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Philadelphia area gas prices now averaging $3.72 per gallon

Tight supplies, increasing gas taxes and no benefit from instate shale oil
Tight supplies, increasing gas taxes and no benefit from instate shale oil
Paul J. Richards/AFP/Getty Images

Gas prices in greater Philadelphia now average $3.72 per gallon compared to $3.33 per gallon at the start of 2014 per the gasoline price tracking service, Gas prices throughout the greater Philadelphia and Delaware Valley areas remain above the national price average of $3.62 a gallon and well above neighboring New Jersey’s average of $3.46 a gallon. A difference of about .26 cents per gallon less in New Jersey compared to southeast Pennsylvania. Since January 2011, gas prices in the Philadelphia area have risen more than .70 cents per gallon, when prices averaged around $3.00 per gallon.

The latest Energy Information Administration (EIA) record show gas prices nationally rose for 12 straight weeks through late April, and are 20 cents a gallon higher than the same point last year. The EIA also expects gas prices to rise an additional 3 cents per gallon during the June to August period, the summertime vacation time period, compared with the same quarter last year.

Gasoline prices remain stubbornly high as the price of oil, unlike the recent declines in the price of natural gas, remains above $100 a barrel. This morning the market price for West Texas Intermediate crude opened at $102.52 per barrel and Brent Light at $109.30 per. Despite the numerous claims over the last several years of new and abundant supplies of U.S. domestic oil production from shales thru hydraulic fracking, such claims and production estimates have yet to have had the effect of driving down or even capping national gas prices even as shale oil and natural gas production is now more than 10 years old.

This reality is certainly true in Pennsylvania, home to one of the largest shale formations in the nation, the Marcellus Shale. Pennsylvania gas prices, now well above the national average, are not seeing any oil supply benefits coming from its Marcellus shale oil production. The Energy Information Administration’s May to June 2014 shale productivity report estimates for the entire Marcellus shale formation covering large areas of West Virginia and Pennsylvania, oil production will amount to around 42,000 barrels a day. At this rate, the Marcellus will only produce an estimated 15 million barrels of oil per year which would supply less than one day’s demand of the more than 22 million barrels a day of U.S. oil consumption.

Future prospects for increased growth of oil production from the Marcellus do not appear to be optimal. According to the latest estimates from the EIA, currently for every three thousand barrels of new oil production per day in Marcellus, aggressive depletion rates are now accounting for a two thousand barrel a day decline loss from older shale oil wells. This means the Marcellus Shale net gain in per day per barrel production is estimated to be slightly less than one thousand barrels a day.

The long term outlook for Pennsylvania gasoline prices do not appear to brighten any time soon. The Corbett Administration reorganized the state’s gasoline tax structure effective January 1, 2014 by shifting the state gasoline tax onto wholesale oil and gasoline companies. The state now plans to raise the gasoline tax rate per gallon on wholesale suppliers several times over the next four years and as tied to cost of a gallon of gasoline. Industry analysts’ expect these wholesaler tax increases to be passed directly onto Pennsylvania drivers. The state, which had the 15th highest state gasoline tax rate, now has moved to the 5th highest in the nation and may climb even higher.

Ironically Gov. Corbett put into law this new gasoline tax structure in response to Pennsylvania's failing roads and bridges throughout the state, many which have seen heavy and repeated damaging use from all the oil and gas companies’ driving massive amounts of heavy drilling equipment and frack water tankers in, around and out of the state to get at the Pennsylvania portion of Marcellus Shale formation. Traditionally oil and gas producing states have paid for such road infrastructure costs by maintaining a severance or extraction tax on oil and gas companies drilling within their states.

Gov. Corbett has to date not supported a Pennsylvania severance or extraction tax on oil and gas companies as these companies position they will reduce their operations within the state should such a tax be levied. However this has not occurred in other oil and gas producing states which have severance taxes in place such as Texas with more than a 100 year history of severance taxes.

With oil production remaining tight throughout the world and less than optimal prospects for shale oil production with the Marcellus formation along with aggressive future Pennsylvania state gasoline taxes to pay for its failing roads and bridges, Pennsylvanians can expect, as the familiar refrain goes, to pay more at the pump in the future.

Disclosure: The writer does not hold financial positions in any oil and gas exploration companies U.S. securities and/or stocks. He is not a member of any environmental or anti-fracking group nor is being paid to write by any of the entities or individuals listed in this article.

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