Pennsylvania collected $174 million in impact fees from unconventional natural gas producers in 2023, a decrease from previous years because of lower natural gas prices and fewer wells, according to an estimate from the state’s Independent Fiscal Office (IFO).
The IFO last week issued the 2023 Impact Fee Estimate, which relies on preliminary natural gas production data from the state’s Department of Environmental Protection.
Natural gas output in the state was flat with 2022 production at 7.45 Tcf, according to the report. Revenue from producers, meanwhile, is estimated to have fallen by nearly $105 million from an all-time high of nearly $279 million last year.
Last year, however, was somewhat unique for natural gas prices. The energy crisis that erupted in Europe following Russia’s invasion of Ukraine triggered price spikes abroad and domestically as U.S. producers rushed to fill the gap.
IFO attributed most of this year’s drop in impact fees, which are a stand-in for severance taxes that are more common in other states, to lower natural gas prices. It cited a 58.8% decline in natural gas prices on the New York Mercantile Exchange, which has averaged $2.74/MMBtu in 2023, compared with $6.00 the prior year. IFO said the decline in natural gas prices had a negative impact on fees of about $84.1 million.
Appalachia Oversupplied
Baseload natural gas at the Texas Eastern (Tetco) M-2, 30 Receipt hub, which tracks gas flows westward out of Pennsylvania, has been trading sub-$2.00 since March of this year, according to NGI’s Bidweek Historical Data. For December bidweek, natural gas at the hub traded at $1.970, compared with $5.895 in December 2022.
“Appalachia natural gas prices are suffering from the time-honored formula of too much supply and not enough demand,” said NGI’s Patrick Rau, director of strategy and research. “We estimate U.S. Lower 48 dry gas production has been coming in steadily above 105 Bcf/d since early November. Compare that to the same period last year when production was more like 100 Bcf/d. That's an awful lot of excess gas to absorb.
“It certainly doesn't help that” Mountain Valley Pipeline LLC (MVP) has pushed back the in-service date of its 303-mile, 2 million dekatherm/day (Dth/d) natural gas conduit. Once it comes online, however, which may be as early as 2024, “MVP should help,” Rau noted.
Stagnant production is partially “the result of maintenance spending and capital discipline by the publicly traded exploration and production companies in the area,” Rau said. “But we believe the main driver is a lack of overall pipeline takeaway capacity in the region.”
Tetco flows at the Berne Compressor Station in eastern Ohio, for example, were elevated 121% of operational capacity late Tuesday, according to Wood Mackenzie (WoodMac) data. Enbridge Inc., which operates Tetco, issued an operational flow order to maintain the system. Scheduled volumes are up day/day by 51,000 Dth at the station as of late Tuesday, according to WoodMac data.
“Overall, we estimate Appalachia production is up less than 1% for all of 2023,” Rau said.
There were fewer wells drilled in Pennsylvania this year “than any other year since the impact fee’s inception,” IFO noted. There were 415 new horizontal wells drilled in 2023, versus 570 last year. IFO estimated that fewer wells had a negative impact on fees of $20.7 million in 2023.
Since they were enacted in 2012, impact fees have generated about $2.7 billion, according to the Marcellus Shale Coalition (MSC).
“While impact fee returns fluctuate alongside the natural gas market…Pennsylvanians are reaping the benefits of our natural gas abundance in the form of lower energy prices, cleaner air and significant economic benefits to the tune of $40 billion in 2022 alone,” MSC President David Callahan told NGI.
Active drilling rigs in Pennsylvania also are down. The state’s rig count finished the week ended Friday (Dec. 15) at 20 units, down by two from the same week last year, according to the latest tally from Baker Hughes Co.
