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LONDON (Reuters) - Britain's government approved its second-ever shale gas fracking permit on Thursday, overruling a local authority decision and boosting the country's position as Europe's most promising shale gas exploration ground.
Britain's Secretary of State for Communities and Local Government Sajid Javid gave the go-ahead for shale gas company Cuadrilla to carry out hydraulic fracturing, or fracking, at a site in northwest England.
The approval is only Britain's second since a moratorium on fracking was lifted in 2012 after Third Energy received the green light for a project in northern England in May.
Cuadrilla Chief Executive Francis Egan said further detailed plans have to be agreed with the local council, but that construction could begin at the site by the end of the year, with drilling and first fracking taking place in 2017.
"Gas from the site could start flowing into the grid in early 2018," he told Reuters.
Britain is estimated to have substantial amounts of shale gas trapped in underground rocks and the government wants to exploit it to help offset declining North Sea oil and gas output. It said the shale gas industry could create 64,000 jobs and help economic growth.
Britain, which will start procedures next year to leave the European Union, currently imports about half of its gas needs and that could rise to as much as 93 percent by 2040 without shale gas, according to some calculations, as offshore production wanes.
Despite government support, progress has been slow due to regulatory hurdles and public protests.
Environmental groups are concerned shale gas fracking could contaminate groundwater and that extracting fossil fuels is incompatible with the country's commitment to fight climate change.
Javid also said he was minded to approve a second Cuadrilla permit but has asked for further evidence on road safety.
Australia's AJ Lucas (AJL.AX) holds a 46 percent stake in Cuadrilla. Shares in London-listed shale gas company IGas (IGAS.L), the only other company currently waiting for permit approval, were up 12.5 percent at 1512 GMT.
The government's use of new powers to overturn a Lancashire County Council rejection of the permits shows its readiness to rule in favour of future fracking applications. The council rejected the permits in 2015 due to concerns about noise and traffic.
However, the market price for gas in Britain has dropped around 30 percent since Cuadrilla first lodged its application in 2014.
"The economics of shale extraction in the UK are still highly uncertain. The costs of UK shale will not be clearer until a significant amount of exploratory drilling takes place," said Jim Watson, director of the UK Energy Research Centre.
Egan said he is confident the fracked gas will be competative with the cost of imported gas, such as liquified natural gas (LNG) imported in tankers most commonly from Qatar.
Shale gas development has transformed the energy landscape in the United States and put it on the path to energy independence.
But exploration has been slow in Europe, where planning and environmental regulations are much stricter and space is scarcer.
Britain's progress on shale gas exploration means it is Europe's most promising shale gas nation after projects in Poland were unsuccessful.
"We hope that this decision will set a good precedent for the shale debate in other countries," said a spokesman for the Brussels-based International Association of Oil and Gas Producers.
Network operator National Grid said Britain could be forced to rely on other countries for 93 percent of its gas supplies by 2040 if it did not support domestic gas extraction, including shale gas.
Additional reporting by Kate Holton; editing by Susan Thomas and Alexandra Hudson