, has distributed more than $630 million to communities since 2012, including more than $224 million in just 2014. That’s on top of over $2.1 billion in state and local taxes already generated by industry, she said.

Under Pennsylvania law, the passage of a new severance tax would repeal the existing gas impact fee. Investment and production losses resulting from a new tax could lead to cumulative losses of over $20 billion in value added or gross state product to the Pennsylvania economy during 2016-25, the study estimated.

By 2025, supported employment in the state could drop by nearly 18,000 relative to projected levels without the tax, the study said, adding high-paying construction and oil and gas sectors would be hardest hit.

“State lawmakers should reject the severance tax so that the benefits of Pennsylvania’s energy development continue to flow,” said Wissman.

The API-PA is a division of API, which represents all segments of America’s oil and natural gas industry.

Contact Paula Dittrick at paulad@ogjonline.com.

*Paula Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.

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