City Needs Good Laws, Pipelines For Shale Gas To Pay

by Denise Furey

The debate around the development of Marcellus Shale natural gas (shale gas) in Pennsylvania initially focused on environmental concerns relating to hydraulic fracturing (fracking).

While that remains an issue for many, the number opponents of fracking have dwindled. Some early opponents are now looking at how to benefit from shale gas through taxing it. The amount, if any, of severance tax on shale gas is being battled out in Harrisburg as I write.

Some former opponents, such as our City Council President Darrell Clarke, would like to see Philadelphia benefit from the shale gas by making Philadelphia an energy hub. Philadelphia would be an ideal location for a shale-gas hub owing to its proximity to the shale along with its access to the Delaware River and rail lines.

The opportunities are great for Philadelphia but the challenges are not insignificant. There are three serious hurdles.

Workers install a section of pipeline that runs through a field that abuts a subdivision on Schultz Lane in Berthoud, CO, including the home of Steve and Tawny Peyton. Xcel Energy is putting a natural gas pipeline through Weld County, CO. Some residents and property owners are upset over a 16-inch natural gas pipeline under construction through Weld County because they don’t believe Xcel Energy gave them adequate notice of the project and they say there was no recourse available to them to protest. Given the deadly natural-gas pipeline explosion in San Bruno weeks ago, neighbors are raising questions about safety and independent oversight of the project. (Craig F. Walker/ The Denver Post) A wire line company like Renegade Wireline Services is easy to hire.

First, we need better and more-expansive gas-transport infrastructure into Southeastern Pennsylvania from the shale-gas regions. Second, we need to attract businesses that will invest in plants that will process the shale gas. Third, we need for our government officials to have the political will to pass legislation and put forth regulations that are constructive. By “constructive” I mean rules that protect our citizens without unduly burdening businesses with superfluous regulations and job-killing taxes.

Last month the Marcellus Shale Coalition held its annual conference, Shale Insight, at the Pennsylvania Convention Center. Most discussions focused on the very issues of making Southeastern Pennsylvania an energy hub and the siting of natural-gas pipelines.

The first Shale Insight, held in 2010, saw hundreds of anti-fracking protestors chanting on Broad Street. This year there were a handful and were gone by 10 a.m. of the first day of the conference.

It appears environmentalists have shifted their focus from fracking to pipelines. However, many of these protests have not been at conferences like Shale Insight, but at Federal Energy Regulatory Commission hearings on the siting of specific pipelines. The protestors at those meetings range from well-informed people with legitimate concerns about safety and the environment, to the hysterical. In addition, there are those who do not want anything that could disturb their property and will expediently latch onto an environmental issue.

Approximately 150 speakers and panelist addressed roughly 500 Shale Insight attendees. Keynote speakers included former New York Mayor Rudolf Giuliani and Pennsylvania House Speaker Mike Turzai. From closer to home, Phil Rinaldi, CEO of Philadelphia Energy Solutions, and John Welch, CEO of UGI Corp., spoke specifically about their respective firms’ current and future plans for shale gas.

Notably missing from this conference were senior members of the Governor’s administration with the exception of Dennis Davin, Secretary of the Dept. of Community & Economic Development. Gladys Brown and Rob Powelson of the Public Utility Commission were there, but Powelson is a Republican who was appointed by Gov. Tom Corbett and cannot be replaced by Tom Wolf (or a subsequent Governor) until Powelson’s term expires in 2019. Powelson was the Chairman of the PUC until Wolf made Brown the Chairman earlier this year. In previous years both the Governor and Lieutenant Governor attended. The Wolf administration’s low-key representation could stem from MSC’s opposition to Wolf’s proposed severance tax on shale gas.

In order for our region to benefit fully from shale gas, it has to get here. Currently there is limited natural-gas transport into the city and most of those pipes bring gas from the Gulf Coast.

There are a number of planned pipelines which will bring shale gas east, including the PennEast project, led by King of Prussia-based UGI. That pipeline skirts Philadelphia and goes into New Jersey. The PennEast is $1-billion project to build a new 118-mile, 36-inch diameter pipeline that will deliver approximately 1 billion cubic feet of gas per day.

There are a number of unused pipelines under Philadelphia that can be repurposed and Sunoco Logistics is planning to do so. However, these pipes are “product” transport and too small to be used for methane, which is “base-gas”. The shale gas will need to be partially processed before it can be put in these small pipes – meaning the business and related jobs will be outside the city.

In order for companies to come and build pipeline, City Council and the Mayor will have to be helpful in the siting process. This will not be an easy task. There will be pushback from special interests and environmental groups that have varying degrees of influence over the Democratic Party.

To Gov. Wolf’s credit, he has established a Pipeline Infrastructure Task Force which includes two State Representatives from Philadelphia, Martina White (R-Northeast) and William Keller (D-S. Phila.). Given the overwhelming and probably unwieldy size of the task force at over 100, any concrete actions are a bit down the road.

If we get past the first hurdle of getting the shale here, what is next? Lisa Crutchfield of the Greater Philadelphia Chamber of Commerce noted at Shale Insight that we need to attract “heavy industry” that will utilize the shale gas, both in heating and for feedstocks such as petrochemical companies. Cheniere Energy, which was represented at Shale Insight by VP Corey Gridal, is interested in developing LNG facilities that will ship the LNG to other states and nations.

The belief is that if we can get shale gas to the region and particularly to Philadelphia, businesses with family-sustaining jobs will come.

One problem was voiced by Pat Eiding of the Philadelphia AFL-CIO, who noted the City does not have a workforce with the necessary skills. He said we would need to “train the hardest to train.”

Another factor that could snuff out energy-hub dreams is bad policy on the part of the City and the Commonwealth.

Turzai spoke at length about the Governor’s planned severance tax on shale gas. Wolf’s plan at first glance does not look bad at 5%, as it seems similar to that imposed in West Virginia. However, the tax, when combined with a flat fee of 4.7 cents, applied to a minimum price of $2.97 per thousand cubic feet of gas, will make the tax the highest in the US at current prices.

Not only is Wolf’s floor above the current national benchmark price of 2.42/MCF, it is well above the $1.05 price quoted by Gas Price Traker for Pennsylvania shale gas. Pennsylvania shale gas trades a discount owing to inadequate transport infrastructure.

Also, please note Pennsylvania has one of the highest state corporate-income tax rates in the US at 9.99%.

Similarly, Philadelphia has a business tax structure and city wage taxes that have already driven business and jobs to the suburbs. Even if the Commonwealth gets its policies right, if we do not in Philadelphia, we will lose these jobs to Delaware and Bucks Counties which are also on the river.

Additionally, I hope that our city officials do not follow the Governor’s lead of wanting to pick and choose which energy companies prosper. Wolf plans to use part of his shale-gas tax for a fund to support renewable energy businesses. While wanting more renewables may be a laudable goal, I do not believe government should be investing in the entities it regulates.

I am not suggesting energy businesses should not pay taxes. PUC Commissioner Powelson noted at Shale Insight there is only one training center in the US for government pipeline-safety personnel. Using energy-tax money for hiring and training more regulators is sound policy.

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