PA: Top Energy Destination
When you think of energy powerhouses across the United States, the traditional energy giant, Texas, may first come to mind. However, the tide is changing. Pennsylvania was recently named Top Global Destination of the Future for Energy-Intensive Industries by the Foreign Direct Investment (FDI) Association. Consequently, Pennsylvania was the only U.S. location to make the list. Ontario, Canada came in second, while Sheffield, United Kingdom and Ostersund, Sweden tied for third place.
According to fdia.com, the FDI Association is a “global association of practical use in helping governments to provide optimal conditions for foreign investors,” that create “a clear FDI dialogue between government and industry” by “raising the profile of an activity that makes a quiet but significant contribution to the global economy” and “providing an unmatched, exclusive forum for debate, deal-making and professional education.”
Worldwide nominations were accepted and evaluated by a panel of distinguished global industry consultants, according to the FDI Association, while the designation was for the achievement of regions actively implementing strategies to support foreign direct investment in the energy sector.
“Pennsylvania has the second largest energy field in the world, and we are responsibly harvesting these resources to create family-sustaining jobs and reinvigorate local communities all over the commonwealth. Thanks to our ‘all of the above-and below’ energy strategy, Pennsylvania has earned international recognition in terms of energy production and is leading the way toward American energy independence,” expressed Pennsylvania Governor Tom Corbett.
“There are more than 200,000 people working in jobs either created or made more secure by Pennsylvania’s energy industry,” relayed Governor Corbett’s office. Overall Pennsylvania is one of the top U.S. energy producers. According to the U.S. Energy Information Administration (EIA) for U.S. production, Pennsylvania ranks third for natural gas production, second for nuclear electric power, third for electric generation and fourth for coal production. In addition, Pennsylvania is the only state producing anthracite coal, which has a higher heat value than other kinds of coal.
Perhaps the largest contribution to the recent energy ranking is the rapid expansion of the shale oil and gas industry in Pennsylvania due to the vast resources of the Marcellus and Utica Shale plays. Many rankings even position Pennsylvania as second in the U.S. for natural gas production. According to the Governor’s office, shale gas development has contributed more than $14 billion in economic activity since 2012. In addition, the impact fee has generated $630 million in revenue since its enactment in February 2012.
Mike Krancer, Former Secretary of the PA Department of Environmental Protection (DEP) and now Partner and head of the energy industry team at Blank Rome LLP in the firm’s Philadelphia office, says the ranking speaks for itself and credits the Governor, his administration and the DEP for it. Krancer expressed, “The energy plan set up by the governor and his wisdom of having an impact fee and not having a severance tax has helped Pennsylvania. States surrounding Pennsylvania do have the severance tax and were not named in the rankings. Pennsylvania’s ranking is vindication for the Governor’s policy and also a credit to the PA DEP for how well they regulate.”
Krancer explained, “The Impact Fee has protected the revenue streams (that go to local municipalities and green programs in PA) from being diminished while the price of natural gas has going down. In ‘severance tax’ states much of the tax due is calculated based on the market value of the gas. In fact, that’s the way Rendell’s proposal was too. In such cases state revenues tumble when the price of natural gas tumbles and that is exactly what has happened to the revenue streams of some states with a value based severance tax. Not so with the Impact Fee, while the price of natural gas has gone down the stream of impact fee revenues have been steady—NOT down.”
In addition, “The total tax revenue generated from taxes on drilling companies and shale related activities (e.g. real estate transfer tax, withholding tax, income tax from earned income of royalty owners and workers, etc.) is $2.1 billion since 2008. That’s in addition to the $630 million generated in Impact Fees over three years, which brings the total revenue from the industry and related shale activities is over $2.7 billion, so it’s not like no severance tax equals no tax of the industry,” relayed Krancer.
Krancer added, “Marcellus Shale wells have produced nearly two trillion cubic feet (Tcf) of gas during the first six months of 2014.” The discovery and growth of the Marcellus Shale has brought more jobs to the state and in turn more people, who need housing along with ancillary items and services. This increase has created a ripple effect that is pushing more revenue from taxes, such as sales, real estate, state and local.
“The business climate in Pennsylvania has dramatically changed throughout the region due to the ever expanding energy industry. Reports from Penn State Geologists and the EIA state the Marcellus Shale could yield upwards of 500 trillion cubic feet of natural gas. This is what all the excitement is about. The abundance of recoverable dry and wet gas has enticed out of state as well as international interest from companies to move into the region. This influx of new companies has created the perfect storm of supply and demand when it comes to Commercial Real Estate,” relayed R.T. Walker, Vice President, CBRE, Energy Facilities Group.
Walker went on to explain, “There is a deficit of adequate space to accommodate this industry, let alone, all existing companies in other industries looking to expand or relocate in the region. The regions vacancy rates are at a 30 year low, which simply states, there is not enough space available. New construction has been slow to come to the market and I think developers were hesitant to trust the Shale business was here to stay. All that is changing and I believe we will see more developments spring up throughout the region.”
CBRE has a special service line, the Energy Facilities Group (EFG), that works directly with shale oil and gas companies to help them locate office, warehouse, yard space and in some instances workforce housing in every shale play across the United States. Walker is currently working on four major developments to deliver industrial buildings as well as a multi-family development. In addition, the EFG team has already consulted with and placed over 300 companies in the Marcellus and Utica Shale plays. Walker added, “Many of our clients were located in Texas or Colorado, we helped them expand into the Marcellus and Utica Shale plays.”
The Top Global Destination Energy designation means more than just bragging rights. Pennsylvania’s diverse energy portfolio has helped to lower energy costs and create new jobs. Companies and manufacturers are arriving, building, expanding and branching out due to the Keystone state’s energy rebirth. Walker concluded, “The expanding shale oil and gas industry has brought tens of thousands of jobs and shows little sign of slowing down.” With proper management, Pennsylvania will be a key player in America’s quest for energy security.
"PA: Top Energy Destination," by Kristie Kubovic, Director of Communications, Shale Media Group, was published on September 2, 2014 at http://shalemediagroup.com. To read the full article online, please click here. Reprinted with permission from Shale Media Group.