Both sides face off on natural-gas severance tax

The forces squabbling over a proposed natural-gas severance tax in Pennsylvania are ramping up their hearts-and-minds campaigns.

The Marcellus Shale Coalition on Tuesday released an industry-commissioned study that projects natural-gas drilling could generate more than $8 billion in economic benefits this year and add more than 88,000 jobs in the state - double the numbers it says were created last year.

But the industry study, by Pennsylvania State University's Department of Energy and Mineral Engineering, asserts that a proposed severance tax on natural-gas production could snuff out the boom.

"The imposition of any significant severance tax on Marcellus natural-gas output could induce a redirection of investment flows to other shale plays," said the authors of the study, presented Tuesday at the Capitol Rotunda in Harrisburg.

The Rendell administration, which is rallying political support for a severance tax of about 6 percent, issued a news release late Monday blaming gas drillers for increases in truck traffic, road damage, traffic violations, crime, and demand for social services.

In a statement, Transportation Secretary Allen D. Biehler and Pennsylvania State Police Commissioner Frank Pawlowski argued that a severance tax could provide "funds to repair roads and other infrastructure, bolster local law-enforcement efforts, or provide programs to help those in need."

"The high volume of heavy truck traffic carrying water, equipment and chemicals to drilling sites has caused extensive damage to secondary roads and even some primary roads," Biehler said, noting that many secondary roads in the state's northern tier lack the base foundation to accommodate heavy equipment.

Pawlowski cited a Feb. 9 enforcement effort in Susquehanna County that found 56 percent of 194 trucks checked were found to be over the weight limit.

"More and more," he added, "it seems the police reports coming out of the northern tier include arrests because of drug use and trafficking, fights involving rig workers, DUIs, and weapons being brought into the state and not registered properly."

The dueling images of the natural-gas bonanza are at the center of a debate over the severance tax, which is now before the legislature.

Rendell argues that Pennsylvania is the only major gas-producing state that does not impose a production tax. Under his plan, the state would take in about $1.8 billion over five years, with $180 million of that shared directly with local governments.

Industry argues the tax would stifle a nascent business that has become one of the state's few shining economic stars, unassisted by government subsidies.

The Penn State study was conducted by Robert W. Watson, an emeritus engineering professor, Timothy J. Considine, an energy economist, and Seth Blumsack, an assistant professor of energy policy and economics.

Watson and Considine were the lead authors of a similar study in August whose bullish projections are frequently cited by industry - and often derided as one-sided by environmental advocates.

"This report is all based on assumptions provided by the industry," Jan Jarrett, president of Citizens for Pennsylvania's Future (PennFuture), said of Tuesday's report. "The report looks at the economic benefits, but does not factor in any of the costs."

Measuring the full impact of the Marcellus Shale boom is challenging. Many benefits are generated indirectly through the supply chain - the companies providing supplies, food, shelter and transportation to the industry.

The study's authors, basing their projections on a survey of companies that accounted for most of the 710 Marcellus wells started last year, said the industry spent $7.7 billion in the last two years.

It paid $3.5 billion in signing bonuses to owners of mineral rights in the last two years, the study says.

The industry last year paid $54.7 million in royalties to property owners based on a percentage of gas sold, when production averaged 327 million cubic feet per day. The study projects output will average 1 billion cubic feet per day this year and 2.5 billion cubic feet per day next year.

Counting direct and indirect employment, the study estimates that the Marcellus created 44,098 jobs last year, and that the number will quadruple to 160,205 by 2015.

In a more narrow report released last month, the Pennsylvania Department of Labor and Industry estimated that Marcellus drilling would increase the gas- and oil-industry workforce from 8,025 to 12,423 in 2016.

James Martini, a statistical analyst, said the state's report did not attempt to include employment in the industries that supply gas operators, nor on the economic effect of lease and royalty payments.

"We're looking at things we can actually measure and study," he said.