Britain plans tax breaks for shale gas investment

LONDON Fri Jul 19, 2013 1:13pm BST

Britain's Chancellor of the Exchequer George Osborne speaks during the 'Lord Mayor's Dinner to the Bankers and Merchants of the City of London' at the Mansion House in London June 19, 2013. REUTERS/Oli Scarff/POOL

Britain's Chancellor of the Exchequer George Osborne speaks during the 'Lord Mayor's Dinner to the Bankers and Merchants of the City of London' at the Mansion House in London June 19, 2013.

Credit: Reuters/Oli Scarff/POOL

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LONDON (Reuters) - The British government unveiled what it described as the world's most generous incentives for shale gas on Friday, offering tax breaks to drive investment in a sector that has already transformed the U.S. energy market.

Finance minister George Osborne said the government wanted to create the right conditions in Britain for industry to unlock the potential of shale gas.

"This new tax regime, which I want to make the most generous for shale in the world, will contribute to that," he said.

The government is looking to shale gas to reduce Britain's reliance on natural gas imports and hopes it will also lower consumers' energy bills.

The British shale industry is still in its infancy, however. Experts say it is difficult to estimate how much shale could be developed commercially, and their estimates vary widely.

Utilities analyst Peter Atherton at Liberum Capital said the new tax allowance could attract more companies.

"It (shale exploration and production) is a tough thing for industry to do, costing from tens to hundreds of millions of pounds, and with a fair amount of technical risk and reputational aggravation in the early years," he said.


The proposed allowance for shale gas, subject to consultation for three months, would reduce the tax payable on income from shale production to 30 from 62 percent for oil and gas.

The tax break is based on existing allowances for oil and gas production aimed at supporting almost 14 billion pounds of investment next year.

Called the shale gas "pad" allowance, it would likely go into the finance bill next year and last for the lifetime of the shale well, a UK Treasury spokeswoman said.

British exploration firms IGas and Cuadrilla are at the exploration stage in shale gas, while other energy firms such as France's Total are watching developments with interest.

Shares in Alkane Energy PLC, which has extraction licences in the Bowland area, were up 4.6 percent at 40.4 pence at 1142 GMT, while IGas was 5.58 percent higher at 123 pence.

Shares in Centrica, which has a stake in one of Cuadrilla's exploration licences, was down 0.2 pence to 380.9 pence.

Shale gas is natural gas trapped in dense rock formations. The process of fracking, in which water and chemicals are pumped deep underground to break open the rocks, has led to fears it could cause earthquakes and contaminate drinking water.

Last month, the British Geological Survey estimated the rocks of the Bowland shale area in northern England held 1,300 trillion cubic feet of gas, double the amount previously forecast.

However, it is still uncertain how much gas can be extracted and how many shale wells developed.

A report by the House of Commons' Energy and Climate Change Committee said this week: "It is impossible to determine reliable estimates of shale gas in the UK unless and until we have practical production experience."

Experts say there should be a period of at least two years of exploratory drilling to see whether UK shale is a viable business.

Jenny Banks, energy and climate change specialist at WWF-UK, said encouraging more fossil fuel investment was at odds with tackling climate change.

To help placate local opposition to shale, the industry will have to provide communities near exploratory wells with 100,000 pounds sterling ($152,000) in benefits and 1 percent of the revenue from each production site, the government said last month.

($1 = 0.6579 British pounds)

(Editing by Jason Neely and Jane Baird)

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Comments (7)
ActionDan wrote:
That’s the last thing we need. The government which is slashing spending on all manner of other things decides to get cushy with business again and fund the destruction of the country.

If it’s not profitable, and it requires us to pump highly toxic chemicals into the ground at very high pressure, then why persist with it?

Jul 19, 2013 9:45am BST  --  Report as abuse
meolive wrote:
“…in a way that allows communities to share in the benefits”? What a massive load of horse s**t, as usual from Osborne. Presumably this is referring to the ‘bribe’ these companies pay to the locals so they won’t complain about the environmental damage caused, and other serious concerns including contamination of drinking water with carcinogens and potentially radioactive chemicals.

This is one industry that needs MORE regulation and controls in place (something even the US has recognised) not tax breaks to encourage these companies to move in before the risks have been properly assessed and mitigated.

Jul 19, 2013 11:03am BST  --  Report as abuse
Cynicalsam wrote:
If Osborne wants to hand out a stimulation TAX reduction, he need go no further than REDUCE the LABOUR inspired FUEL TAX ESCALATOR. give everyone a real boost and get the FUEL prices down. What do they do with this tax anyway? Give themselves an 11% payrise and massive pension which is indicative of the FAIR DEALS BEING GIVEN OUT!

Jul 19, 2013 12:41pm BST  --  Report as abuse
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