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The Fracking Boom is a Fracking Bubble

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From Gas Pump
Gas Pump
(image by JeepersMedia)

by Walter Brasch

Gas prices have plunged to the low $2 range--except in Pennsylvania.

In Pennsylvania, the prices at the pump are in the mid-$2 range.

That's because Gov. Tom Corbett and the legislature imposed a 28-cent per gallon surcharge tax. Until 2019, Pennsylvanians will be paying an additional $2.3 billion a year in taxes and fees--$11.5 billion total--to improve the state's infrastructure. In addition to the increased tax on gas at the pumps, Pennsylvania motorists will also be spending more for license registrations, renewals, and title certificates.

For far too many years, the state's politicians of both major parties, preaching fiscal austerity--and hoping to be re-elected by taxpayers upset with government spending--neglected the roads, bridges, and other critical problems.

What the state government doesn't readily acknowledge is that much of the damage to roads and bridges has come from increased truck traffic from the fracking industry.

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The state roads, especially the section of I-80 that bisects the northern and southern halves of the state, were already in disrepair, as any long-haul trucker can attest. The addition of 40-ton fracking trucks on two-lane roads, highways and the Interstates, has added to the problem.

"The damage caused by this additional truck traffic rapidly deteriorates from minor surface damage to completely undermining the roadway base [and] caused deterioration of several of our weaker bridge structures," Scott Christie, Pennsylvania's deputy secretary of the Department of Transportation, told a legislative committee in 2010. Since then, the damage has increased in proportion to the number of wells drilled into the state. There are about 7,100 active gas wells in the state, with the cost of road repair estimated at about $13,000 to $25,000 per well. The fracking truck traffic to each well is the equivalent of about 3.5 million cars on the road, says Christie.

Although corporations drilling into Pennsylvania have agreed to fund repairs of roads they travel that have less than two inches depth of asphalt on them, the fees don't cover the full cost of repair. Had the state imposed an extraction tax on each well, instead of a much-lower impact tax, there would have been enough money to fund road and bridge repair without additional taxes for motorists. Every state with shale oil but Pennsylvania has an extraction tax.

Gov.-elect Tom Wolf, who supports fracking, says he wants the state to begin to impose those extraction taxes. The politicians, who benefitted from campaign contributions from the oil and gas industry, claim the industry--and all its jobs--will leave the state if the taxes are too high.

There are several realities the oil/gas industry knows, but the politicians, chambers of commerce, and those who believe everything politicians and corporations tell them don't know or won't publicly admit knowing.

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First--as long as it's economical to mine the gas, the industry won't leave the state, even if they have to pay a 5 percent extraction tax, which is at the low end of taxes charged by other states.

Second--the expected $1 billion in extraction tax per year, even if the legislature approves, should not be expected. The industry has already found most of the "sweet spots," and production will likely fall off in 2015, leading to less income to the state and to leaseholders.

Third--like a five-year-old in a candy shop, the industry salivated at the newly-found technology and gas availability and overdrilled the past four years, leading to a glut and falling prices. End of the year prices are about $3.17 per million cubic feet, down almost 30 percent from November.

Fourth--falling prices have led to drilling not being as profitable as it could be.

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Walter Brasch is an award-winning journalist and professor of journalism emeritus. His current books are Before the First Snow: Stories from the Revolution , America's Unpatriotic Acts: The Federal Government's Violation of (more...)

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