Commentary: Severance tax is Pa.'s share of shale boom

JS INEOS Intrepid, an ethane vessel commissioned by the European petrochemical maker INEOS to transport Marcellus Shale raw material from Marcus Hook to plants in Norway and Scotland.

In the coming months, there will likely be an intense debate about whether the state legislature should enact a severance tax on Pennsylvania's Marcellus Shale resources. Industry's argument against a severance tax centers largely on its potential effect on producers' competitiveness in a low-cost pricing environment.

The Wolf administration understands that the current low cost of natural gas has created a difficult economic environment for producers of Marcellus Shale natural gas and natural gas liquids. However, according to IHS Markit forecasts through 2030, natural-gas production in Pennsylvania will rise to approximately 25 billion cubic feet per day, and natural-gas liquids production will rise to at least 200,000 barrels per day.

This production is prolific, and it positions the state as a net exporter. The sheer abundance of our natural resources can also fuel manufacturing development within our own state borders.

A lack of readied infrastructure to move resources to market is a contributing factor to the difficult, short-term economic situation that Marcellus Shale natural-gas producers face. Gov. Wolf has been supportive of the need to develop pipeline infrastructure within our state to deliver our resources to end-use markets.

Something most Pennsylvanians don't know is that most of the natural gas and natural gas liquids that will be transported via several large pipeline projects currently being planned bypass the commonwealth entirely and will transport our resources to other domestic and international markets with much larger buying power.

For example, Sunoco Logistics' Mariner East 1 pipeline project is delivering ethane to Norway. Williams' Atlantic Sunrise pipeline project will deliver natural gas to the southeastern United States and to international markets. When these and other pipelines in the queue are completed, it will mark a new era in which Pennsylvania will be supplying the nation and the world with natural gas and natural gas liquids.

Contracting with end-use markets that have high demand is necessary to develop and fund large pipeline infrastructure projects. However, we cannot ignore the fact that as producers are inking lucrative contracts for the sale of natural gas and natural gas liquids sourced from the Keystone State to markets outside of our borders, they also vigorously oppose a severance tax on the resource.

Pennsylvania is the only major natural gas producing state that does not have a severance tax. We have a fee, which compensates us for the impacts to our commonwealth, but we are not being compensated for the actual extraction and corresponding depletion of our resource.

Last year, we announced that Shell decided to build a major petrochemical complex in Beaver County. Pennsylvania is the first state in Appalachia to attract an ethane cracker. We did that by working side-by-side with the company, trade organizations, local and state governments, economic development partners, and community stakeholders to take the project from prospect to a final investment decision over the course of five years.

This project will create 6,000 full-time construction jobs at peak and 600 full-time permanent positions when complete. When the ribbon is cut at the facility, Pennsylvania will have the experience of attracting, siting, permitting, and building the first ethane cracker in the Northeast. Shell will generate what an export pipeline cannot: a job multiplier effect with additional indirect and induced jobs and follow-on investment in Pennsylvania to further support the industry.

We are also working to expand end-use through the Pipeline Investment Program, which allows for natural-gas pipelines to be extended to residents and businesses to lower their energy costs by utilizing Pennsylvania's abundant and low-cost natural gas.

Currently, Pennsylvania is at the epicenter of an energy revolution. We have the ability to shape our own destiny by ensuring that our natural resources are taxed appropriately and used to support job creation and growth, accomplished through in-state use and/or manufacture of the natural gas and natural gas liquids.

As large volumes of natural gas and natural gas liquids position Pennsylvania as a global leader, the Wolf administration and the Department of Community and Economic Development will continue our strong focus on ensuring that Pennsylvanians benefit both through the enactment of a severance tax and through the development of new ways to use our resources for our own good.

We will not allow Pennsylvania to miss out on the opportunity to receive the full benefits of a globally relevant and economically prosperous shale play that is taking place within our borders.

Dennis Davin is secretary of the Pennsylvania Department of Community and Economic Development.