Why a Natural Gas Severance Tax is Good For Business

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An excellent point from Chris Briem:

The industry fought hard for as nearly unconstrained development of shale gas as possible across Pennsylvania. But who was hurt by that rapid drilling activity? Ironically I suggest it was the industry itself that was hurt most by the unabated rush to drill. Not too many years ago natural gas prices spiked during periods of peak demand. Both in 2005 and 2008 prices were several times what they are now, even with the the deep and extended cold. No reason not to expect similar if not worse peaks in the future and indeed the production of shale gas has kept prices low. Especially the deeper cold of the season would have made for a painful season for most consumers. If the industry had proceeded at a more deliberative pace, they might have recouped some of the profits they left on the table. The low royalty payments in the news are coincident to some very low profit margins as well.

Republican politicians and pundits want to argue that the severance tax will depress gas drilling activity or send it out of state.

But clearly it would have been a good thing to have a tax on production the past several years, because that would have helped moderate the speculative bubble mentality that brought us this gas glut.

This entry was posted in Miscellany.

5 Responses to Why a Natural Gas Severance Tax is Good For Business

  1. John H says:

    A severance tax on gas would only depress gas drilling if Pennsylvania was the only state with a tax. Since every state has some sort of severance tax or other fee on gas drilling One-Term Tom is blowing smoke.

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  3. When you talk about a severance tax, everything is so vague! The questions that remain are how much is the tax? Where does the tax go? Does it all go to the state or is it distributed to a lot of places. Right now a large percentage of the Impact fee goes to the municipalities that are impacted by the industry. It would be a huge negative impact to take that money away from the municipalities.

    • Jon Geeting says:

      I would pass a 10% severance tax and put it straight into the general fund, not earmarked for anything in particular. I would keep the impact fee too, and distribute it to municipalities as under the current procedure.

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