It is indisputable that nothing in biology makes sense except in the light of evolution, but...

...nothing in evolution makes sense except in the light of Plate Tectonics.

10 March, 2015

Who is John Galt?

Image result for atlas shrugged“…if you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down on his shoulders – what would you tell him to do?”

 The price at which natural gas operators are selling their commodity in Pennsylvania is somewhere around $1.35 MMbtu-1. At that rate, most operators have laid down the drill rigs, halted completions and have either choked back production, or shut in a portion of their wells altogether.

Despite the second consecutive brutally cold winter in the northeast, natural gas reserves remain high enough that there is little hope that the price paid to operators will increase at the same rate as oil has recently enjoyed.    

In the face of such dismal prospects, the new governor of Pennsylvania is peddling a bill of goods to the uninformed in his attempt to saddle the natural gas industry with a tax which would be crippling even in good times. The details of the governor’s proposal can be found all over the web so there is no need to flog that horse any further herein.

The purpose of this very brief polemic is to make a single point:  The governor and his compatriots in the state legislature actually stand to make virtually nothing in new tax revenue from the natural gas industry. In fact, the state will likely lose tax money if anything remotely like the governor’s proposal is adopted.

What I really want to know is why there is no parallel proposal for a severance tax on all natural resource commodities: cement limestone, sand and gravel, crushed rock, road metal aggregate, coal, timber and WATER.
Image result for pennsylvania water useYes! Water. It is a natural resource which is extracted and sold by the billions of gallons per day across Pennsylvania.  A severance tax of one penny per five hundred gallons would yield $250,000,000 to the state coffers per year. A full quarter of what the governor HOPES he would get out of a natural gas severance tax.
Even a paltry severance tax of $0.10 per ton on cement limestone would add an additional $10 to $20 Million to the state kitty for a cost below the notice of most consumers.

Image result for pennsylvania agricultureWhat about agriculture?  If a severance tax of $0.10 per bushel were to be enacted on field crops and grain, another $15MM to $20MM could be heaped on the governor's gravy train.
Pennsylvania produces about five hundred million board feet of lumber per year. At $0.10 per board foot, we would get another $50 MM.  

 Image result for pennsylvania forestry
It is true that these hypothetical alternative sums are orders of magnitude lower than the Big Brother wet dreams Governor Wolf is having over a natural gas severance tax, but if similar rates to the governor's were to be added to those examples, the totals would increase satisfactorily for even his income-redistributionist mind. . 
Those are all hypothetical, but we are faced with the sad reality that the singling out of one industry as a target to fund the ills of an entire state is on our immediate horizon. The salient point is that no other business which exploits natural resources as a commodity is targeted by the governor. 

Image result for atlas shruggedTo continue with the dialogue from above:

“I… don’t know. What… could he do? What would you tell him?”

“To shrug.”

If you can put two and two together, you will already know the conversation was from Ayn Rand’s great capitalist epic, Atlas Shrugged.

To go from laying down the drill rigs, sending the frac crews home and choking back wells, to shutting in all wells completely and going to produce from holdings in a different state is nothing more than a shrug to most operators.

A State natural gas severance tax on $0.00 would be $0.00 and the corporate income tax on $0.00 would not be much higher.

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