Pennsylvania budget and policymakers, including incoming Governor Tom Wolf, still hold out the hope of raising upwards of $1 billion a year in taxes from Marcellus shale fracking.

But the fracking industry they hope to tax soon may be shut down or drastically slowed by simple economics.

Fracking in Pennsylvania took off in the last four years as the price of oil hovered above $100 a barrel. In boom times the shale oil and gas industry in Pennsylvania wasn’t taxed much. Gov. Tom Corbett said he didn’t want to cripple the nascent industry.

It may now be too late for state coffers to see much, if any, tax income from the industry.

As most of us know from news reports, or by simply looking at the price of gasoline at the pump, oil prices have plummeted by 50 percent, to less than $50 a barrel. And it could well drop even lower, and stay low.

What does this mean for the fracking industry, not only in Pennsylvania, but around the world?

In late December 2014, Rystad Energy, a Norwegian energy-consulting firm, reported that the break-even price for U.S. shale fields had dropped to $58 a barrel of oil, while some fields remaining economical at $50. Below this price, fracking sites become economically unviable, and shut down.

We’re already there, and the price of oil is still falling. How much lower will it go? That depends on whether Middle East OPEC members cut their production. But that doesn’t appear likely anytime soon.

“If I reduce, what happens to my market share?” Saudi oil Minister Ali al-Naimi recently told the Middle East Petroleum and Economic Publication. “The price will go up, and the Russians, the Brazilians, U.S. shale oil producers will take my share.”

Other Middle East oil ministers have bluntly said they want to cut U.S. shale energy production.

“OPEC wants to crush U.S. Shale,” an industry site,, reported on January 14.

Elsewhere, reports already indicate a crippling slowdown in American fracking production, and a bleak road ahead.

“97 percent of fracking now operating at a loss at current oil prices,” the Daily Kos reported on January 6.

Helmerich & Payne, a provider of rigs for the industry, announced on January 7 that it planned to idle 50 rigs, shaking the industry, and Wall Street.

U.S. rigs are already being mothballed, and industry layoffs are planned, Bloomberg reported days later, on January 16.

With all this rapidly playing out on world economies, on Wall Street, and in the world press, Pennsylvania politicians and policymakers have been caught flat-footed, or apparently haven’t gotten the telegraph.

Or perhaps the telegraph is broken.

Just yesterday, on January 18, three professors at Carnegie Mellon University published an article in the Pittsburgh Post-Gazette titled, “Pennsylvania needs and can afford a shale gas severance tax.”

Such a tax on fracking production, which outgoing Gov. Tom Corbett long opposed, “would finance critical services and stimulate the economy while doing no damage to the natural gas industry,” the professors write.

The professors’ article is well reasoned, logical, and fiscally sound — had it been published four years ago. But they make no mention that the fracking industry is now imperiled in Pennsylvania, and elsewhere.

Gas severance taxes are based on either the volume, or the value, of the gas produced, or a mix of both. But if there is no gas produced, there is no tax.

And there soon may by much less gas and oil, if any, to tax.

Spot gas prices drastically fall, threatening shale gas

Gas is closely tied to oil production, and must compete with the price of oil, which is suddenly much less expensive.

The number of permits issued for drilling in Pennsylvania is already down. If capital isn’t invested to start new fracking sites, new wells won’t come on line.

“Shale gas wells face … swift depletion rates, so drillers need to keep plumbing new wells to make up for the shortfall at those that have gone anemic,” Bloomberg reported last April. “The best locations are usually drilled first, so as time goes by, drilling must move into areas of lower quality rock. The wells cost the same, but they produce less, so you need more of them just to offset decline.”

Bloomberg reported last April, “Even if gas prices climbed to $6 MMBtu (dollars per million BTU), (some experts) estimate that shale gas growth would last only another four years or so, at which point even-higher prices would be needed to maintain production, let alone keep it growing.”

Trouble is, with the glut of oil and falling energy prices, the price of natural gas last week was down to $2.90 MMBtu on the spot market, from a high of more than $8 MMBtu a year ago, and $4.5 MMBtu just last April.

“Very substantial (Marcellus shale gas) production gains over the past few years, especially compared with last year, combined with constrained pipeline takeaway capacity have boosted the supply of natural gas within the region,” reports the U.S. Energy Information Administration.

All this combines to cut the viability of producing gas from fracking.

It’s all governed by the Law of Supply and Demand, not the law of state legislatures.

Wolf at the door

During his primary campaign for governor, Democrat Tom Wolf supported a severance tax on shale energy production, saying the state’s budget could raise upwards of $1 billion a year with the new tax.

“If states like Texas, West Virginia and Oklahoma are able to charge a severance tax on gas extraction to fund key priorities, it’s time Pennsylvania does too,” Wolf wrote on his campaign website.

Wolf, “said that additional revenues generated by a severance tax could be used to fill a state budget deficit and make up for some of the cuts to education funding that the state has seen in recent years,” the industry website Natural Gas Intel’s Shale Daily reported last May.

But the world can change a lot in a few weeks, days, or hours.

Pennsylvania now has a projected $2.3 billion budget deficit, and Wolf — who will be sworn in this week –has declared a “budget fiscal emergency.”

Wolf’s transition team as late as last week still clung to the hope of filling the growing budget gap by raising $750 million to $1 billion from a shale severance tax, I’m told.

But those big numbers seem increasingly unlikely, and perhaps even delusional, due to current events on world energy markets.

The irony is, of course, that if Gov. Corbett had responsibly taxed shale energy production four years ago Pennsylvania schools and its state budget would be in much better shape, and there likely would be no fiscal emergency today.

This is an early lesson for Tom Wolf. Rapidly unfolding world events can easily outpace a bureaucracy, or a campaign staff.

A governor, hoping to control events, instead must respond to events beyond his control.