Gov. Wolf’s $1 Billion Natural Gas Myth
During Tom Wolf’s campaign for governor, he proposed a severance tax on natural gas drilling in Pennsylvania.
The severance tax was supposed to raise $1 billion in revenue for education. At current price levels for natural gas, the governor’s own budget estimate is now $353 million in tax revenue, not $1 billion. But Gov. Wolf is still overstating the tax’s projected revenue.
House Appropriations Committee estimates are closer to $196 million. You read that correctly — $196 million, or less than 20 percent of the amount originally claimed by the governor. The $1 billion claim of tax revenue from natural gas is simply a myth. Let me explain why.
Let’s assume you own land containing natural gas with a current market value $1.4 million. Now let’s assume that you want to extract the natural gas from the land. You find out that it would cost you $2.5 million to recover $1.4 million in natural gas. This means you would lose $1.1 million.
Would you be willing to lose $1.1 million just to extract the natural gas? Certainly not, and neither are the developers of natural gas in Pennsylvania.
If the developers are not producing gas, Pennsylvania cannot collect fees or severance taxes, and this illustrates why the House Appropriations Committee’s estimates are a small fraction of those suggested by the governor.
The economics of the situation that natural gas developers face today is simple. Natural gas is measured in cubic feet, with prices quoted on 1,000 cubic feet. A year ago, the price of all energy fell substantially, including the price of natural gas. The price for natural gas has fallen from approximately $4 per 1,000 cubic feet on the national commodity exchange four years ago to about $2.80 today.
Pennsylvania has a large quantity of natural gas, but it does not have the pipeline capacity to get the gas to market. As a result, the price Pennsylvania’s natural gas developers receive is much lower than the price on the national commodity exchange. Currently, Pennsylvania’s developers receive between $1.30 and $1.50 per thousand cubic feet. That is a dramatic 50 percent below the already low national price, and it has become a problem for both Pennsylvania’s taxpayers and its natural gas developers.
How does this low price affect Pennsylvania tax revenues? The cost to develop a natural gas well is approximately $2.50 per thousand cubic feet. With the approximate market price of $1.40, drillers in our state are losing $1.10 per thousand cubic feet, or millions of dollars per well. With these potential losses, drillers have stopped drilling and developers are capping wells. With no revenue from the drillers, there is no revenue to tax.
Why has the governor allowed his campaign team to continue misstating facts — facts that don’t even align with his own budget figures? Repeating over and over again statements that are not accurate does not make them factual.
It is time to stop repeating this myth and to understand that the true revenue Pennsylvania might realize is between 10 percent and 35 percent of what has been stated by our governor.
We must move forward — past Pennsylvania’s budget impasse — and stop promoting the myth that taxing natural gas revenue will solve Pennsylvania’s current budget problems.
by State Rep. Steve Mentzer (R-Lititz)
Representative Steven Mentzer
97th Legislative District
Pennsylvania House of Representatives
Media Contact: Eric Reath
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ereath@pahousegop.com
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