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Why Does Pennsylvania Insist on Offering Subsidies to Fracked Gas and Petrochemicals? The Industries Would Collapse Without Them

Harrisburg policymakers are, again, debating whether to give more taxpayer-funded handouts to the fracking and petrochemical industries. It continues a quiet truth about Pennsylvania’s so-called fracking miracle—without taxpayers padding industry profits, its presence in the Commonwealth would collapse. It’s high time we tell our elected officials to stop propping up the fracking and petrochemical industry in Pennsylvania and instead build a diverse, long-term sustainable economy. 

Earlier this month, state legislators approved House Bill 1100 which, if signed by the governor, would provide billions of dollars in taxpayer handouts over the next 30 years to a suite of petrochemical, plastics, and cracker plant facilities.

This isn’t a new idea. It is modeled after a $1.6 billion tax handout generously given to Royal Dutch Shell in 2012, which is underpinning the construction of a massive factory along the Ohio River in Beaver County that will turn fracked gas into plastics feedstock. Industry boosters argue the handout will support 600 permanent jobs on the site, meaning each job carries with it a $2.75 million subsidy paid for by all of us

That’s an astronomical price to pay for an amount of jobs that represents less than one percent of Beaver County’s total workforce of 81,000 people. It’s also an astronomical price to pay for an economically and environmentally unsustainable industry.

Natural Gas Industry Teetering on a Financial Cliff

It’s not hard to attain a clear picture of the financial woes facing the fracked gas and petrochemical industries and why they need a taxpayer bailout.

According to E&E News, the fracked gas industry is headed for a financial cliff because the initial generation of fracked wells are falling in productivity. In order for companies to grow and provide shareholders profits, they need to drill more wells in less ideal locations, increasing their costs for declining benefit.

This is having devastating impacts on fracking companies. According to a study by the Institute for Energy Economics and Financial Analysis, a group of 29 large shale gas companies in 2018 had their spending outpace reported income by $6.7 billion. From 2010 to 2018, those companies recorded a cash flow totaling negative $181 billion.

Since 2015, there have been 172 gas “exploration and production” company bankruptcies involving nearly a hundred billion dollars of debt, including 42 “E&P” bankruptcies in 2019. Given the massive wave of debt facing the industry, more bankruptcies are all but certain

Pennsylvania natural gas players are at the center of this financial cliff. In the largest write-down by an energy producer in years, Chevron reported recently it is cutting the value of several properties, notably its shale holdings in Appalachia, by more than $10 billion. According to the Wall Street Journal, this move represents a “concession that...some of its holdings won’t be profitable anytime soon.” 

More proof can be found in CNX Resources, a Washington County-based shale gas company that is writing down $446 million in assets in central Pennsylvania. The move means that oil and gas reserves in that area are no longer considered economic and will not be developed in the near future.

Perhaps most important is Pittsburgh-based EQT Corp., the largest fracked gas producer in the country. The company recently announced it will write down between $1.4 billion and $1.8 billion in assets. In total, EQT, Range Resources, and CNX have cut a combined total of more than 400 jobs since January 2019. 

Former EQT CEO Steve Schlotterbeck put it succinctly in June 2019 to a crowd of petrochemical industrialists that, “The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions.” Schlotterbeck ended, “The industry is self-destructive.”

Fossil Fuel Industries Require Taxpayer Handouts to Stay Afloat

It shouldn’t be a surprise then that fossil fuel companies like fracking and petrochemical companies require taxpayer handouts to be successful. And during the modern day history of these industries, federal and state governments on behalf of taxpayers have fronted that bill. 

Our federal government provides both direct and indirect subsidies to the fossil fuel industry at an alarming rate. According to a report from the Environmental and Energy Study Institute, conservative estimates put direct U.S. subsidies to the fossil fuel industry at about $20 billion per year, with about 80 percent of that allocated to the fracked gas and crude oil segments. 

The situation is similar in Pennsylvania. According to a PennFuture report, taxpayers provided more than $3.2 billion in fossil fuel subsidies during fiscal year 2012-2013, which equals $794 per Pennsylvania taxpayer. Approximately 92 percent ($3 billion) of these subsidies came in the form of tax breaks.

Adding billions more in state taxpayer largesse through House Bill 1100 would be more of the same for both the industry and Pennsylvania. In fact, groups like Shale Crescent USA and the PA Chamber of Business and Industry are pitching the so-called Appalachian Storage Hub—a sprawling, multi-state complex of petrochemical cracker plants, plastics manufacturing, compressor stations, pipelines, and underground storage facilities—as a sort of savior to the failing fracking industry. 

The so-called economic miracle of fracking is now being replaced by the promise of plastics, except the petrochemical industry requires the same subsidies and deregulation that the fracking industry did to stay afloat. We’re simply replacing one failing industry with another, both leaders in polluting our air, water, and climate.

Regions that Tie Their Economic Future to Subsidized Industries are in Trouble

Those pushing billions in subsidies to the industry frame them as necessary for economic expansion and prosperity in areas that desperately need both. Family-sustaining jobs are promised as our leaders shell out tax breaks and subsidies at an alarming rate to executives and shareholders. 

The problem with that thinking is that geographic areas that have linked their economic futures to fracked gas and petrochemicals are still experiencing population losses. For instance, from the period of 2010 to 2018, the Pittsburgh metropolitan area - which includes all of southwestern Pennsylvania, experienced a population loss of -1.4 percent.

In comparison, metropolitan areas that don’t link their economies to fracking and petrochemicals have done much better: Columbus, Ohio had its population increase by 13.1 percent, Lexington, Kentucky saw a 9.4 percent increase, and Indianapolis experienced a 5.7 percent increase. 

It’s clear the industry relies on government intervention to stay afloat, even in the face of statistics that show population and jobs losses in the areas where the industry is most prominent. One last example hammers home that point: like Pennsylvania, Louisiana offers generous taxpayer handouts to the fracked gas and petrochemical industries, but the state has lost 40,000 manufacturing jobs in the last 20 years. 

All of this information begs a question: if the industry is performing this poorly here and nationally despite taxpayer subsidies, where would it be without government intervention? And why are our leaders in Pennsylvania relying on such an unstable and uneconomic industry?

Pennsylvania Should Reject Fossil Fuel Subsidies Once and For All

This ongoing push for a bailout should put industry priorities in clear view: they’re trying to squeeze as much profit out of the state as they can before packing up and leaving Pennsylvania. Like the coal and oil barons before them, the fracking and petrochemical industries will leave taxpayers with debt, orphaned wells, brownfields, environmental clean-up, and an unstable economy.

Pennsylvania should reject the taxpayer bailout charade of House Bill 1100 and instead plan and invest in a more strategic, long-term sustainable, and environmentally positive economy that won’t put taxpayers and communities in harm's way.

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