Lawmakers Slow to Understand This Drill
Pittsburgh Post-Gazette
17 June 2010
By Brian O'Neill
Maybe you can figure this one out.
The state government is broke. Again. The red ink reached $1.23 billion
at the end of last month, and this could be the eighth straight year
our oversized Legislature fails to pass a budget by the June 30
deadline.
We may finally catch a small break, though. Pennsylvania is sitting on
a fortune in natural gas. All the other states with natural gas
drilling -- Texas, Alaska and Oklahoma prominent among them -- have a
gas extraction tax, as does our neighbor, West Virginia.
Some reasonable tax is overdue here in Pennsylvania, so the Legislature
is sure to pass one this year, right?
Not on your autographed picture of BP boss Tony Hayward.
I tuned in PCN the other day to watch the state House debate this
issue. Gov. Ed Rendell has advocated a 5 percent tax like West
Virginia's, which would put us in the middle of the pack among states
with an extraction tax.
Democratic leaders upped the proposed tax to 8 percent of the value at
the drill site and 8 cents per 1,000 cubic feet extracted. But
Republicans were wary of imposing any tax on this so-called "new
industry." (News flash: We've been drilling for fossil fuels in
Pennsylvania since 1859.)
Some Democrats differed with their leaders, too, on how to structure
the tax and how to split the revenue among the state's general fund,
its environmental protection arm and local governments. So they kicked
the entire tax package back to the Appropriations Committee.
Before they did, though, Democratic Rep. "Teflon Bill" DeWeese, of
Greene County, had some fun chiding the Republicans about how the home
states of George Bush and Sarah Palin don't have any problem with this
kind of tax.
"I have to think if it's good enough for Sarah," Mr. DeWeese said,
"it's good enough for us."
Understand, there's no way to balance the budget with this tax alone.
You can throw in the cigar tax and the other revenue proposals and, as
House Appropriations Committee Chair Dwight Evans of Philadelphia said,
lawmakers will still have to make $600 million in cuts.
We're that broke.
John Hanger, the secretary of the Department of Environmental
Protection, knows that a reasonable tax here isn't going to discourage
any drilling. The state already has issued permits for 3,800 Marcellus
Shale gas wells and about 1,800 of them have been drilled. In about
four years, Mr. Hanger said, Pennsylvania "will be well north of 10,000
permits and close to that number drilled."
At that point, we'd be producing about 10 percent of the nation's
natural gas.
"There's literally a bull's-eye on Pennsylvania around the world," Mr.
Hanger said. "That's basically a good thing as long as we're smart
about it."
He may be wrong about the bull's-eye being literal, but the biggest
players in the field are coming here from overseas. Royal Dutch Shell
PLC, Europe's largest oil company, is buying East Resources, a gas
driller based in Marshall, for $4.7 billion.
Profits from drilling here will go off-shore and certainly out of
state, but right now gas drilled here is being delivered untaxed to New
York City via pipelines, while gas consumers here are paying the taxes
to Texas, Oklahoma and the rest, Mr. Hanger said.
"We can't be chumps and we can't be played for chumps about it," he
said. "This industry is laughing all the way to the bank."
This gas boom arrived quickly. Pennsylvania issued its first Marcellus
Shale permit in 2005 but drilling didn't pick up momentum until 2008.
Many didn't notice at all until a couple of gas well mishaps in
Clearfield County and Moundsville, W.Va., attracted attention this
month. Of course, BP's disastrous operation in the Gulf of Mexico also
has reminded everyone that billion-dollar drilling operations have
their downsides.
Sen. Jim Ferlo, D-Highland Park, wants a one-year moratorium on all new
Marcellus Shale drilling -- and a severance tax on wells already
drilled because tens of millions of dollars already have been lost.
Balancing the budget is, actually, the least of the reasons for this
tax. Pennsylvania has seen 4,000 miles of streams destroyed by coal
mines. Those companies are long gone and "the bill is passed to the
taxpayer or Mother Nature," Mr. Hanger said.
We can't repeat such mistakes. Oversight needs to grow to keep up with
the drilling boom. "There's no such thing as zero-impact drilling," Mr.
Hanger said.
Up-front money is key. Because if there's any lesson to learn from
oil-scarred beaches of the Gulf, it's that when strict oversight
doesn't come until after an accident, it's already too late.
Brian O'Neill: boneill@post-gazette.com or 412-263-1947.