Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Severance Tax Would Hurt Natural Gas Industry

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Severance Tax Would Hurt Natural Gas Industry

Article excerpt

Armstrong County farmer Randy Walker worries about the effect of a natural gas severance tax on his royalties and the job market.

"A tax at the wellhead taxes my share and the company's share," says Mr. Walker. He adds, however, that he is most concerned about local jobs that could be lost if drilling is discouraged by a severance tax.

Mr. Walker's concerns are well founded. The natural gas industry is facing marketplace challenges that would be exacerbated by a severance tax.

By the end of 2014, natural gas drilling in the Northeast - mainly Pennsylvania - will have added 13.4 billion cubic feet to daily gas production nationwide since 2008. Meanwhile, output in the rest of the U.S. has remained essentially flat, according to Bentek Energy, an energy market analytics company.

This unprecedented growth in Pennsylvania is good news, but it creates its own set of problems.

Buried in reports that gas production from Marcellus shale is at an all-time high is the fact that the growth in new wells is slowing.

In 2012, the U.S. Energy Information Agency reported an industry estimate of "over 1,000 natural gas wells that have been drilled in northern Pennsylvania but which are not yet producing natural gas because there is not enough interstate and gathering pipeline infrastructure to accommodate the new production."

Today, we have significantly more gas available for extraction than pipelines to ship it to market - a fact that has spawned a number of projects for new pipelines. In the meantime, the shortage of pipelines drives up the cost of getting gas to consumers.

These delivery challenges are impacting drillers' bottom lines. In July, Pittsburgh-based EQT Corp. reported the prices it could get for gas in the second quarter were 18 percent below a national benchmark.

Transportation costs are so high that "dry-gas wells" - wells without lucrative byproducts like butane and propane - are barely worth developing. …

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