Matthew Kandrach – President, CASE
February 18, 2019 – https://bit.ly/2BINEGa

Pennsylvania is clearly riding a wave of brilliant innovation in digitalization.  Advances in digital technologies used for fracking and directional drilling in the Marcellus and Utica shales are expected to have a significant impact on investment over the next few years, firming up the Keystone state’s position as one of the top producers of natural gas in the nation.

In November, Pennsylvania’s output of natural gas exceeded 18.2 billion cubic feet per day, second only to Texas and over 20 percent of U.S. gas production. This has put Pennsylvania in the driver’s seat for economic growth and jobs creation.

When it comes to innovation, nothing can compare to the shale revolution.  Today shale gas techniques are being successfully grafted onto manufacturing, where companies are using advanced analytics and automation to create unimagined new products.

The shale revolution has been a game changer in every sense of the word. But its continued success is not foreordained.  Several matters are up for consideration that will have a vital effect on investment in energy production – and how Pennsylvania’s economy fares in the next several years.

If Gov. Tom Wolf’s latest effort to clamp a severance tax on natural gas production winds up chasing away investors, it will haunt the state for years to come.  And it would expose Pennsylvania to the risk of a loss of revenue and jobs, while threatening the long-term health of the state’s economy.

Jacking up taxes on gas production to pay for planned infrastructure improvements is a misguided attempt to deal with the state’s chronic problems in the short term that would cost billions in the long term.  The state legislature has refused to approve the tax over the last several years, and for good reason.  Pennsylvania already has a per well impact fee on gas production, which, when combined with other taxes paid by the industry as well as lease bonuses and royalties tied to natural gas development, more than compensates for the lack of a severance tax.

Both the Governor and other political leaders in the state made early and bold commitments to keep Pennsylvania competitive in gas production. Wolf has proposed economic incentives as part of a broader strategy, including the benefits that natural gas pipelines bring.  However, if he shackles the oil and gas industry with a huge growth-killing severance tax, these commitments will mean little.

Because oil and gas prices are low, energy companies are understandably looking for ways to pare down production costs and save energy and money too.  Taxes mean less money can be spent on gas exploration and production.  And taxes translate directly into lost profit to business and give companies a plausible excuse to pull up stakes and move elsewhere.  And Pennsylvania would squander a chance to use committed funds for energy technologies that are potential revenue-producing engines like battery storage, advanced nuclear power, and electrification of transportation.

Like shale production, these are the types of advanced technologies that can make a difference. With innovation comes a stream of benefits – revenue, jobs, and new investments in radically new and different products that can potentially yield billions in consumer benefits.  It’s nice to know the scales of technology and spending are enormous.