Marcellus Shale Impact Fees Fall

Marcellus Shale Impact Fees Fall

The Pennsylvania Public Utility Commission (PUC) released the impact fee totals for 2015 at $187.7 million—sixteen percent lower than those collected in 2014.    In fact the high-water mark to date occurred in 2013 when the impact fee garnered $225.7 million.  In 2014 that number fell slightly to $223.5 million.  The impact fee has been collected for five years (since 2011) and had not been less than $200 million (2012 realized $200.5 million).

 

Of course this new total reflects the steep decline in the price of natural gas as traded on the various exchanges based on the sale at various gas hubs—specifically the Henry Hub in Louisiana but also at local Pennsylvania hubs.  As the trading price has fallen, the number of new rigs being drilled has also declined.

 

To refresh our readers’ memories, the impact fee is a graduated fee based on the average price of natural gas as traded on the New York Mercantile Exchange based on activity at the Henry Hub.  It also is dependent upon the age of the rigs as they tend to be charged less as they get older, of course depending upon the price of gas (see Policy Brief Volume 12, Number 11 for a fee schedule).  An upcoming Policy Brief will look at the details more closely.

 

There is no doubt that the low price of natural gas has had a ripple effect throughout the industry.  When the technology first became feasible and the first wells were drilled, news accounts were full of stories of booming towns and growing employment levels.  However, over the last year or so, we have been hearing about falling natural gas prices which have caused natural gas companies to scale back activity.  The stories have been there, but up until now had not seen the tangible results.

 

The Marcellus Shale industry had been propping up the state and local economies for the last five years.  Many counties and municipalities have been relying on the local share payments from the impact fee.  Is 2015 the first sign of a shrinking industry or is it a small drop that is temporary?  One thing is certain it is very foolish to pin economic hopes on one industry, especially one that is so dependent upon supply and demand.