Shale gas to get tax breaks

LONDON Wed Mar 20, 2013 4:20pm GMT

An employee of European Gas Limited works on British company's coalbed methane exploration site outside Folschviller, eastern France, February 4, 2013. REUTERS/Christian Hartmann

An employee of European Gas Limited works on British company's coalbed methane exploration site outside Folschviller, eastern France, February 4, 2013.

Credit: Reuters/Christian Hartmann

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LONDON (Reuters) - Britain said on Wednesday it will introduce generous tax breaks for shale gas and tackle the nascent industry's public perception problem by making sure local communities benefit from resources found in their areas.

Finance Minister George Osborne said in his annual budget announcement he will introduce a new gas field tax allowance for shale gas, an industry that he expects can help kick-start Britain's stagnant economy.

"Shale gas is part of the future and we will make it happen," he said while delivering his 2013 budget in parliament.

Britain, Europe's largest gas consuming nation, lifted a ban on shale gas fracking in December and is counting on huge shale gas reserves to help cut its dependence on expensive gas imports and to contribute to state coffers.

In the United States, the discovery of abundant shale gas reserves has caused a plunge in gas prices and put the nation on the path towards energy independence.

However, environmental concerns regarding fracking, the technology which involves injecting water and chemicals to break rock formations and extract shale gas, and its potential to trigger earthquakes has led to growing public opposition.

Britain will now try to stem public concerns about shale gas by announcing proposals by this summer on how local communities will benefit from shale gas projects in their areas.

"While the finance directors of the developers might be quite keen on getting tax breaks, the PR and the local communities issues are probably the bigger hurdles for them to jump over and the government seems to be doing something to help that pressure," said Ben Stansfield, senior associate at law firm Clifford Chance.

CHALLENGES

It is common for other energy project developers, for example operators of onshore wind farms, to create funds for local communities.

IGas Energy (IGAS.L), a small company seeking a partner to help it explore for shale gas at its licences in northern England, said part of its challenges was educating people about the benefits of hydrocarbon extraction in their area.

"Most of the concerns are fears in advance, once people have actually seen things happening they're much more comfortable with it when they see what difference it can make locally," said Andrew Austin, IGas Energy's chief executive.

He also said he welcomed the government taking the lead on planning to align licensing and permitting processes at different levels.

In December, Britain established a dedicated office for shale gas as a single point of contact for the industry and it will be the body's responsibility to publish the local community benefit guidelines.

Another explorer focused on England's share reserves, privately-owned Cuadrilla, submitted at least 18 separate planning applications, local government data show, and has dealt with 31 British national planning policies to drill six exploratory wells.

Austin said clarity on planning issues would help make the sector more attractive to new investors.

The partnership of a bigger oil and gas firm with their financial firepower and technical know-how is seen as key to moving British shale gas from exploration to production.

"The UK is seen as a place where the government is supportive of shale gas and the appraisal and subsequent exploitation of it, so any amount of certainty that's given to people will obviously help them make the decision to invest," Austin said.

Environmental campaigners said using more gas in Britain's energy system was making it harder to meet legally-binding climate targets and that green energy projects should be supported instead.

"George Osborne needs to stop playing Britain's JR Ewing and instead back the shift to carbon free energy, which will create jobs and be cleaner, safer and cheaper over time," said Greenpeace Executive Director John Sauven.

(Editing by James Jukwey)

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