Pennsylvania's Natural Gas Tax Giveaway Exceeds $500 Million Mark

Blog post updated: September 11, 2012

The state's Department of Environmental Production (DEP) recently published a biannual report on Marcellus Shale production in Pennsylvania. (Most states require monthly reporting, but that is a different story.) In the data, we can now see how much the state has really given away by refusing to put a robust gas extraction tax in place — and the sum is staggering.

From July 2009 to June 2012, over $8 billion worth of natural gas was extracted from Pennsylvania’s share of the Marcellus Shale. The Commonwealth would have collected $538 million had we had West Virginia's natural gas tax in place.

You may remember the Pennsylvania Budget and Policy Center's "drilling tax ticker," which tallied up the lost revenue to the state from not having a meaningful drilling tax in place. Those figures were based on conservative estimates of per-well Marcellus Shale production. We now have real production data to analyze — giving us more accurate estimates.

Gas producers are now paying an annual drilling impact fee, with payment for 2011 due in September, covering drilled Marcellus Shale wells going back as far as 2006. Going forward, these wells drilled as of the end of 2011 will only be assessed the fee if they actively produce 90,000 cubic feet or more of gas per day. 

In future years, proceeds from the annual fee are likely to be lower than a modest drilling tax would bring in over the course of a year — even at today's low natural gas prices. 

Pennsylvania Marcellus Share Production Reported to DEP

Period Producing Wells Production (MCF) Avg. Henry Hub Price Over Period Estimated Gross Yield WV Tax (5% + $0.047 per MCF)
07/09- 06/10 849 193,987,635 $4.37 $848,689,112 $51,551,874
07/10- 12/10 1,219 271,768,796 $4.16 $1,129,320,284 $69,239,148
01/11- 06/11 1,642 435,052,418 $4.39 $1,911,546,368 $116,024,782
07/11- 12/11 2,255 630,960,724 $3.83 $2,416,324,035 $150,471,356
01/12- 06/12 2,875 894,576,871 $2.43 $2,175,494,656 $150,819,846
Subtotal since July 2009 $8,481,374,455 $538,107,006
Production as listed on state-wide DEP Marcellus/unconventional wells (gas production only)
Henry Hub prices as compiled by Down Jones & Company (published by the St. Louis Federal Reserve)

How could the foregone $538 million in drilling tax revenue over the last three years have been used?

  • Rehire 3,000 teachers;
  • Save General Assistance for 68,000 needy Pennsylvanians;
  • Restore funding for parks and environmental protection; or
  • Help the state meet growing pension obligations.

Pennsylvania has consistently lost out on this one-time resource and may possibly be turning our natural bounty into a resource curse. These new data give us an idea of how much we are giving away.

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