Gas Drilling-Well Regulations

A crew works on a gas drilling rig at a well site for shale-based natural gas in Zelienople, Pa.

Pennsylvania’s drilling impact fee will hit a record low this year after the pandemic zapped energy demand.

The Independent Fiscal Office said the price of natural gas on the New York Mercantile Exchange (NYMEX), upon which the impact fee is based, declined 21 percent this year, landing at $2.08. The IFO estimates that any price below $2.25 would deplete funding for the impact fee by $53 million.

The impact fee, first established under Act 13 of 2012, authorizes a tax on unconventional gas wells. The Pennsylvania Public Utility Commission collects and redistributes the proceeds across the state’s 67 counties for economic development projects.

In 2018, the impact fee reached $254 million after a state Supreme Court ruling narrowed the definition of a certain type of low-producing well called a “stripper well,” boosting fee collections by $30 million.

But like most other industries in 2020, the pandemic hit natural gas production hard, depressing prices both in and out of state.

“The COVID-related economic slowdown has softened global energy demand and the lack of pipeline take-away capacity in the region has impacted commodity prices, leading to a pullback in production activity,” said David Spigelmyer, president of the Marcellus Shale Coalition.

The coalition said the fee has generated nearly $2 billion in less than a decade for local governments. Gov. Tom Wolf and Democrats have proposed an additional severance tax on natural gas producers to help fund infrastructure projects across the state, though it remains unpopular among Republicans who worry about driving companies out.

Natural gas production supports about 24,000 jobs, according to state data, and is second only to Texas in terms of overall gas procured, exceeding 6.8 trillion cubic feet in 2019.

“Our industry is resilient, and we know that natural gas will continue to drive job creation and economic growth, especially as critical pipeline infrastructure is brought online and in-state manufacturing expands,” Spigelmyer said.

The IFO will release an updated outlook on impact fee collections, not submitted until April 2021, at the end of January.

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