Pennsylvanians are earning less money from the state’s substantial natural gas reserves because of a reversal in commodity prices.
The Pennsylvania Public Utility Commission (PUC) said impact fees on natural gas production totaled around $180 million in 2023, about $100 million less than in 2022. Most of the gas output is from the Marcellus Shale, which is the top natural gas producing region in the nation.
The impact fee is a stand-in for severance taxes that are more common in other states. Since they were enacted in 2012, the fees have generated more than $2.6 billion for the nation’s second largest natural gas producing state.
The fee is levied annually on all unconventional wells during the first 15 years of operation, as long as they produce more than 90 Mcf. It is calculated using a multi-year schedule based on the average annual price of gas.
Fees collected in 2022 were an all-time high as prices soared after Russia’s invasion of Ukraine, among other bullish factors.
Proceeds from the fees are distributed to local governments and state agencies to provide for infrastructure, emergency services, environmental initiatives and other programs. Local governments receive funds based on the number of wells within their boundaries or their proximity to jurisdictions where gas extraction took place.
County and municipal governments directly affected by drilling are to receive around $100 million for the 2023 reporting year, PUC said.
A spokesperson for the Marcellus Shale Coalition told NGI that the state’s consumers continue to benefit from low prices.
“From the Coalition's perspective, while this year's fees are down, primarily due to the significant drop in New York Mercantile Exchange prices from 2022-2023, Pennsylvania gas consumers are benefiting from the low price environment – realizing $1.8 billion in savings last year compared to 2022.
“And, as a township supervisor in Western PA told the local paper, ‘every little bit helps.’”
Lower Natural Gas Prices
The impact fee drop was driven primarily because the average price of natural gas in 2023 was $2.74/MMBtu, versus $6.64 in 2022.
This year, gas prices also have remained low.
The U.S. Energy Information Administration is projecting a Henry Hub natural gas spot price average of $2.50 for 2024, which is up 13% from the average price the agency modeled last month.
NGI’s June Bidweek National Avg. climbed 57.5 cents month/month to $1.815, but it was still below the $2.020 average a year earlier.
As for Appalachian prices, things could start to change with the startup in mid-June of the long-delayed Mountain Valley Pipeline LLC (MVP). Although downstream bottlenecks remain, MVP could one day add up to 2 Bcf/d of takeaway capacity from the region.
East Daley Analytics said MVP could average 750 MMcf/d for the remainder of this year, pushing some producers in the region to bring back capacity. Executives at EQT Corp., which commands 60% of the pipeline’s capacity, said they are bringing back 1 Bcf/d of output curtailed earlier this year.
