Natural Gas: Location, Location, Location

Member Group : Lincoln Institute

There is an old adage in the real estate business that three factors affect the price of a property: location, location, location. It is a truism that might also be adopted by Pennsylvania’s natural gas industry. Not only is the commonwealth blessed by abundant reserves in both the Marcellus and Utica shale regions, but our geographic location has the state poised to take advantage of a potentially enormous export market.

The exportation of liquefied natural gas could be the next big economic boom for Pennsylvania. Drilling in the Marcellus shale region has yielded a bounty of new natural gas supplies, so much so that prices have begun to dip. The industry has tremendous room for production growth, so the opening of new markets is essential. Pennsylvania, with its access to ports, has the ability to move liquefied natural gas products from the well head to foreign markets in a cost-efficient manner.

To understand the size of potential foreign markets it is important to grasp the versatility of natural gas liquids. Hydrocarbons, including ethane and propane, serve as key components for the manufacturing of plastics, and for the chemical industry. The gas is used as fuel for heating and cooking, and can also be blended into vehicle fuel. The demand for such products is expected to grow dramatically as emerging economic across the globe continue to develop. Therefore, gas products produced in Pennsylvania have the ability to literally fuel both domestic and international economic growth.

Already Penn’s Woods has seen an economic revival due to the development of the Marcellus Shale industry. Production of natural gas liquids from the Marcellus region is estimated to exceed 1.6 billion gallons per year by 2015. More manpower will be needed to extract that gas, and a PricewaterhouseCoopers study estimates up to one million new jobs could be created by 2025.

Adding further to the potential of this resource is the fact that estimates of gas trapped in the Marcellus Shale reserve continue to be revised upward. Estimates of gas available in the Utica Shale region also continue to evolve. Thus, projections of production levels and potential job creation may be vastly underestimated as the industry and government gets a better handle on the size of the resource available for development.

The Marcellus Shale industry has already had a transformative effect on vast swaths of Pennsylvania that previously had languished economically for decades. The potential to create a sizable export industry for natural gas liquids will not only keep that boom alive, but will expand the economic benefits to other regions of the commonwealth as the product is transported to foreign markets.

More broadly, an upsurge in natural gas exports will have a positive effect on the current U.S. trade deficit. Reducing that deficit means less borrowing from China and other nations that already hold a significant amount of U.S. debt. Increased capacity will also help lessen the Russian stranglehold on the industry, giving the U.S. a key new card in international diplomacy.

The problem, as always is government. The federal government must act quickly to grant approval for more exportation of natural gas liquids. And here in Pennsylvania, state government must resist the urge to kill off a promising surge in gas exports by throwing up regulatory roadblocks or enacting new taxes on the industry. The success of the natural gas industry has been viewed by some lawmakers as a potential piggy bank for funding pet projects. But, it is a truism that if you want less of something tax it, and placing a "success tax" on the natural gas industry is a sure fire way of preventing the industry from reaching its full potential and stifling the creation of much needed new jobs for Pennsylvanians.

Governor Tom Corbett has stood firm in his opposition to the enactment of job-crushing new taxes, but as the gas industry expands its export component look for renewed pressure by the spending interests to extract higher taxes. The fact is tax revenues – from corporate, personal income, sales and other taxes – will rise naturally because of the expanded economic activity created by development of a natural gas liquids export market. That, and not higher tax rates, is the pay-off to government.

Pennsylvania has been blessed with a golden opportunity to reinvigorate its economy, put our citizens back to work, and contribute significantly to the nation’s energy independence. Time will tell if our state government will be a partner in this progress, or a roadblock to success.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected].)

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