Meadville Tribune

January 20, 2014

Don’t get pulled into the ‘Energy Vortex’ — focus on energy security

By Louis D. D’Amico
Meadville Tribune

— The “Polar Vortex” that put much of the nation in a severe deep freeze in early January is now a thing of the past. Thankfully, the great majority of us survived those 48 hours in the relative comfort of homes, apartments and businesses heated by the natural gas and coal that is produced in our region and taken for granted by millions of consumers.

Pennsylvania is in the epicenter of a much longer struggle — call it an “Energy Vortex” — that will evolve during 2014 and beyond and have a potential long-term impact on the commonwealth’s emergence as the nation’s second leading producer of natural gas, and on our country’s new position of energy security.

The forces coming together to create this swirl in our state are numerous. A few, just for starters: the state Supreme Court’s flawed Act 13 ruling on municipal oversight of drilling activity, the drumbeat of calls for a severance tax on natural gas production, the continued misrepresentations and selective data collection and manipulation by a small number of activists seeking to vilify our industry and an upcoming election guaranteed to politicize the Energy Vortex even further.

Consumers enjoying the warmth provided by Pennsylvania’s homegrown energy at prices about 50 percent lower than prior to the natural gas boom need to pay attention to these important issues as they are described in the media, presented in advertisements and discussed among candidates for office.

The recent decision by the state Supreme Court regarding Act 13 will have at least a short-term impact on some capital investment decisions that may have gone in favor of Pennsylvania prior to the ruling. This decision by the court, accompanied by two dissenting opinions and a third concurring one based on a vastly different perspective of the law, sets an unfortunate legal precedent with unpredictable long-term practical impacts.

The fact is that the oil and gas industry has an excellent working relationship with hundreds of municipal governments and dozens of counties where drilling activity has taken place for the last 153 years, and is building a similar rapport with the northcentral region of the state that is relatively new to this activity. This spirit of partnership will not be deterred by the small number of local governments seeking to regulate the industry, but natural gas producers will gravitate to parts of the Appalachian Basin with greater regulatory certainty.

The next certainty we will face in Pennsylvania are the multiple calls for various forms of a severance tax on unconventional natural gas production, all echoing the simplistic claim that Pennsylvania is the only state without such a tax. The facts remain that Pennsylvania’s holistic business tax structure, along with the dozens of exemptions and special treatment provisions in place for unconventional wells drilled in other states, continues to reduce our tax competitiveness with those other producing states. Pennsylvania’s impact fee, which has delivered more than $400 million to county and local governments throughout Pennsylvania in just two years, cannot be discounted in the industry’s tax aggregation.

Conveniently missing from the cries for a severance tax is the economic reality of reduced long-term revenue realized from such a tax thanks to a rig count that is currently less than half its peak of 113 in 2011. Drilling activity has slowed due to stubbornly low natural gas commodity prices, and a new tax would reduce it further, bringing in fewer dollars in the process. That is also an economic reality, as is the reduction in payments to royalty owners due to such a tax.

Political realities will be at the center of the efforts by various foundations, environmental activists and energy-consuming celebrities intent on maintaining New York state’s ban on unconventional drilling, reversing the nation’s strides in energy production and manufacturing growth, and putting more geo-political power back in the hands of hostile countries we relied on for crude oil a few short years ago.

Those organizations will continue to issue biased academic reports and economic studies in an attempt to demonize and marginalize the energy industry. They will back candidates seeking to put new restrictions on natural gas development or even ban hydraulic fracturing. Their motivations should be analyzed by the public and the news media, and they must be challenged when their claims are disproven or rebutted with facts.

In the end, it is the facts that need to matter.

The average Pennsylvania household has seen its annual energy costs drop by approximately $550, and our mobile, comfort-focused society will continue to demand large amounts of reliable energy. Renewable sources, subsidized by taxpayer grants and loans in a so-far unsuccessful effort to make them approach competitiveness, can meet less than 5 percent of that demand.

Air quality continues to improve across the country, a fact that even former New York City Mayor Michael Bloomberg had to admit was due to the increased use of natural gas — produced in Pennsylvania — to supply heat to the entire metropolitan area.

Pennsylvania is fortunate to be in the heart of the most prolific natural gas field in the United States and will surpass Louisiana early this year to become the second-largest producing state in the nation. Together, the reserves in the Marcellus and Utica shale formations can drive the resurgence of the entire Ohio River Valley for decades to come.

A large number of our regional and national elected officials have grown in their energy IQ and understand the importance of our country’s strides toward greater energy security. We must continue along that path, and not get pulled into a negative Energy Vortex.

Saegertown resident Louis D. D’Amico is president and executive director of the Pennsylvania Independent Oil & Gas Association.