By: Christopher D. Carusone
How will recent legislative and regulatory developments in Harrisburg affect the natural gas industry?
There has been a flurry of legislative and regulatory activity in recent weeks affecting the energy industry in Pennsylvania — some of it good and some of it bad — but all of it important.
On the positive side, news that the Pennsylvania Department of Environmental Protection has approved permit applications for the Mariner East 2 pipeline was music to the ears of project sponsor Sunoco Logistics and natural gas producers, who have been struggling for years with getting Pennsylvania’s vast deposits of natural gas liquids from western Pennsylvania to distribution outlets like the Marcus Hook Industrial Complex in Philadelphia for export to local, domestic and international markets. This good news comes on the heels of DEP’s reported approval of a water quality permit for the PennEast pipeline that will transport natural gas from Northeastern Pennsylvania to New Jersey. Outside Pennsylvania’s capital, the Federal Energy Regulatory Commission’s approval of the Atlantic Sunrise pipeline project that will transport natural gas from Northeastern Pennsylvania to points south, as well as Potter Township’s approval of Shell Chemical Appalachia’s permit to build a petrochemical complex to “crack” ethane into ethylene for use in manufacturing, are all cause for optimism, even though objections from environmental advocacy groups and other regulatory hurdles remain.
On the negative side, Pennsylvania Governor Tom Wolf has reintroduced his budget proposal to impose a 6.5 percent severance tax on natural gas production. This proposal is largely driven by Pennsylvania’s budget deficit, which runs north of $1 billion dollars year after year due in large part to Harrisburg’s failure to address the increased costs of the state’s public pension system. Advocacy for the Governor’s proposal is largely predicated on the misperception that the natural gas industry is not taxed in Pennsylvania, even though it has paid more than $1 billion in impact fees required by Act 13 of 2012 and $2.1 billion in state and local taxes during a period where natural gas prices have remained largely stagnant.
The fight against DEP’s new regulations governing the unconventional production of natural gas continues in Harrisburg, where the Marcellus Shale Coalition has challenged specific components of the unconventional regulations in Commonwealth Court and secured a preliminary injunction as to certain aspects of the new rules. Also cause for concern is DEP’s recent decision to race ahead of the U.S. Environmental Protection Agency to open a public comment period to revise its permitting process to reduce methane emissions at natural gas well sites and compressor stations. Both of these regulatory moves are expected to add millions to the cost of an unconventional well at a time when the industry can least afford it. Further compounding these concerns are bills pending in the General Assembly that would limit the ability of producers to deduct post-production costs from the royalties paid to Pennsylvania leaseholders, even when those leaseholders have specifically agreed to such deductions in their leases.
Whether Pennsylvania continues to be its own worst enemy when it comes to one of its most promising industries remains to be seen in 2017.
Chris Carusone is partner at Cohen Seglias Pallas Greenhall and Furman PC.