Development of a shale gas industry in the UK has been given a huge boost by tax allowances in UK Chancellor George Osborne’s autumn statement that are expected to lead to a boom in investment, creating many new jobs within the energy sector.
Similar tax breaks were made available for technically and commercially challenging offshore oil and gas developments in the past, successfully encouraging investments. Analysts predict that shale activity in the UK will soar following the news and other recent clear signs of government commitment to shale gas.
Shale developments will now be eligible for 75% allowances on the capital invested on projects and tax on part of companies’ profits will be cut from 62% to 30% as the government bids to kick-start development of a UK shale gas industry. The allowances make the UK’s shale gas tax regime the most competitive in Europe, and lower even than the United States where a shale gas boom is already under way.
The government wants a shale gas industry to improve the UK’s energy security as well as bringing down wholesale gas prices and household fuel bills. Estimates of the UK’s shale gas potential have been increasing recently, with some 1,300 TN cubic feet of gas thought to be available from the Bowland shale area in northern England alone, which could provide over 40 years gas supply for the UK if even only 10% of that were extracted.
The government recently moved to dampen protests against shale gas exploration by local communities by granting them £100,000 for every fracked well site exploration in their area and at least 1% of revenues during production.
The government has rejected fears generated by anti fracking campaigners that it would lead to earthquakes, could contaminate groundwater and allow methane gas to escape into the atmosphere.
Shale gas explorers such as Cuadrilla and IGas are expected to start drilling for shale over the next 18 months and industry analysts expect they and others will be encouraged by the tax moves.
UK Onshore Operators Group chief executive Ken Cronin said the incentives were a vital signal to the industry that the UK is serious about onshore oil and gas extraction. He said: “To build a strong industry which can contribute to the UK economy, the country needs the correct framework for operators, and that includes a clear signal that an appropriate and fair tax regime is in place that will incentivise the long term nature of investments. The Chancellor’s initiatives should be welcomed as they give that strong signal.”