Shale Daily / NGI All News Access

Pennsylvania Governor Signs Budget, Ethane Cracker Tax Breaks

Pennsylvania Gov. Tom Corbett on Saturday signed the state's $27.7 billion budget for 2012-13, which includes modifications to the tax code that could potentially offer billions in tax breaks to companies investing in an ethane cracker and associated manufacturing facilities.

Details over the final version of the 387-page budget bill, SB 1466, were hammered out among legislators in the General Assembly toward the end of last week (see Shale Daily, July 2).The House of Representatives passed the measure on Thursday, 120-81, and the Senate followed suit on Friday, 32-17.

"We are making real progress on our state's foremost goal: growing new jobs," Corbett said. "Our goal is to transform Pennsylvania so we're not only a supplier of natural gas, but also a processor and manufacturer. Simply put, we will usher in a new industrial revolution in Pennsylvania."

Passed alongside the budget bill were tax code changes relevant to ethane -- outlined in SB 1563, a bill sponsored by state Sen. Elder Vogel Jr. (R-Rochester) -- which call for extending what essentially amounts to an unlimited tax break for qualifying industry, for the next 25 years, starting in 2017. Companies (not just Shell) that purchase ethane in Pennsylvania to make ethylene would be eligible for a 5 cent/gallon tax credit on their purchase that could then be applied toward up to 20% "of any qualified tax liabilities for the taxable year." The specified tax credit has been deemed to be proportional to the industry's activity and the resulting collections of new taxes on sales and income.

Corbett had originally proposed an incentive package of up to $1.67 billion, but with an annual cap of $66 million (see Shale Daily, June 6).

"It was an excellent effort on the governor's part," Lou D'Amico, president of the Pennsylvania Independent Oil and Gas Association (PIOGA), told NGI's Shale Daily on Monday. "I'm real happy that he made that effort to attract business to Pennsylvania. It will pay huge long-term benefits in terms of jobs for the state, and for the oil and gas industry."

Under the tax break plan, companies would need invest at least $1 billion in new facilities and create at least 2,500 full-time construction jobs to qualify. Legislators will also receive an annual report from the state Department of Revenue to see what companies are taking advantage of the tax break, and how much they are getting.

"The way this is structured, it's a performance-based credit, so that if something were to happen and they would not perform, then there's no benefit to Shell and there's no cost to the commonwealth," D'Amico said. "I think this was a win-win for everybody."

Last March, Shell Chemical LP -- a subsidiary of Royal Dutch Shell plc -- said it had signed an option to purchase land in Beaver County for a petrochemical complex that presumably would include a "world-scale" ethane cracker that would serve the Marcellus Shale region (see Shale Daily, March 16). Shell has said such a facility would be capable of processing 60,000-80,000 b/d of ethane.

The 300-acre site Shell selected is near Monaca, straddles Center and Potter townships and is currently owned by Horsehead Holding Corp., a zinc producer. The site lies within a Keystone Opportunity Zone, which offers another series of economic incentives, including a tax break (see Shale Daily, Feb. 6).