WHEELING, W.Va. — A West Virginia think tank believes state leaders should increase severance tax rates for ethane and other natural gas liquids to discourage them from fueling out-of-state petrochemical projects, such as the proposed $5.7 billion PTT Global Chemical cracker in Belmont County.
However, West Virginia Oil and Natural Gas Association Executive Director Corky DeMarco believes such a concept may violate the portion of the U.S. Constitution commonly known as the Commerce Clause, which generally limits the authority of states to impose regulations on those from other states.
“West Virginia has a long history of relying on natural resource extraction to fuel our economy, but that reliance has recently resulted in the state shipping our most valuable resources out of the state to be developed,” Sean O’Leary, fiscal policy analyst with the West Virginia Center on Budget and Policy, said. “As we have seen with the booms and busts of the coal industry, this leaves behind an economy lacking diversity and development with not enough good-paying jobs.”
Think tank officials said West Virginia is struggling to create jobs for residents, even with the Marcellus and Utica shale boom. Indeed, WorkForce West Virginia statistics show the state’s unemployment rate is 7.6 percent, up from 6.4 percent at this time last year.
A new severance tax incentive, based on a higher rate for natural gas liquids, with a credit to related in-state industries, may encourage ethane cracking and other chemical manufacturing to create in-state jobs, the group believes.
The Mountain State now applies a 5-percent severance tax to dry natural gas, as well as to liquids such as ethane, propane, butane, isobutane and pentane. The policy center believes the state legislature should increase the rate on ethane and other liquids to anywhere from 10 percent to 15 percent, while offering to offset the increase if the liquids are processed at an in-state facility.
West Virginia officials have not given up hope that Brazilian petrochemical firm Odebrecht will build that company’s proposed ethane cracker in the Parkersburg area. As an in-state project, natural gas producers sending their material to this facility would pay the lower rate, according to the think tank’s plan.
Due to the current lack of an ethane cracker in the Marcellus and Utica region, many producers ship their ethane to other regions via pipeline for cracking. Moreover, directly across the Ohio River from Moundsville lies the spot on which PTT Global hopes to build its $5.7 billion plant.
“With little success, West Virginia has offered large tax incentives to encourage chemical-based manufacturing plants to locate in the state and use its natural gas liquids. Instead, companies pipe the liquids out of West Virginia to be used elsewhere, taking jobs and economic growth with them,” the think tank states.
DeMarco, however, is not sure the Center on Budget and Policy’s plan would be legal, even if it would be helpful.
“I think there could be some Commerce Clause problems with that theory,” he said. “Do you cause yourself other problems with things like that? We already pay high taxes.”
Regarding the potential PTT cracker, DeMarco said West Virginia would see some benefit from it by allowing residents to get jobs building the giant plant, or working there full-time when it would start operating.
“Would we love to have it in West Virginia? Absolutely. But, sometimes you don’t get everything you want,” he added of the ethane cracker.
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