US states mull different tax policies for shale gas, crackers

01 February 2012 21:34  [Source: ICIS news]

NEW YORK (ICIS)--State governments in the US Marcellus Shale region are weighing different tax policies for natural gas drillers and companies seeking to build ethane crackers, a consultant said on Wednesday.

“Marcellus host states are cognisant of the fact that Marcellus is bringing in a lot of money, but there’s obviously some concern that an onerous fiscal regime could frighten investors,” said Nelly Mikhaiel, natural gas/liquefied natural gas (LNG) analyst at US-based consultancy Nexant.

Surveying the states’ attitude towards tax policy yields a mixed bag, she noted.

“Marcellus shale gas in Pennsylvania is not subject to a severance tax, which is an incentive in and of itself,” Mikhaiel said.

Severance taxes are usually levied to cover costs created by drilling, including infrastructure wear and tear, and the prevention and remediation of damage caused to the environment.

There have been calls to impose such a tax, but Pennsylvania legislators cannot agree on the tax’s scope. As of September 2011, there were about 100 Marcellus Shale related bills before the Pennsylvania General Assembly.

“Of these, 15 bills would impose a severance tax or local impact fee,” Mikhaiel said.

“However Governor Tom Corbett is adamantly opposed to a severance tax on shale gas and will not sign a bill calling for such a provision,” she added.

West Virginia has a severance tax, and it is levied on value. But in mid-January, the West Virginia House of Delegates moved forward with tax incentive legislation for the construction of an ethane cracker in West Virginia. The bill would give a 25-year tax break if passed.

West Virginia legislators estimate a new cracker would represent at least a $2bn (€1.5bn) investment in the state.

Ohio’s current severance tax on natural gas is levied on volume, but the governor is said to be considering the matter, and Ohio may increase its severance tax, Mikhaiel said.

($1 = €0.76)

By: Ivan Lerner
+1 713 525 2653

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