Pop quiz.
Which of the following is true:
A) Bon jour, monsieur. I present to you Marcellus Shale, ze best French wine this side of ze Seine River;
B) Meet Marcellus Shale, the new Philadelphia 76er who might help the NBA team win more than 10 games;
C) Welcome to the Marcellus Shale, one of the largest natural gas fields in the world, and centered in Pennsylvania, where 60 percent of the state sits atop the reserves, whose liquid gold is conservatively valued in the hundreds of billions.
Unfortunately for vinophiles and the impotent Sixers, the answer is C.
But unbelievably, there was almost an asterisk. If lame duck Pennsylvania Governor Ed Rendell and his protégé, failed gubernatorial candidate Dan Onorato, had their way, the Marcellus Shale industry would have died before ever getting off the ground. Those politicians wanted to impose a severance (extraction) tax on natural gas, as high as ten percent. Rendell’s rationale?
Oil companies needed to pay their fair share.
Thankfully, Governor-elect Tom Corbett, with a No-New-Tax promise being the cornerstone of his campaign, trounced Onorato. In doing so, he slammed the door shut on the catastrophic failure that will forever be known as the Rendell Legacy, and opened a portal to opportunity not seen in Pennsylvania for generations.
*****
Corbett and Onorato were like night and day on a number of issues, but none more important than how to proceed with the Marcellus Shale. A severance tax, especially the one proposed by Rendell/Onorato, would have undeniably been the death knell of what is a mobile industry.
While Pennsylvania is blessed with a sizable portion of the highly-profitable Shale, our competitors are not far behind: West Virginia, Maryland, Ohio, New York and up into Maine and Canada. And Michigan, with the second highest unemployment rate in the nation, is making lucrative offers to the industry to extract Shale gas from beneath the Great Lakes.
In his attempt to make Pennsylvania competitive again --- dare we say viable ---, Corbett innately understood two things that were lost on Rendell. First, if you want less of something, tax it. Second, you can’t tax your way out of a recession and into prosperity.
But what about the “fair share” that the industry allegedly doesn’t pay? Pure election year theatre, orchestrated in a shameless attempt to close the $5 billion budget deficit created by the reckless former Governor.
The real story?
The natural gas companies in Pennsylvania, just like all other corporations, are saddled with the second highest corporate net income tax (CNI) in the nation (10 percent), along with an onerous capital stock and franchise tax and the country’s most hostile legal system. And this horrid picture doesn’t even include the world’s second-highest national corporate income tax rate (40 percent).
Put another way, the proposed severance tax and the CNI alone would have handicapped the industry from the get-go, imposing on them a massive 20 percent tax deficit out of the gate. And the result if the tax had passed? The industry would have simply rolled away from unprofitable pastures in Pennsylvania.
So much for fair share.
But now that it’s here, what is the industry giving back to the Keystone State?
Hope, optimism and a really big torch --- one bright enough to rekindle the flame that lights the way to a better tomorrow. In doing so, our citizens may yet revive the once-undying faith that each successive generation will fare better than the one before it.
How? Simple. In addition to bolstering national security (by decreasing reliance on foreign oil and diminishing the threat of terrorist attack), energy independence is the first step to bringing back our manufacturing base. And with upwards of 500 trillion (that’s with a “t”) cubic feet of natural gas in the Marcellus Shale --- enough to power the gas needs of our entire nation for decades --- there are several hundred thousand jobs that will directly result from Shale operations in Pennsylvania alone.
I saw that first-hand on a sunny day in late November.
Not far from Williamsport (of Little League World Series fame) in Lycoming County stands Montgomery, a once proud manufacturing town where jobs were guaranteed, but which has since fallen on hard times. Shells of long abandoned factories, mills and drug-infested subsidized housing became the bleak landscape at every turn, with zero job prospects and no future.
That was, until the secret of the Shale surfaced. Literally.
Now, Montgomery is full of smiling faces once again, as it has become a living, breathing symbol for the prosperity ahead --- so long as politicians and bureaucrats don’t muck a good thing.
On this day, ground was broken on a Shale-related building at the site of an old mill. The new occupants, PEAK Energy and Newalta, made a commitment for the long haul. And with them will come more and more drilling infrastructure, logistics, personnel --- and tax revenue. Revenue that will fill the coffers of Montgomery, Lycoming County and the state, as workers are employed, houses are bought (rather than foreclosed upon), hotel rooms are booked, restaurants spring up, and an entire support industry grows around Shale businesses. (Which is why, because of the Shale, Lycoming County hasn’t raised taxes in eight years).
And the workers? Primarily Pennsylvanians.
As I witnessed the job-creating event --- not exactly a common sight in this country --- I had the chance to speak with the project’s developer, John Moran, President of Moran Industries and one of the leading businessmen advocating safe, environmentally-sound gas extraction in Pennsylvania.
He said that the only way to be competitive again is to wean the nation off foreign oil, with its volatile price fluctuations, and instead develop the vast natural energy resources available domestically, starting with the Marcellus Shale.
Spoken from a man of experience, given that each truck in his logistics fleet was drinking $1,000 of diesel fuel every 36 hours during the 2008 oil spike crisis.
“I have lived and worked in Pennsylvania all my life, and never have I seen such an awesome opportunity. Responsibly harnessing the Marcellus Shale is the only thing capable of resurrecting our shattered manufacturing base and making us competitive again,” Moran told me.
A stodgy, aloof businessman John Moran is not. He gets down and dirty in his business, and his passion for the Shale allows him to explain its real value in a refreshingly simple and clear way. Politicians should take a lesson.
“Domestic gas production helps free us from our enemies while allowing us to compete with cheap labor overseas...it lowers the cost of business because of cheap energy. Pennsylvania is a snapshot of what America can be if it ever decides to truly pursue energy independence,” he added.
As we were parting ways, he summed it up this way: “Unimaginable amounts of gas under our feet, low cost energy, our manufacturing grows and jobs stay here, and the country is safer. Where’s the downside?”
The good news for John Moran is that if he ever decides to look for a new career, he would make a great columnist, as no one could have stated the importance of the Marcellus Shale any better.
