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Think Tank Challenges Marcellus Economic Impact

A Pennsylvania think tank believes a recent study inflates the economic importance of the Marcellus Shale.

"Overall, we welcome the gas industry's contribution to Pennsylvania's economy, but with this study, the industry continues to overstate the economic benefits and underestimate the costs of increased drilling in the Marcellus Shale," Sharon Ward, director of the Pennsylvania Budget and Policy Center (PBPC), said Wednesday.

The Pennsylvania State University study, the third in a series commissioned by the Marcellus Shale Coalition, found that the Marcellus industry increased economic activity in Pennsylvania by $11.2 billion in 2010, generating $1.1 billion in state and local taxes and supporting nearly 140,000 jobs (see Shale Daily, July 21).

The PBPC pointed to Pennsylvania Department of Labor and Industry statistics counting fewer than 19,000 direct employees in core Marcellus industries last year. Those "core" industries refer to six job categories crucial for development, but the state also considers 21 "ancillary" industries (see Shale Daily, June 23; June 3).

The study gave the Marcellus industries credit for directly creating 67,000 jobs through "purchases of goods and services, their royalties to landowners and tax payments," and it reached the 140,000 figure by including the "indirect and induced" impacts on businesses ranging from hotels to health care to recreation.

"The study also inflates the amount of tax dollars generated by the industry," Ward said. The study attributes $1.1 billion in state and local taxes to industry activity in 2010. This is much higher than a recent Department of Revenue report that attributed $219 million in 2010 state tax payments to the gas industry and its affiliates.

That state report found that natural gas development companies in Pennsylvania paid more than $1.1 billion in state taxes since 2006 (see Shale Daily, May 5).

"The study also suggests that a drilling tax or fee will deter investment in the Marcellus Shale," Ward said. "That has not been the case in places like West Virginia, Texas and Arkansas. All three states have drilling taxes and led the nation in new gas wells in 2010, well ahead of Pennsylvania, without a drilling tax."

The study found that Texas, Arkansas, Oklahoma and Louisiana offer tax breaks during the early years of production, when shale wells typically produce at high rates before sharply declining to lower rates that some believe could last decades. Some lawmakers have challenged that break in Texas (see Shale Daily, April 1).

The study also concluded that the lack of a severance tax in Pennsylvania offset higher costs in the state.

Marcellus Shale Coalition President Kathryn Klaber said member companies confidentially report information directly "from their books" to Penn State researchers, allowing the authors of the study to get access to actual contracting information and work plans as they compile employment, taxation and spending figures.

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