Economic Impact of the Marcellus Shale
Pennsylvania is positioned to greatly benefit from the booming gas industry. A Penn State study found Marcellus Shale activity in 2009 added over $389 million in state and local tax revenue, in addition to 44,000 jobs to the Commonwealth. The study predicts the industry will generate over 111,000 jobs and $987 million in state and local tax revenue by 2011, if Harrisburg doesn't impose higher taxes or more onerous regulations.1 A study by the Center for Workforce Information & Analysis estimated that in 2008 the industry added 10,287 direct jobs statewide, and the average annual earnings per each of its workers was $63,553.2
Many of the jobs being created are from the ripple effect of gas exploration. For example, last year the Reading and Northern Railroad Company was underutilized, but its president says it is now growing by transferring and storing the silica sand used for Marcellus Shale drilling.
A report by the Perryman Group estimates the Barnett Shale play in Texas accounts for $8.2 billion in annual economic output and 83,823 jobs.4 Many experts believe Pennsylvania will outperform Texas in both those categories because the shale formation here is significantly larger. Since 2009, Pennsylvania's Bradford County has seen the largest job growth of any county in the state, adding 2,000 jobs related to the natural gas industry. This rapid growth is continuing-between January and April 2010, 81 wells were drilled in Bradford County, the largest growth in any county in the state.
With new jobs comes additional tax revenue for local and state governments. Natural gas companies are paying among the highest business taxes in the nation. In fact, most drilling companies pay Pennsylvania's Corporate Net Income Tax, Capital Stock and Franchise Tax, leasing fees, and royalty payments. The state has already received almost $420 million in leasing fees and over $250,000 in royalty payments for drilling on state lands.
Apart from extensive job creation, natural gas drilling is directly benefiting residents who own the mineral rights to gas-rich property. Landowners, and in some cases coalitions of landowners, negotiate contracts specifying a percentage of the profits or a royalty payment for the production life of a well. Additionally, many companies are offering immediate signing or leasing bonuses. These arrangements have allowed many Pennsylvanians to retain their family farms. If a severance tax on natural gas is passed, landowners' royalties will also be taxed, reducing the benefit to these Pennsylvanians.
Contrary to the characterizations of severance tax proponents, the natural gas industry is marginally profitable. Toward the end of 2008, natural gas prices fell sharply and have yet to reach their $9 per million Btu (MMBtu) high. Currently, prices are under $5 per MMBtu, far below many companies' break even cost. It cost between $3 million and $5 million to construct a horizontal well, according to Range Resources, and drilling in Pennsylvania costs on average $1 million more than in other states, in large part due to extensive permitting and environmental regulations. Drilling companies are making financial investments predicated heavily upon the regulatory and tax climate of the Commonwealth.