Image: Cabot Oil & Gas Corporation
Last July, Act 66, a tax credit program incentivizing the buildout of petrochemicals derived from dry natural gas in Pennsylvania, was signed into law. It’s being called a catalyst for significant job growth in Pennsylvania, as well as investments estimated at a minimum of $400 million.
Simply put, the act establishes the Local Resource Manufacturing Tax Credit program, which incentivizes the buildout of petrochemicals derived from dry natural gas in Pennsylvania.
“The bottom line is that Pennsylvania is blessed with an abundant resource of natural gas,” says George Stark, director, External Affairs for Cabot Oil & Gas. “We have the second largest deposit of natural gas in the United States, but other states are doing a much better job of attracting petrochemical plants to invest there. This legislation is a pronouncement to the U.S. and the world that Pennsylvania is a good investment.”
He says that, previous to Act 66, Pennsylvania lacked the incentives to entice companies to base their dry natural gas petrochemical production within the state. “Ohio does a tremendous job attracting energy business, as does West Virginia and, of course, Texas. Because of Pennsylvania’s corporate net income tax, road tax and employment tax, basing production here was not as attractive to businesses.”
Simply put, the act establishes the Local Resource Manufacturing Tax Credit program, which incentivizes the buildout of petrochemicals derived from dry natural gas in Pennsylvania. Specific industries include methanol, urea, ammonia and fuels and lubricants derived from natural gas. Hydrogen, nitrogen and helium can also qualify under the program.
To qualify for the tax credit, a company must:
If these conditions are satisfied, the qualified project receives a tax credit of $0.47 per mcf consumed at the facility, up to a max of $6.6 million per year. The qualified firm can claim this tax credit each year for 25 years, with a total value of the credit over 25 years of $165 million. The credits can be used to offset up to 20% of the qualified firm’s PA liabilities, and remaining credits can be sold through DCED to other PA businesses to offset up to 50% of the purchaser's PA liabilities. In fact, the language in the bill encourages the tax credit to be sold or transferred to downstream businesses that might use the petrochemicals as a feedstock to make another product in PA or to upstream businesses engaged in the extraction of dry natural gas in PA.
The act also promotes forward-thinking energy production. “The upside is that clean versions of energy will be utilized,” Stark says. He points to Shell’s Pennsylvania Petrochemicals Complex near Pittsburgh that focuses on zero waste and beneficial reuse. “These are the things that can be set up today to grow a much cleaner manufacturing tomorrow. There’s only one stratosphere, and it’s our job to protect it.”
Utilizing Pennsylvania’s dry natural gas resources, companies can produce ammonia, hydrogen, urea and methanol in low-carbon, geologically-minimal ways.
Stark says the act ties into President Biden’s “Build Back Better” plan for America’s workers. “This is the transition to create products here in Pennsylvania, and we need to do it now. This is the turning point.”
Perry Babb, chairman and acting CEO of KeyState Natural Gas Synthesis, testifying to the combined Major Policy Committee panel consisting of members of both the state House and Senate about the benefits of Act 66. Photo: PA Senate GOP
Senator Yudichak sponsored the legislation in the Pennsylvania Senate, where he chairs the Senate Community, Economic & Recreational Development Committee.
“Act 66 is the byproduct of a thoughtful, bipartisan compromise with Gov. Tom Wolf and the legislature that proves the government can deliver on the promise of economic opportunity and set the stage for transformative economic growth across a wide swath of industries from the construction trades to manufacturing and energy jobs,” Yudichak said.
“The upside is that clean versions of energy will be utilized. These are the things that can be set up today to grow a much cleaner manufacturing tomorrow."
When Perry Babb, chairman and acting CEO of KeyState Natural Gas Synthesis, testified to the combined Major Policy Committee panel consisting of members of both the state House and Senate, he echoed what Yudichak said. “Act 66 is a game changer for Pennsylvania because it demonstrates that there is state support for this kind of project that’s done responsibly.”
Babb’s company, KeyState, was the first company to step up to utilize the credits. KeyState has already begun development of a 7,000-acre, gas-ready site in Clinton County where low-carbon ammonia (urea) and a diesel exhaust treatment will be manufactured, and the process of carbon capture and storage will be perfected.
Image: Cabot Oil & Gas Corporation
“It’s our turn,” he said to the committee. “It’s Pennsylvania and Marcellus’s turn to produce gas and, yes, we can put it in a pipeline. But let’s make something with it that creates major, long-term jobs that have a major, long-term economic development. You know, Pennsylvania’s a green state. It’s green everywhere you look. But we could use some of that other kind of green as well, that permanent long-term jobs would create.”
“Agriculture is the biggest industry in this state, and we need ammonia in our fertilizer,” he adds. “Today’s ammonia is imported from overseas. We have an opportunity to build our economy, help our existing industries and get on an equal footing with other energy-rich states. We don’t need to be dependent on the foreign market to supply us with the things we need every day.”
Stark agrees. He says that the act “is a great equalizer.” “It puts us on par with the Gulf Coast in Texas, and with Ohio. It helps to offset the extra cost of basing an energy business in Pennsylvania.” He says that his job is to have conversations about how Pennsylvania can prosper.
“We help to connect the dots,” adds Stark. “The pandemic has shown us that we need PPE, hand sanitizer, plexiglass, valves, syringes. All of those things use petrochemical byproducts. And Pennsylvania’s workers’ best hope is jobs. Why not make those jobs happen here? Why not retool facilities within Happy Valley into manufacturing centers and make this county a leader in petrochemical manufacturing?”
“Act 66 is a game changer for Pennsylvania because it demonstrates that there is state support for this kind of project that’s done responsibly.”
Since Act 66 was signed into law last summer, Stark says they’ve seen an uptick in activity throughout the state. “We are working with a variety of companies and economic developers in northeast [and] north central regions as they look into site selection.” They anticipate the number to increase as more companies find out about the financial incentives to base their business in centrally-located Pennsylvania, where more than one third of the population of the U.S. is within a few hours’ drive.
And as the phones ring, they are already looking into the future. “Short term, companies are exploring their options in Pennsylvania, kicking the tires,” Stark says. “Five years down the road, dirt is being moved. There are jobs waiting for students when they graduate from technical programs. Ten years? The sky's the limit. Built properly, this will take off. Clean energy will be able to be produced. We will be able to compete in the hydrogen economy with Texas. These are all the things we are setting up today.”