Gas industry vital signs can’t handle a severance tax
The Wolf administration last week announced creation of 30 new jobs in Washington County at Neptune Solutions Co., a water treatment company serving the oil and gas industries.
“Natural gas production is growing faster in Pennsylvania than anywhere else in the country and Nepture’s recent decision to place their headquarters in Washington County proves the industry is showing no signs of slowing down,” Gov. Tom Wolf said in making the announcement.
We don’t know what references he used to make that statement, but here are the facts:
Among companies that operate in Pennsylvania, Baker Hughes has laid off 7,000 employees, Halliburton has laid off more than 5,000 employees and closed offices in Indiana County, Nabors Energy has laid off 3,480 employees, and Schlumberger, Technip and Weatherford International have experienced layoffs in the thousands of employees.
All these job reductions have included Pennsylvania locations.
Nationally, employment in oil and natural gas extraction and support activities reached 538,000 in October 2014, but has since declined by about 35,000 jobs, or 6.5 percent, through April.
According to the Marcellus Region drilling productivity report for August, new-well oil production per rig is down, the rig count is down, legacy oil production is down, legacy gas production is down and natural gas production is down.
Many of the downward trends are slight. That is good news, because for every job created in oil and gas production, three more jobs are created in the supply chain and six more in the broader economy. Even during a slowdown, the natural gas industry remains the shining light amid Pennsylvania’s cloudy economic portfolio.
But there are no figures to indicate the industry is going through the boom times that Gov. Wolf wants to tout to rationalize his desire to add a gas severance tax on top of the gas impact fees the industry already is paying. The plain truth is that he is attempting to double-tax an energy industry during a soft market, an industry that can pick up stakes and operate out of a number of other states if the tax structure is more favorable.
Wolf’s severance tax would benefit the state’s General Fund, being distributed in unknown ways, compared with the impact fees that benefit communities where the drilling and infrastructure pressure is occurring.
So the governor can tout 30 jobs we’re glad for those workers – all he wants.
But it doesn’t change the overall economic reality for the industry. The outlook for the future is solid as long as the economic framework remains as is. If the state decides to get greedy during a soft energy market, the results can turn from layoffs to moving operations elsewhere.
The gas severance tax is not a gamble the governor or the Legislature are in a position to make on behalf of residents, taxpayers and workers in Pennsylvania.